STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 91-6054

)

JOHN THOMAS HOLMES, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter came on for hearing in Bonifay, Florida, before Robert T. Benton, II, Hearing Officer of the Division of Administrative Hearings, on July 10, 1992. The Division of Administrative Hearings received a partial hearing transcript on October 5, 1992.

APPEARANCES

For Petitioner: Joseph D. Mandt, Esquire

412 Larson Building

Tallahassee, Florida 32399-0300

For Respondent: Clifford L. Davis, Esquire

1105 Hayes Street

Tallahassee, Florida 32301

and

William B. Richbourg, Esquire

600 South Barracks Street, Ste. 105

Pensacola, Florida 32501 STATEMENT OF THE ISSUES

Whether petitioner should take disciplinary action against respondent for the reasons alleged in the administrative complaint?

PRELIMINARY STATEMENT

By administrative complaint dated August 23, 1991, petitioner alleged that respondent John Thomas Holmes was, at all relevant times, licensed in Florida as a health insurance agent, "an appointed agent of Georgia Life and Health Insurance Company . . . under the supervision of . . . general agent, Mr. Lee Langford"; that respondent "(o)n or about October 9, 1990, . . . did collect a cash premium payment in the amount of $208.20 . . . [and] did issue a receipt for $208.20 to Alvin M. Stewart in the name of Georgia Life," but did not "submit the aforementioned premium payment to [his] general agent as to the insurer "or return to Mr. Stewart, all in violation of Sections 626.561(1), 626.611(5), (7), (9), (10), and (13), 626.621(2) and (6), 626.521,

626.954(1)(o)1. and 626.9561, Florida Statutes; that respondent "(o)n or about November 18, 1990 . . . did collect . . . a cash premium payment in the amount

of $437.40 . . . [and] issue a receipt for $437.40 to Rubbin B. Beck in the name of Georgia Life" but "failed to submit the aforementioned premium to [his] general agent or to the insurer" or "return the aforementioned premium payment to Rubbin B. Beck," also in violation of the statutes cited above.

Respondent filed a petition for formal administrative hearing on September 13, 1991, which the Department of Insurance referred to the Division of Administrative Hearings for hearing, in accordance with Section 120.57(1)(b)3., Florida Statutes (1991).

FINDINGS OF FACT

1. Respondent John Thomas Holmes held a license issued by petitioner at all times pertinent. His appointment by Georgia Life and Health Insurance Company (Georgia Life) expired on February 13, 1991. Petitioner's Exhibit No. 1.

   
   

2. He acted as a general agent in Bonifay, Florida, for American Family Life Insurance Company of Columbus (American Family) as recently as January of 1990. His appointment by American Family expired on April 1, 1992. Petitioner's Exhibit No. 1.

   
   

3. In January of 1990, J.R. Lunsford, Sr. approached Mr. Holmes and suggested that Mr. Holmes contact older people to whom he had sold insurance, in an effort to sell them medicare supplement insurance issued by Georgia Life, which was less expensive than policies Mr. Holmes had written for American Family.

   
   

4. They decided that Mr. Holmes would make appointments with prospects, and that Mr. Lunsford (or both of them together) would try to sell substitute (or in some cases new) insurance policies. They agreed to split expenses and income fifty-fifty. Although he told Mr. Holmes otherwise, Mr. Lunsford was not authorized by Georgia Life to sell its insurance policies in January of 1990.

   
   

5. But Mary Nell Smith of Tallahassee, once a close friend of Mr. Lunsford's, was so authorized; and had agreed to write any Georgia Life policies Mr. Lunsford was able to sell. Only on March 1, 1990, did Mr. Lunsford gain official permission to act on behalf of Georgia Life in Florida. Respondent's Exhibit 2. Even then, he needed a general agent's endorsement, which Mary Nell Smith supplied.

   
   

6. Of the premiums Mr. Lunsford and Mr. Holmes collected, two-fifths had to be forwarded to Georgia Life under the agreement between Ms. Smith and the company. Ms. Smith retained some of the money she did not forward to Georgia Life: In keeping with an oral agreement with Messrs. Lunsford and Holmes, she was allowed $400.00 a month for her services and to cover expenses, including the expenses of xeroxing various forms and transmitting others to Georgia Life's office in Huntsville, Alabama.

