STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

OFFICE OF THE TREASURER, )

DEPARTMENT OF INSURANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 90-6614

)

CHARLES NEIL NEWMAN, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on February 1, 1991, in West Palm Beach, Florida, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: John C. Jordan, Esquire

Division of Legal Services Department of Insurance

412 Larson Building

Tallahassee, Florida 32399-0300 For Respondent: No appearance

STATEMENT OF THE ISSUE

The issue in this case is whether disciplinary action should be taken against the Respondent's insurance licenses based upon the alleged violations of the Florida Insurance Code set forth in the Administrative Complaint.

PRELIMINARY STATEMENT

On September 21, 1990, the Department filed a one count Administrative Complaint alleging that the Respondent, Charles Neil Newman, while employed as an insurance agent for Independent Life and Accident Insurance Company, (hereinafter referred to as "Independent Life" or the "Company"), misappropriated funds belonging to the company and converted the same to his own use and benefit. On October 10, 1990, the Respondent requested a formal proceeding pursuant to Section 120.57(1), Florida Statutes. The case was referred to the Division of Administrative Hearings which noticed and conducted the hearing.

The Notice of Hearing was sent to Respondent on November 20, 1990 at 2931 Southwest Brittle Circle, Port St. Lucie, Florida 33953. That is the address listed for Respondent on the Administrative Complaint. There is no indication that the Respondent did not receive the Notice and the Notice was not returned as undeliverable. On January 18, 1991, counsel for the Department again advised

the Respondent of the date and time for the hearing by letter sent via Federal Express. On January 19, 1991, the Department was advised by an employee of Federal Express that the Respondent signed a receipt for the delivery.

Therefore, it appears that Respondent received notice of the scheduled time and place. However, Respondent did not appear at the hearing. Since no correspondence or request for continuance had been received from Respondent, the hearing was held as scheduled.

At the hearing, Petitioner presented the testimony of two witnesses, Roy Young, District Sales Manager with Independent Life, and Anita Campbell, an agent with Independent Life and formerly the Staff Sales Manager with that Company.

The Department offered twelve exhibits into evidence, all of which were accepted. Exhibit 1 was a certified copy of records from the Bureau of Licensing reflecting the licenses held by the Respondent. Exhibit 2 was an excerpt from the agent's contractual agreement with Independent Life. Exhibits

3 through 9 were records reflecting shortages in various accounts managed by Respondent. Exhibit 10 was a copy of a termination report prepared by Independent Life and submitted to the Department. Exhibit 11 was a copy of an Independent Life accounting form documenting all shortages and Exhibit 12 was a letter written to the Respondent by an official of Independent Life demanding the payment of monies owed to the Company.

A transcript of the proceeding has been filed. The Petitioner has submitted a Proposed Recommended Order. A ruling on each the proposed findings of fact contained in that submittal is included in the Appendix attached to this Recommended Order.

FINDINGS OF FACT

1. Respondent is currently licensed in the state of Florida as life agent, health agent and life & health agent.

   
   

2. Pursuant to a contractual agreement executed by the Respondent on September 23, 1988, the Respondent was employed by Independent Life as a debit agent and remained employed with the Company from September 26, 1988, through April 5, 1989. His responsibilities with the Company included sales and servicing of accounts. The Respondent's duties included collecting premiums from customers either weekly or monthly for remittance to the Company. Respondent and the other agents were specifically instructed that collected premiums were to be remitted on a daily basis.

   
   

3. Independent Life agents were instructed that all premiums collected from insureds were to be recorded in the insured's premium receipt book. The agent was then required to record the collection on the Company's field accounting route list. The field accounting route list reflects the date the last premium payment was collected, the date the next premium is due, and whether the contract is on a monthly or weekly payment schedule. When a agent collects premiums from an insured on a different day than the date which is to be reflected on the field accounting route list, that information is recorded by the agent on a memo collection list. Finally, in those cases where an insured paid by mail, the payment was to be reflected on a mail pay receipt. Together, the mail pay receipt, the memo collection list and the field accounting list should reflect all payments recorded in the insureds' premium

   receipt book. In other words, the records contained in the premium receipt book should exactly balance the records which appear on the field accounting route list as supplemented by the mail pay receipts and memo collection list.

