STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE ) AND TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 91-2978

)

RUTH ANN WASHBURN, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held in Orlando, Florida, on December 19, 1991, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: James A. Bossart

Division of Legal Affairs Department of Insurance

412 Larson Building Tallahassee, Florida 32399-0300

For Respondent: Thomas F. Woods

Gatlin, Woods, et al. 1709-D Mahan Drive

Tallahassee, Florida 32308 STATEMENT OF THE ISSUE

The issue in this case is whether Respondent is guilty of, among other things, failing to account for an insurance premium and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

By Administrative Complaint filed April 4, 1991, Petitioner alleged that Respondent, who is licensed as a general lines insurance agent, sold an insurance policy and received the premium from the insured. The Administrative Complaint alleges that the insurer cancelled the policy for nonpayment of premium, but Respondent informed the insured that the cancellation was in error and that the policy remained in force. Respondent allegedly remitted the unpaid balance to the insurer, which returned the money because the policy had already been cancelled.

The Administrative Complaint alleges that Respondent then failed to deliver the returned premium to the insured, but instead continued to assure the insured that the insurance was in force. The Administrative Complaint alleges that the

insured suffered financial losses as a result of not having the insurance for which the insured had paid the premium.

Based on the above allegations, the Administrative Complaint alleges that Respondent failed to account for insurance premiums that she held in a fiduciary capacity, in violation of Section 626.561(1), Florida Statutes; committed wilful misrepresentation of an insurance policy, in violation of Section 626.6121(5), Florida Statutes; demonstrated lack of fitness or trustworthiness to engage in the business of insurance, in violation of Section 626.611(7), Florida Statutes; committed fraudulent or dishonest practices in the conduct of business under a license or permit, in violation of Section 626.611(9), Florida Statutes; misappropriated, converted, or unlawfully withheld moneys belonging to insurers or insureds and received in the conduct of business under the license, in violation of Section 626.611(10); wilfully failed to comply with, or wilfully violated, any order or rule of Petitioner, or wilfully violated any provision of Chapter 626, in violation of Section 626.611(13), Florida Statutes; violated a provision of Chapter 626 applicable to the business of insurance in the course of dealing under the license or permit, in violation of Section 26.621(2), Florida Statutes; engaged in unfair methods of competition or unfair or deceptive acts or practices, as prohibited by Part X, Chapter 626, or otherwise showed herself to be a source of injury or loss to the public or detrimental to the public interest, in violation of Section 626.621(6), Florida Statutes; knowingly made, directly or indirectly, a false material statement, in violation of Section 626.9541(1)(e)1., Florida Statutes; and knowingly collected a premium for insurance not then provided, or not in due course provided, subject to the acceptance of the risk by the insurer, in violation of Section 626.9541(1)(o)1., Florida Statutes.

By answer filed May 8, 1991, Respondent admits that, on or about July 21, 1987, she solicited and sold the subject commercial property damage and liability insurance policy, which was brokered through Dana Roehrig and Associates Inc. and placed with American Empire Surplus Lines Insurance Co. The answer admits that American Empire issued a policy on or about July 21, 1987.

Respondent admits that, on or about July 22, 1987, Respondent received a check in the amount of $1000 from the insured as a downpayment on the policy and she remitted the payment to Dana Roehrig and Associates Inc.

The answer admits that, on or about September 2, 1987, Respondent received from the insured the sum of $2885, which was the remaining balance due.

Respondent admits that, on or about October 29, 1987, American Empire cancelled the policy for nonpayment of premium. The answer admits that, on or about November 12, 1987, Respondent remitted to Dana Roehrig and Associates Inc. the sum of $3598.27, which included the remaining balance due on the subject policy. Respondent admits that Respondent's office received a refund of $2526.81 representing the unused premium on the cancelled policy, but denies that Respondent personally was aware of this fact.

The remainder of the answer alleges that a combination of a bookkeeping error and a breakdown in internal communications resulted in the cancellation of the policy. The answer also alleges that the loss later suffered by the insured would have been excluded from coverage under the policy in any event.

At the hearing, Petitioner called two witnesses and Respondent called one witness, herself. Petitioner offered into evidence nine exhibits and Respondent offered two exhibits. All exhibits were admitted.

