STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE AND ) TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 87-1363

)

WILLIAM JOHN HARNETT, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing in the above-styled matter was held on January 20-21, 1988, in Miami, Florida, before Joyous Parrish, a duly designated Hearing Officer of the Division of Administrative Hearings. The parties were represented at the hearing as follows:

APPEARANCES

For Petitioner: Richard E. Turner, Esquire

Office of Legal Services 413-B Larson Building

Tallahassee, Florida 32399-0300

(904) 488-4540

For Respondent: William L. Rogers, Esquire

1944 One Biscayne Tower

Two South Biscayne Boulevard Miami, Florida 33131

(305) 374-1133

BACKGROUND AND PROCEDURAL MATTERS

The Department of Insurance and Treasurer (Department) filed an Administrative Complaint against Respondent, William John Harnett, on January 26, 1987. This complaint charged Respondent with ten violations of Florda law based upon the factual allegations set forth in four counts. Count I of the Administrative Complaint alleged Respondent had violated one or more of the following described provisions of the Florida Insurance Code:

1. All premiums, return premiums, or other funds belonging to insurers or others received by an agent, solicitor, or adjuster in transactions under his license shall be trust funds so received by the licensee in a fiduciary capacity; and the licensee in the applicable regular course of business shall account for and pay the same to the insurer, insured, or other person entitled thereto. (Section 626.561(1), Florida Statutes);

   
   

2. Demonstrated lack of fitness or trustworthiness to engage in the business of insurance. (Section 626.611(7), Florida Statutes);

3. Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or permit. (Section 626.622(8), Florida Statutes);

   
   

4. Fraudulent or dishonest practices in the conduct of business under the license or permit. (Section 626.611(9), Florida Statutes);

   
   

5. Misappropriation, conversion, or unlawful withholding of monies belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license. (Section 626.611(10), Florida Statutes);

   
   

6. Violation of any provision of this code or of any other law applicable to the business of insurance in the course of dealing under the license or permit. (Section 626.621(2), Florida Statutes);

   
   

7. Failure or refusal, upon demand, to pay over to any insurer he represents or has represented any money coming into his hands belonging to the insurer. (Section 626.621(4), Florida Statutes);

   
   

8. In the conduct of business under the license or permit, engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited under part X of this chapter, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest. (Section 626.621(6), Florida Statutes);

   
   

9. No person shall engage in this state in any trade practice which is defined in this part as, or determined pursuant to 626.9561, to be an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance. Any person who violates any provision of this part shall be subject to the penalties provided in 627.381. (Section 626.9521, Florida Statutes); and

   
   

10. Any agent, solicitor, collector, or other person who represents any insurer or collects and does business without the authority of the insurer, secures cash advances by false statements, or fails to turn over when required, or unsatisfactorily account for, all collections of such insurer, shall, in addition to the other penalties provided in this act, be guilty of a misdemeanor of the second degree and, upon conviction thereof, shall be subject to the penalties provided by Sections 775.082, 775.083, or 775.084, Florida Statutes.

Counts II, III and IV realleged Respondent had violated one or more of the provisions set forth in Count I. The underlying factual basis for all counts related to final judgments for premium monies owed.

On March 5, 1987, Respondent filed an Answer to Administrative Complaint and Petition for Formal Hearing which denied the allegations of fact.

Respondent also filed a Motion to Dismiss which argued the actions or nonactions alleged in the Administrative Complaint pertained to corporate entities and not to the Respondent individually. This motion was renewed at the hearing and amended to include additional grounds for dismissal: res judicata, estoppel, and laches. An Order issued concurrent with this Recommended Order addresses the Motion to Dismiss.

On March 30, 1987, the case was filed with the Division of Administrative Hearing for formal proceedings.

At the hearing, the Department offered the testimony of Bob Stewart, the assistant chief of the Bureau of Licensing for the Department; Joanne Zeuner, accounting services administrator for the Division of Rehabilitation and Liquidation of the Department; and Ralph Wood, treasurer of Norfolk & Dedham Mutual Fire Insurance Company. The Department's exhibits 1 through 30 were admitted into evidence. The parties offered a joint exhibit which was received into evidence. Respondent testified on his own behalf and offered the testimony of one witness, Fred Harnett, president of Harnett, Inc.