   
   

4. When accounts are audited by the Company, the sales manager compares the entries in the premium receipt books with the records reflected on the Company's field accounting route list, mail pay receipts and memo collection list. If there is a discrepancy, then the Company conducts an investigation to determine if there is a shortage.

   
   

5. Once a shortage has been discovered, it is recorded on the Company's balance due accounting form. This form reflects the shortages which occurred on each individual account. In addition, another balance due accounting form is prepared documenting all shortages on the agent's account.

   
   

6. On on about April 5, 1989, Respondent collected the sum of $4.72 from Diana Brown. This sum represented the insured's monthly premium payment. The payment was recorded in the insured's premium receipt book, but was not remitted by Respondent to Independent Life and/or reflected on the field accounting route list or on a memo collection list. Thus, the Respondent collected the sum of

   $4.72, which represented the insured's premium for a period of one month, and converted the same to his own use and benefit.

   
   

7. On or about December 8, 1988, the Respondent collected a monthly premium in the amount of $36.36 from Winnie Christopher. This payment of $36.36 was recorded in the insured's premium receipt book. However, only $27.27 was remitted to the Company and recorded on the Company's memo collection list.

   This evidence indicates that the Respondent misappropriated and converted to his own use and benefit the sum of $9.09 (which represented one week's premium payment by the insured.)

   
   

8. During the month of February, 1989, Respondent collected the sum of

   $24.30 from Donza Queen, which represented her premium payment for February and March of 1989. This payment was recorded in the insured's premium receipt book. However, the Respondent only recorded $12.15 in the Company's field accounting route list and that sum was the total remitted to the Company. Respondent has failed to properly account for the total amount collected for the account of Donza Queen and has unlawfully misappropriated and converted the same to his own use and benefit.

   
   

9. On or about December 8, 1988, the Respondent collected the sum of

   $27.41 from Georgia Curry. This sum, which represented the insured's monthly premium payments, was recorded in her premium receipt book. However, the field accounting route list prepared by Respondent for the week of December 5, 1988, did not reflect that this collection was applied to the insured's account.

   Thus, Respondent unlawfully misappropriated and converted to his own use and benefit the sum of $27.41 which should have been applied to the account of Georgia Curry.

   
   

10. During the month of January, 1989, Harold Timmerman mailed to Independent Life the sum of $31.71, which represented his premium payment for a period of three (3) months. Pursuant to Company procedures, the office staff recorded the above payment in the insured's premium receipt book, mailed the premium receipt book to the premium payer and issued a mail pay receipt to the Respondent to be applied to Mr. Timmerman's account. The Respondent failed to apply this money to the insured's account. As a result, the policy lapsed in

    January, 1989, for failure to pay the required premium. The insured was without coverage for a period of three (3) months until Independent Life discovered the discrepancy.

    
    

11. In January, 1989, the Respondent collected the sum of $18.43 from William Chambliss, which represented the insured's weekly premium payment. This collection was recorded in the insured's premium receipt book. However, the Respondent failed to apply the above payment to the insured's account. Thus, the Respondent unlawfully misappropriated and converted to his own use and benefit, the sum of $18.43 which should have been applied to the account of William Chambliss.

    
    

12. On April 4, 1989, the Respondent collected $23.80 from Claudia Hester. This payment was recorded in the insured's premium receipt book, but it was not remitted to the Company and/or reflected on the field accounting route list. Therefore, the Respondent misappropriated and converted to his own use and benefit, the sum of $23.80 which should have been applied to the account of Claudia Hester.