The transcript was filed January 15, 1992. Respondent filed a proposed recommended order. However, the proposed order does not contain numbered paragraphs, as required by the undersigned at the conclusion of the hearing. Transcript, page 104. Respondent's proposed findings have been reviewed, but not ruled upon. Petitioner filed a proposed recommended order. All of Petitioner's proposed findings are adopted or adopted in substance.

FINDINGS OF FACT

1. Respondent holds a property and casualty insurance license, life and health insurance license, and life insurance license for the State of Florida. She has held her property and casualty license for about 20 years. In 1976, she was employed as an agent for the Orlando office of Commonwealth insurance agency, which she purchased in 1977 or 1978. She continues to own the Commonwealth agency, which is the agency involved in this case.

   
   

2. Respondent has never previously been disciplined. In 1979 or 1980, Respondent was appointed to the board of directors of the Local Independent Agents Association, Central Florida chapter. She has continuously served on the board of directors of the organization ever since. She served as president of the association until September, 1991, when her term expired. During her tenure as president, the local association won the Walter H. Bennett award as the best local association in the country.

   
   

3. Since May, 1986, Commonwealth had carried the insurance for the owner of the subject premises, which is a 12,000 square foot commercial block building located at 923 West Church Street in Orlando. In July, 1987, the insurer refused to renew the policy on the grounds of the age of the building.

   
   

4. Ruth Blint of Commonwealth assured the owner that she would place the insurance with another insurer. Mrs. Blint is a longtime employee of the agency and is in charge of commercial accounts of this type. Mrs. Blint was a dependable, competent employee on whom Respondent reasonably relied.

   
   

5. Mrs. Blint contacted Dana Roehrig and Associates Inc. (Dana Roehrig), which is an insurance wholesaler. Commonwealth had done considerable business with Dana Roehrig in the past. Dealing with a number of property and casualty agents, Dana Roehrig secures insurers for the business solicited by the agents. Dana Roehrig itself is not an insurance agent.

   
   

6. In this case, Dana Roehrig served as the issuing agent and agreed to issue the policy on behalf of American Empire Surplus Lines. The annual premium would be $5027, excluding taxes and fees. This premium was for the above- described premises, as well as another building located next door.

   
   

7. The policy was issued effective July 21, 1987. It shows that the producing agency is Commonwealth and the producer is Dana Roehrig. The policy was countersigned on August 12, 1987, by a representative of the insurer.

   
   

8. On July 21, 1987, the insured gave Mrs. Blint a check in the amount of

   $1000 payable to Commonwealth. This represented a downpayment on the premium for the American Empire policy. The check was deposited in Commonwealth's checking account and evidently forwarded to Dana Roehrig.

   
   

9. On July 31, 1987, Dana Roehrig issued its monthly

   statement to Commonwealth. The statement, which involves only the subject policy, reflects a balance due of $3700.86. The gross premium is $5027. The

   commission amount of $502.70 is shown beside the gross commission. Below the gross premium is a $25 policy fee, $151.56 in state tax, and a deduction entered July 31, 1987, for $1000, which represents the premium downpayment. When the commission is deducted from the other entries, the balance is, as indicated,

   $3700.86. The bottom of the statement reads: "Payment is due in our office by August 14, 1987."

   
   

10. No further payments were made by the insured or Commonwealth in August. The August 31, 1987, statement is identical to the July statement except that the bottom reads: "Payment is due in our office by September 14, 1987."

    
    

11. On September 2, 1987, the insured gave Commonwealth a check for

    $2885.16. This payment appears to have been in connection with the insured's decision to delete the coverage on the adjoining building, which is not otherwise related to this case. An endorsement to the policy reflects that, in consideration of a returned premium of $1126 and sales tax of $33.78, all coverages are deleted for the adjoining building.

    
    

12. The September 30 statement shows the $3700.86 balance brought forward from the preceding statement and deductions for the returned premium and sales tax totalling $1159.78. After reducing the credit to adjust for the unearned commission of $112.60 (which was part of the original commission of $502.70 for which Commonwealth had already received credit), the net deduction arising from the deleted coverage was $1047.18. Thus, the remaining balance for the subject property was $2653.68.