The transcript of the proceedings was filed on March 7, 1988. The parties waived the requirements of Rule 22I-6.031, Florida Administrative Code, and requested an extension of the time within which to file a proposed recommended order. Such request was granted by order entered March 30, 1988, and the parties were given until April 18, 1988, to file their proposed findings of fact and conclusions of law. The Department filed a proposed recommended order which included findings of fact. Rulings on the Department's proposed findings of fact are included in the attached Appendix. The Respondent filed a Report & Recommendation together with a Memorandum of Law which did not set forth proposed findings of fact. Accordingly, no rulings are included for Respondent's submittal. However, all documents filed have been carefully considered in the preparation of this Recommended Order.

ISSUE

The central issue in this case is whether the Respondent is guilty of the violations alleged in the Administrative Complaint and, if so, what penalty should be imposed.

FINDINGS OF FACT

Based upon the testimony of the witnesses and the documentary evidence received at the hearing, I make the following findings of fact:

1. At all times material to allegations of the Administrative Complaint, Respondent, William John Harnett, has been licensed or been qualified for licensure as an insurance agent in the State of Florida. Respondent currently holds licenses for service lines insurance, debit insurance, ordinary life and health insurance, and general lines insurance (which is property, casualty, or surety).

   
   

2. The Department is charged with the administration of Chapter 626, Florida Statutes.

   
   

3. On December 15, 1975, the Department was appointed to serve as Receiver of Southern American Fire Insurance Company (Southern) . The purpose of this receivership was to seek the rehabilitation of the insurance company.

   
   

4. On February 10, 1976, Southern was determined to be insolvent pursuant to Section 631.011(3), Florida Statutes and the Department, as Receiver, obtained an Order of Liquidation. The Department was charged with the responsibility of marshalling the company's assets in order to settle the outstanding claims against it.

   
   

5. To this end, the Department filed civil suits against insurance agents and agencies which had allegedly failed to remit premium monies owed to Southern. One such suit was against Harnett, Inc., Respondent, and other individuals associated with Harnett, Inc.

6. From April 9, 1947 until November 14, 1986, Harnett, Inc. was a corporation organized under the laws of the State of Florida whose general business was insurance. Respondent served as the treasurer and a director for Harnett, Inc. Respondent was authorized to and did sign checks and correspondence on behalf of Harnett, Inc.

   
   

7. The Department's civil suit against Harnett, Inc. (Case No. 76-23143) was filed in Dade County on July 26, 1976. This suit claimed Harnett, Inc. had failed to remit premium monies owed to Southern and that Respondent, as an officer and director of Harnett, Inc. having direct supervision or control over individuals acting on behalf of Harnett, Inc., was personally liable for the amounts owed.

   
   

8. On March 6, 1981, a final judgment (Case No. 76-23143) was entered in favor of the Department as Receiver of Southern. This judgment found against Respondent and Harnett, Inc., jointly and severally, in the sum of $78,617.85. This judgment was affirmed on appeal. 1/ The Department has attempted to collect the funds awarded in this judgment.

   
   

9. From October 26, 1962 until November 14, 1986, Franklin Insurance Agency of Miami, Inc. (Franklin) was a corporation organized under the laws of the State of Florida. At all times material to this cause, Respondent was president and a director of Franklin.

   
   

10. On October 20, 1976, the Department as Receiver of Southern filed a civil suit against Respondent and Franklin. This suit (Case No. 76-32799) claimed monies were owed to Southern for premiums Franklin had failed td remit. Further, the suit alleged that Respondent, as Franklin's president and director, was personally liable for the refusal and continued refusal of Franklin to pay the premiums.

    
    

11. A final judgment was entered for the Department as Receiver of Southern in the Franklin suit on December 9, 1980. This judgment (case No. 76- 32799) provided for recovery against Franklin and Respondent, jointly and severally, in the sum of $35,983.39. The Department has attempted to collect the funds awarded in this judgment.

    
    

12. Gables Insurance Agency, Inc. (Gables), organized on November 28, 1967, continues as an active corporation in this state. At all times material to the allegations in the Administrative Complaint, Respondent was the sole officer and director for Gables.

    
    

13. Norfolk & Dedham Mutual Fire Insurance Company, Inc. (Norfolk) entered into Agency Agreements with Gables and Harnett, Inc. on February 1, 1976. Subsequently, Norfolk sued Harnett, Inc. (Case No. 84-03815) and Gables (Case No. 84-03816) for premium monies it was claimed to be owed. These suits resulted in final judgments in favor of Norfolk.

    
    

14. The suit against Harnett, Inc. (Case No. 84-02815) found the sum of

    $54,556.00 was owed to Norfolk.

    
    

15. The suit against Gables (Case No. 84-03816) found the sum of

    $18,843.20 was owed to Norfolk.