    
    

13. From September, 1987 to February, 1990, Anita Campbell was the Staff Sales Manager for Independent Life. Her duties as the Staff Sales Manager included, in part, assisting other agents who had difficulty collecting their debits. During a routine review of the Respondent's accounts, Ms. Campbell ascertained that the Respondent's arrears were very high and that collection percentages were very low. As a result and in accordance with her responsibilities as Staff Sales Manager, Ms. Campbell accompanied Respondent in the collection of his debit beginning the week of April 4, 1989. Although Ms. Campbell's purpose in accompanying Respondent on his debit route was to help him get his records in order, she soon determined that, in numerous cases, the insured's premium receipt books had been marked as reflecting the payment of premiums even though the premiums were not recorded on the Company's field accounting route list, memo collection list, or other company documents. Ms. Campbell unsuccessfully attempted to discuss this matter with the Respondent who became angry and threatened to walk off the job. On April 5, 1989, the Respondent did not return to work and he was subsequently terminated.

    
    

14. Ms. Campbell's responsibilities as Staff Sales Manager also included collecting affidavits from numerous insureds on Respondent's debit route to determine whether documented shortages existed. Her investigation uncovered numerous cases where Respondent collected money but failed to record the premium in the insured's premium receipt book. Some insureds who claim that they made their payments lost their coverage because there was no record of the payment so the Company was unable to give them credit. In other instances, payments were recorded in the premium payer's receipt book, but were not recorded in the Company's field accounting route list. Ms. Campbell completed a report regarding the numerous deficiencies and gave it to Mr. Roy Young, the District Sales Manger, who forwarded the information to the home office for further action.

    
    

15. An audit of Respondent's agency was conducted and revealed a deficit in the amount of $1,312.31. It appears that there may be additional shortages which can not be documented.

    
    

16. Independent Life recovered the sum of $878.88 by withholding the Respondent's last paychecks. However, there is still a documented shortage due and owing to the Company of approximately $433.43. In an effort to recover these funds, Mr. Thomas Hisle from Independent Life sent a demand letter to the

    Respondent dated June 14, 1989. That letter notified Respondent that $433.43 was due and owing to Independent Life. Respondent has failed to pay any portion of this outstanding balance owed to the Company.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties to this proceeding pursuant to Section 120.57(1), Florida Statutes.

    
    

18. Although the Administrative Complaint filed against the Respondent contains only one count, it alleges the violation of several different sections of the Florida Insurance Code. Respondent is charged with violating Section 626.561(1), Florida Statutes by failing to account for and/or properly apply premiums or other funds received under his license in the regular course of business. Respondent has also been charged with violating Section 626.611(4) by using his license to willfully circumvent the requirements or prohibitions of the Florida Insurance Code, and Sections 626.611(7), (8), (9) and (10) by demonstrating a lack of fitness or trustworthiness to engage in the business of insurance, by demonstrating a lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by his license, by engaging in fraudulent or dishonest practices in the conduct of business under the license, and by misappropriating, converting or unlawfully holding monies belonging to insurers or insureds and received in the conduct of business under the license. An established violation of any subsection of Section 626.611 requires that Respondent's licenses be suspended or revoked. The Administrative Complaint also charges Respondent with violating Sections 626.621(2), (4) and

    (6) by violating a provision of the Florida Insurance Code in the course of dealing under the license, by failing or refusing upon demand to pay over to any insurer money coming into his hands and belonging to the insurer and by engaging in unfair methods of competition or unfair and deceptive acts or practices or otherwise showing himself to be a source of injury or loss to the public or detrimental to the public interest. An established violation, Section 626.621 provides a discretionary basis for disciplinary action against Respondent.

    
    

19. The Petitioner has the burden to prove, by clear and convincing evidence, the violations of Chapter 626, Florida Statutes, alleged in the Administrative Complaint filed against the Respondent. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).

    
    

20. "Insurance is a business greatly affected by the public trust, and the holder of an agent's license stands in a fiduciary relationship to both the client and the insurance company." Natelson v. The Department of Insurance, 454 So.2d 31, 32 (Fla. 1st DCA, 1984). Section 626.561(1), Florida Statutes, provides that insurance premiums are trust funds held in a fiduciary capacity thereby creating an affirmative duty on the part of an agent to remit all premiums which are owing to insurers, insureds, or other persons lawfully entitled thereto.