    
    

13. In addition to showing the net sum due of $944.59 on an unrelated policy, the September 30 statement contained the usual notation that payment was due by the 12th of the following month. However, the statement contained a new line showing the aging of the receivable and showing, incorrectly, that $3700.86 was due for more than 90 days. As noted above, the remaining balance was

    $2653.68, which was first invoiced 90 days previously.

    
    

14. Because it has not been paid the remaining balance on the subject policy, Dana Roehrig issued a notice of cancellation sometime during the period of October 16-19, 1987. The notice, which was sent to the insured and Commonwealth, advised that the policy "is hereby cancelled" effective 12:01 a.m. October 29, 1987.

    
    

15. It was the policy of Dana Roehrig to send such notices about ten days in advance with two or three days added for mailing. One purpose of the notice is to allow the insured and agency to make the payment before the deadline and avoid cancellation of the policy. However, the policy of Dana Roehrig is not to reinstate policies if payments are received after the effective date of cancellation.

    
    

16. Upon receiving the notice of cancellation, the insured immediately contacted Mrs. Blint. She assured him not to be concerned and that all would be taken care of. She told him that the property was still insured. The insured reasonably relied upon this information.

    
    

17. The next time that the insured became involved was when the building's ceiling collapsed in June, 1988. He called Mrs. Blint to report the loss.

    After an adjuster investigated the claim, the insured heard nothing for months. He tried to reach Respondent, but she did not return his calls. Only after

    hiring an attorney did the insured learn that the cancellation in October, 1987, had taken effect and the property was uninsured.

    
    

18. Notwithstanding the cancellation of the policy, the October 31 statement was identical to the September 30 statement except that payment was due by November 12, rather than October 12, and the aging information had been deleted.

    
    

19. By check dated November 12, 1987, Commonwealth remitted to Dana Roehrig $3598.27, which was the total amount due on the October 30 statement. Dana Roehrig deposited the check and it cleared.

    
    

20. The November 30 statement reflected zero balances due on the subject policy, as well as on the unrelated policy. However, the last entry shows the name of the subject insured and a credit to Commonwealth of $2717 plus sales tax of $81.51 minus a commission readjustment of $271.70 for a net credit of

    $2526.81.

    
    

21. The record does not explain why the net credit does not equal

    $2653.68, which was the net amount due. It would appear that Dana Roehrig retained the difference of $125.87 plus the downpayment of $1000 for a total of

    $1125.87. It is possible that this amount is intended to represent the earned premium. Endorsement #1 on the policy states that the minimum earned premium, in the event of cancellation, was $1257.

    
    

22. By check dated December 23, 1987, Dana Roehrig issued Commonwealth a check in the amount of $2526.81. The December 31 statement reflected the payment and showed a zero balance due.

    
    

23. The record is otherwise silent as to what transpired following the issuance of the notice of cancellation. Neither Mrs. Blint nor Dana Roehrig representatives from Orlando testified. The only direct evidence pertaining to the period between December 31, 1987, and the claim the following summer is a memorandum from a Dana Roehrig representative to Mrs. Blint dated March 24, 1988. The memorandum references the insured and states in its entirety:

    
    

    Per our conversation of today, attached please find the copy of the cancellation notice & also a copy of the cancellation endorsement on the above captioned, which was cancelled effective 10/29/87.

    If you should have any questions, please call.

    
    

24. Regardless of the ambiguity created by the monthly statements, which were not well coordinated with the cancellation procedure, Mrs. Blint was aware in late March, 1988, that there

    was a problem with the policy. She should have advised the insured, who presumably could have procured other insurance. Regardless whether the June, 1988, claim would have been covered, the ensuing litigation would not have involved coverage questions arising out of the cancellation of the policy if Mrs. Blint had communicated the problem to the insured when she received the March memorandum.