16. The four judgments identified herein (paragraphs 8, 11, 14 and 15) total $188,000.44 and remain unsatisfied. These judgments represent money damages owed for unpaid insurance premiums.

    
    

17. An applicant for licensure with outstanding judgments incurred during the course of doing the business of insurance would not be approved by the Department without a showing of restitution or rehabilitation. The Department deems such an applicant to be untrustworthy, incompetent, and not fit to become qualified and licensed in Florida.

    
    

18. Respondent offered no evidence of restitution or rehabilitation. Respondent maintained that no monies were owed by the respective debtor companies or Respondent individually.

    
    

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.

    
    

20. The correct standard for the revocation of a license, as in this case at issue, is that the evidence must be clear and convincing. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987). The Ferris court agreed with the district court in Reid v. Florida Real Estate Commission, 188 So.2d 846, (Fla. 2d DCA 1955), that:

    
    

    The power to revoke a license should be exercised with no less careful circumspection than the original granting of it. And the penal sanctions should be directed only toward those who by their conduct have forfeited their right to the privilege, and then only upon clear and convincing proof of substantial causes justifying the forfeiture.

    
    

    This elevated standard is necessary to protect the rights and interests of the accused where the proceedings implicate the loss of livelihood. Ferris at 295. This standard has been applied in the case at issue.

21. Section 626.611, Florida Statutes provides, in pertinent part: The department shall deny, suspend,

    revoke, or refuse to renew or

    continue the license of any agent, solicitor, or adjuster or the permit of any service representative, supervising or managing general agent, or claims investigator, and it shall suspend or revoke the eligibility to hold a license or permit of any such person, if it finds that as to the applicant, licensee, or permittee any one or more of the following applicable grounds exist:

    * * *

    1. Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

    2. Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or permit.

    3. Fraudulent or dishonest practices in the conduct of business under the license or permit.

    4. Misappropriation, conversion, or unlawful withholding of moneys belonging to insurers of insureds

       or beneficiaries or to others and received in conduct of business under the license.

       
       

22. Section 626.621, Florida Statutes provides, in pertinent part:

    
    

    The department may,, in its discretion, deny, suspend, revoke, or refuse to renew or continue the license of any agent, solicitor, or adjuster or the permit of any service representative, supervising or managing general agent, or claims investigator, and it may suspend or revoke the eligibility to hold a license or permit of any such person, if it finds that as to the applicant, licensee, or permittee any one or more of the following applicable grounds exist under circumstances for which such denial, suspension, revocation, or refusal is not mandatory under Section 626.11:

    * * *

    (2) Violation of any provision of this code or of any other law applicable to the business of insurance in the course of dealing under the license or permit.

    * * *

    (4) Failure or refusal, upon demand, to pay over to any insurer he represents or has represented any money coming into his hands belonging to the insurer.

    * * *

    (6) In the conduct of business under the license or permit, engaging in unfair methods of competition or in unfair or

    deceptive acts or practices, as prohibited under part X of this chapter, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest.

    
    

23. Section 626.561(1), Florida Statutes provides:

    
    

    Reporting and accounting for funds.

    (1) All premiums, return premiums, or other funds belonging to

    insurers or others received by an agent, solicitor, or adjuster in transactions under his license shall be trust funds so received by the licensee in a fiduciary capacity; and the licensee in the applicable regular course of business shall account for an pay the same to the insurer, insured, or other person entitled thereto.

    
    

24. Section 626.734, Florida Statutes, provides:

    
    

    Any general lines insurance agent who is an officer, director, stockholder, or employee of an incorporated general lines insurance agency shall remain personally and fully liable and accountable for any wrongful acts, misconduct, or violations of any provisions of this code committed by such licensee or by any person under his direct supervision and control while acting on behalf of the corporation.

    
    

25. The above-noted provisions have been in effect, in substance, at all times material to the allegations in the Administrative Complaint.

    
    

26. Section 626.9521, Florida Statutes provides:

    
    

    Unfair methods of competition and unfair or deceptive acts or practices prohibited. - No person shall engage in this state in any trade practice which is defined in this part as, or determined pursuant to s. 626.9561 to be, an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance. Any person who violates any provision of this part shall be

    subject to the penalties provided in s. 627.381.