    
    

21. From the evidence presented in this case, it is clear that Respondent collected premiums from numerous insureds totalling at least $1,312.31 and failed to remit those premiums to Independent Life in violation of Section 626.561(1), Florida Statutes and his agent's contractual agreement. The evidence also established that the Respondent collected premiums, recorded those premiums in the insured's receipt books and failed to properly account for those monies to the Company. In other instances, the Respondent collected premiums and failed to record the payment in the insured's premium receipt book. On at

    least one occasion, an insured was not credited with having paid his premiums and, as a result, lost his insurance. These actions by Respondent constitute a violation of Section 626.561(1), Florida Statutes, as well as several provisions of Sections 626.611 and 626.621 as discussed below.

    
    

22. The Department has demonstrated by clear and convincing evidence that Respondent violated Section 626.611(7), Florida Statutes. As noted above, Respondent collected premiums from insureds totalling approximately $1,312.00 and failed to remit that money to Independent Life. This misappropriation of insurance premiums evinces a lack of fitness on trustworthiness to engage in the business of insurance.

    
    

23. The misappropriation and conversion of insurance premiums is a violation of Section 626.611(10) and also constitutes a fraudulent and dishonest practice in the conduct of business under the license in violation of Section 626.611(9), Florida Statutes.

    
    

24. No evidence was presented to show that Respondent used his license to willfully circumvent the provisions of the Florida Insurance Code. Therefore, Petitioner has not demonstrated that the Respondent has violated Section 626.611(4), Florida Statutes.

    
    

25. No evidence was presented regarding Respondent's technical knowledge and competence. Thus, the Department has not demonstrated by clear and convincing evidence that Respondent violated Section 626.611(8).

    
    

26. The Respondent was duly notified by letter dated June 14, 1989, of his indebtedness to Independent Life in the amount of $433.43. Demand was made on the Respondent to remit that sum to the Company within ten days. Mr. Young testified that although the sum of $878.88 was recovered by withholding Respondent's last paychecks, the Respondent has refused to pay on demand the sum of $433.43 which is due and owing to Independent Life. Thus Respondent violated Section 626.621(4), Florida Statutes.

    
    

27. The evidence also established that Respondent violated the provisions of Section 626.621(2) and (6), Florida Statutes. Respondent's conduct of business under his insurance license was a deceptive act or trade practice and thereby injurious to the insurance buying public in violation of Section 626.621(6), Florida Statutes. It is also clear the Respondent has violated numerous provisions of the Florida Insurance Code thereby violating Section 626.621(2), Florida Statutes.

    
    

28. The extent of Respondent's misconduct was underscored by Anita Campbell who testified that numerous insureds believed their premiums had been paid in full when in fact they were not even given credit for the payment because money was never remitted to the Company or recorded in the insured's premium receipt book. In view of the numerous violations in this case, it is concluded that Respondent's licenses should be revoked.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department enter a Final Order revoking Respondent's licenses as an insurance agent in the State of Florida.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 3rd day of April, 1991.

J. STEPHEN MENTON Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of April, 1991.

APPENDIX TO RECOMMENDED ORDER

The Petitioner has submitted a Proposed Recommended Order. The following constitutes my rulings on the proposed findings of fact submitted by the Petitioner.

The Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in the Findings of Fact of Fact Number in the Recommended Order Where Accepted or

Reason for Rejection.

1. Adopted in substance in Findings of Fact 15.

   
   

2. Adopted in substance in Findings of Fact 16.

   
   

3. Rejected as unnecessary.

COPIES FURNISHED:

John C. Jordan, Esquire Division of Legal Services

412 Larson Building Tallahassee, Florida 34953

Charles Neil Newman

2931 S. W. Brittle Circle

Port St. Lucie, Florida 34953

Tom Gallagher

State Treasurer and Insurance Commissioner

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Bill O'Neill General Counsel

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-006614

Orders for Case No: 90-006614