    
    

25. Following the discovery that the policy had in fact been cancelled, the insured demanded that Respondent return the previously paid premiums. Based on advice of counsel, Respondent refused to do so until a representative of Petitioner demanded that she return the premiums. At that time, she obtained a

    cashiers check payable to the insured, dated June 1, 1990, and in the amount of

    $2526.81. Although this equals the check that Dana Roehrig returned to Commonwealth in December, 1987, the insured actually paid Commonwealth $1000 down and $2885.16 for a total of $3885.16. This discrepancy appears not to have been noticed as neither Petitioner nor the insured has evidently made further demands upon Respondent for return of premiums paid.

    
    

26. The insured ultimately commenced a legal action against Commonwealth, Dana Roehrig, and American Empire. At the time of the hearing, the litigation remains pending.

    
    

    CONCLUSIONS OF LAW

    
    

27. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section

    120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

    
    

28. Petitioner is authorized to discipline the licenses of insurance agents. Section 626.611.

    
    

29. Section 626.611 provides that Petitioner "shall ... suspend [or] revoke" the license of a person who is guilty of:

    
    

    (5) Willful misrepresentation of any insurance policy or annuity contract or willful deception with regard to any such policy or contract, done either in person or by any form of dissemination of information or advertising.

    (7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

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

    2. Misappropriation, conversion, or unlawful withholding of moneys belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license.

    (13) Willful failure to comply with, or willful violation of, any proper order or rule of the department or willful violation of any provision of this code.

    
    

30. Section 626.621 states Petitioner "may, in its discretion, . . . suspend [or] revoke" the license of a person who is guilty of:

    
    

    (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.

    (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.

    
    

31. Section 626.561(1) requires:

    
    

    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.

    
    

32. Section 626.9541(1) defines as "unfair methods of competition and unfair or deceptive acts or practices":

    
    

    (e)1. Knowingly

    1. Filing with any supervisory or other public official,

    2. Making, publishing, disseminating, circulating,

    3. Delivering to any person,

    4. Placing before the public,

    5. Causing, directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public, any false material statement. (o)1. Knowingly collecting any sum as a premium or charge for insurance, which is not then provided, or is not in due course to be provided, subject to the acceptance of the risk by the insurer, by an insurance policy issued by an insurer as permitted by this code.

    
    

33. Section 626.681 provides:

    
    

    1. Except as to insurance agencies, if the department finds that one or more grounds exist for the suspension [or] revocation ... [of] any license or permit issued under this chapter, the department may, in its discretion, in lieu of such suspension [or] revocation . . . and except . . . when such suspension [or] revo- cation . . . is mandatory, impose upon the licensee or permittee an administrative penalty in the amount of $500 or, if the department

       has found willful misconduct or willful violation on the part of the licensee or permittee, $2500. The administrative penalty

       may, in the discretion of the department, be augmented by an amount equal to any commissions received by or accruing to the credit of the licensee or permittee in connection with any transaction as to which the grounds for suspension, revocation, or refusal is related.

       (3) The department may allow the licensee or permittee a reasonable period, not to exceed

       30 days, within which to pay to the department the amount of the penalty so imposed. If the licensee or permittee fails to pay the penalty in its entirety to the department at its officer in Tallahassee within the period so allowed, the licenses or permits of the licensee or permittee shall stand suspended

       or revoked . . . upon expiration of such period.

       
       

34. Section 626.691 provides:

    
    

    1. If the department finds that one or more grounds exist for the suspension [or] revoca- tion . . . [of] any license or permit issued under this part, the department may, in its discretion, except when an administrative fine is not permissible under s. 626.681 or when such suspension [or] revocation . . . is mandatory, in lieu of such suspension [or] revocation, or in connection with any admini- strative monetary penalty imposed under

       s. 626.681, place the offending licensee or permittee on probation for a period, not to exceed 2 years . . ..

       
       

35. Petitioner must prove the material allegations against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

    
    

36. The evidence is insufficient to establish that Respondent is guilty of any of the violations under Section 626.611. Ignoring any distinction between Mrs. Blint and Respondent, Petitioner nonetheless failed to establish any element of wilfulness or intent. Although Mrs. Blint is guilty of bad judgment in March, 1988, the evidence fails to establish that she was not acting in good faith. At worst, she appears to have been trying to restore coverage without informing the insured of the cancellation, so as to avoid embarrassment and possibly the loss of the business.