    
    

27. Section 626.9541(1)(u), Florida Statutes provides:

    
    

    (u) False claims; obtaining or retaining money dishonestly. -

    1. Any agent, physician, claimant, or other person who causes to be presented to any insurer a false claim for payment, knowing the same to be false; or

    2. Any agent, solicitor, collector, or other person who represents any insurer or collects or does business without the authority of the insurer, secures cash advances by false statements, or fails to turn over when required, or satisfactorily account for, all collections of such insurer,

    shall, in addition to the other penalties provided in this act, be guilty of a misdemeanor of the second degree and, upon conviction thereof, shall be subject to the penalties provided by s. 775.02, s. 775.083, or s. 775.084.

28. Section 627.403, Florida Statutes provides: "Premium" define.-"Premium" is the

    consideration for insurance, by

    whatever name called. Any "assessment," or any "membership," "policy," "survey," "inspection," "service" or similar fee or charge in consideration for an insurance contract is deemed part of the premium.

    
    

29. In the case at issue the Department has failed to prove, by clear and convincing evidence, the following violations alleged in the Administrative Complaint: Sections 626.651(1), 626.611(9), 626.611(10), 626.621(2), 626.621(4), 626.621(6), and 626.9521, Florida Statutes. The Department has not shown that the acts complained of in Counts I-IV relating to the cited provisions were committed by Respondent.

    
    

30. However, the Department has proved that monies were owed by Harnett, Inc., Franklin and Gables for insurance premiums which were not paid to Southern and Norfolk. Norfolk's treasurer and the Department's accountant verified the amounts owed and the source of the debts. While the judgments have not been considered as proof of the underlying allegations against Respondent, Respondent has not adequately refuted the judgments or the debts. Nor has Respondent made restitution on the judgments entered against him individually. Further, it is clear the judgments represent monies owed as a result of engaging in the

    business of insurance. The Department has established that the judgments were rendered against corporations in which Respondent was an active principal (and, in one case, the sole officer). Accordingly, the Department has proved, by clear and convincing evidence, a pattern of conduct demonstrating a lack of fitness or trustworthiness to engage in the business of insurance in violation of Section 626.611(7), Florida Statutes. The Department has also shown that Respondent, by continuing a course of conduct exercised through more than one company, has demonstrated a lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or permit in violation of Section 626.611(8), Florida Statutes. Thus the Respondent is guilty of the above-cited sections as they are alleged in Counts I-IV.

    
    

31. In reaching the conclusions found herein the following case has been considered: Natelson v. Department of Insurance, 454 So.2d 31 (Fla. 1st DCA 1984).

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED:

That Department of Insurance and Treasurer enter a Final Order revoking the licenses held by Respondent, William John Harnett.

DONE and RECOMMENDED this 5th day of July, 1988, in Tallahassee, Florida.

JOYOUS D. PARRISH

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 5th day of July, 1988.

ENDNOTE

1/ Harnett, Inc. v. Department of Insurance, 432 So.2d 155 (Fla. 3rd DCA 1983). The Supreme Court of Florida declined to accept jurisdiction and denied a Petition for Review on October 17, 1983.

APPENDIX

Rulings on Petitioner's proposed Finding of Fact:

1. Paragraphs 1, 2, 3, 4, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19,

20, 23, 24, 25, 26, 27, 28, 19, 30, 31, 32, 33, 34, 35, 36, 39 and 40 are

accepted.

1. Paragraphs 5, 6 and 7 are rejected as unnecessary. The amounts claimed for premium money owed have been reduced to judgment. The judgment stands as the adjudication of the parties' interests regardless of what the contract sued upon provided. The time for further appeal having being since passed, the judgments remain as evidence of a debt.

2. Paragraphs 21 and 22 are rejected as unnecessary. See 2. above.

3. The first sentence in paragraphs 37 and 38 are accepted; otherwise, the paragraphs are rejected as supported by the evidence.

4. Paragraphs 41-43 are rejected as comment or argument. Respondent's explanation regarding the monies owed was self- serving and not credible. Regardless of the truth of the underlying allegation that Respondent failed to remit premiums, the judgments and his indifference evidence a lack of trust to engage in insurance. See Natelson v. Department of Insurance, 454 So.2d 31 (Fla. 1st DCA 1984).

5. With regard to paragraphs 44-45, it is accepted that Fred Harnett was the president of Harnett, Inc. and the Respondent's father. The balance is rejected as argument. However, see 5. above.

COPIES FURNISHED:

S. Marc Herskovitz, Esquire Office of Legal Services 413-B Larson Building

Tallahassee, Florida 32399-0300

William L. Rogers, Esquire 1944 One Biscayne Tower

Two South Biscayne Boulevard Miami, Florida 33131

Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Don Dowdell General Counsel

State Treasurer and Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Docket for Case No: 87-001363

Orders for Case No: 87-001363