    
    

37. The closest question under Section 626.611 is demonstrated lack of fitness. Mrs. Blint's failure, coupled with the later failure of Respondent herself to return the insured's telephone calls and return the insured's money, do not exemplify model business practices. However, under the circumstances, Petitioner has not proved a demonstrated lack of fitness by the requisite standard of proof.

    
    

38. The failure to prove by the requisite standard wilfulness or intent precludes a conclusion that Respondent violated Section 626.9541(1)(e)1., which requires "knowing ..." communication of false material information.

39. Petitioner proved by clear and convincing evidence that Respondent knowingly collected the premiums from the insured. The language of Section 626.9541(1)(o)1. does not require knowledge or intent as to the failure of the insurer thereafter to issue the policy. However, the policy was issued following the collection of the premium. Section 626.9541(1)(o)1. does not address the present situation in which the agent actually causes the policy to be issued but, due to nonpayment of premium, the policy is later cancelled. At least where the cancellation is not retroactive to the beginning date of the policy, Section 626.9541(1)(o)1. is inapplicable. In this case, for example, the insured clearly had coverage for three months.

    
    

40. Petitioner proved by clear and convincing evidence that Respondent failed to account for trust funds received by her agency in a fiduciary capacity. As a fiduciary, she is held strictly liable for shortcomings in this area; wilfulness is not an element of this violation. This violation of Section 626.561(1) is grounds for discipline under Section 626.621(2).

    
    

41. A violation of Section 626.621(2) does not entail mandatory suspension or revocation. Thus, the lesser penalties under Sections 626.681 and 626.691 are available.

    
    

42. This is Respondent's first disciplinary violation in a long career in insurance. She has participated significantly in a trade association dedicated to the advancement of the profession. The failure here is one of omission, although the subsequent handling of the problem was less than exemplary.

    
    

43. There is evidence of a loss. However, the record does not permit a determination that the loss would have been covered even if the policy had been in force at the time of the occurrence. Nor does the record permit a determination of the

    extent to which Dana Roehrig may be responsible for the loss, if the policy would have provided coverage. The fact remains, however, that, although the contractual coverage question perhaps would have had to be litigated in any event, better handling of the matter would have precluded litigation to determine whether a policy was even in force at the time of the loss.

    
    

44. On balance, though, suspension or revocation would be an excessive penalty on these facts when considered in their entirety. Instead, Respondent should be fined the maximum of $500. This amount should be augmented, pursuant to Section 626.681(1), by the amount of the gross commission that accrued to the credit of Respondent. As noted above, the insured paid $3885.16 and Respondent returned only $2526.81., leaving a balance of $1358.35. The gross commission of

$502.70 is deemed to have been part of the sum omitted from the refund to the insured, so $502.70 may be added to the $500 administrative fine. In addition, Respondent's license should be placed on probation for one year.

RECOMMENDATION

Based on the foregoing, it is hereby recommended that the Department of Insurance and Treasurer enter a final order finding Respondent guilty of violating Sections 626.561(1) and, thus, 626.621(2), Florida Statutes, and, pursuant to Sections 626.681(1) and 626.691, Florida Statutes, imposing an administrative fine of $1002.70, and placing her insurance licenses on probation for a period of one year from the date of the final order. If Respondent fails to pay the entire fine within 30 days of the date of the final order, the final order should provide, pursuant to Section 626.681(3), Florida Statutes, that the probation is automatically replaced by a one-year suspension.

RECOMMENDED this 5th day of February, 1992, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 5th day of February, 1992.

COPIES FURNISHED:

Hon. Tom Gallagher

State Treasurer and Insurance Commissioner The Capitol, Plaza Level

Tallahassee, FL 32399-0300

Bill O'Neil, General Counsel Department of Insurance

The Capitol, Plaza Level Tallahassee, FL 32399-0300

James A. Bossart

Division of Legal Affairs Department of Insurance

412 Larson Building Tallahassee, FL 32399-0300

Thomas F. Woods Gatlin, Woods, et al. 1709-D Mahan Drive Tallahassee, FL 32308

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 91-002978

Orders for Case No: 91-002978