   
   

7. At the suggestion of Messrs. Lunsford and Holmes, Ms. Smith met them Thursdays at Hardee's in Chattahoochee to settle accounts. In the restaurant she calculated the amount of commission their activities for the week had entitled the three of them to divide up. She offset chargebacks or the like against any monies otherwise payable to the men, then wrote them checks representing their shares.

8. Georgia Life differs from some insurance companies in requiring only that the general agent forward to the company the net premium (the premium less the agent's commission.) Georgia Life does not require that the entire premium be forwarded to the company, or that the company be the only source of commission payments to its agents.

   
   

9. Only rarely did Ms. Smith receive cash from Mr. Holmes or Mr. Lunsford. In the event either of them had received cash from an insured or an applicant for insurance, he ordinarily kept it and she treated it as an offset against the commission share she would otherwise have disbursed by check.

   
   

10. For a while, the enterprise went forward more or less to the satisfaction of the principals, earning some $47,000.00 for Mr. Holmes. But Mr. Lunsford and Ms. Smith insisted, after he was legally authorized to do so, that Mr. Lunsford sign the policies written for Georgia Life. This assured that any commission the company owed an agent on account of a renewal premium would be paid to Mr. Lunsford.

    
    

11. This circumstance and other matters of contention eventually caused the dissolution of the partnership between Mr. Holmes and Mr. Lunsford. Mr. Holmes felt he was entitled to more money. On September 28, 1990, Mr. Holmes told Mr. Lunsford that he wanted nothing further to do with either Georgia Life or Mr. Lunsford.

    
    

12. On August 30, 1990, Messrs. Lunsford and Holmes had persuaded Alvin M. Stewart of Marianna to buy a medicare supplement policy, Georgia Life No. 310872. Petitioner's Exhibit No. 2. At the time, he gave them $246.20 in cash, and they gave him a receipt for that amount. Petitioner's Exhibit No. 3. On the receipt Mr. Lunsford wrote "BAL. $208.20 DUE on DELIVERY if DESIRED." Id. This reflected the parties' understanding that Mr. Stewart could obtain a year's coverage by paying the difference between what he had already paid and the annual premium.

    
    

13. Properly accounted for by Mary Nell Smith, the appropriate fraction of the money collected from Mr. Stewart on August 30, 1990, went to the insurance company, which issued a policy originally written remain in effect for six months.

    
    

14. On October 9, 1990, Mr. Holmes stopped by Mr. Stewart's house and collected $208.20 from Mr. Stewart. On the receipt Mr. Lunsford had signed and given to Mr. Stewart on August 30, 1990, Mr. Holmes wrote "PD-10-9-1990." Petitioner's Exhibit No. 3. Mr. Holmes did not give the money he collected from Mr. Stewart on October 9, 1990, to Mr. Lunsford, despite his testimony to that effect at hearing. Instead he appropriated it to his own use.

    
    

15. On or about September 11, 1990, Messrs. Lunsford and Holmes had called on Rubbin B. Beck of Defuniak Springs. They induced him to execute an application for a Georgia Life medical supplement policy, No. 310956, Petitioner's Exhibit No. 7, and received a payment of $98.30 from him, representing an initial monthly premium payment and a $20.00 registration fee. Id.

    
    

16. After an accounting on or about September 13, 1990, Mary Nell Smith mailed Georgia Life a check for $1951.50, an aggregate sum which included half the registration fee and two fifths of the monthly premium Mr. Beck had paid two days earlier.

17. Later Mr. Lunsford and Mr. Holmes returned together to Mr. Beck's and received $354.20 from him. On October 4, 1990, Ms. Smith forwarded two fifths of this amount to Georgia Life with directions that the company "change to annual" the premium mode.

    
    

18. On or about November 18, 1990, respondent Holmes called on Mr. Beck. He went alone, and received $437.40 in cash from Mr. Beck, the amount of the final instalment on the annual premium. He signed a receipt for this amount which he left with Mr. Beck. Petitioner's Exhibit No. 5. Despite respondent's claim that he gave this money to Ms. Smith, the money never reached Ms. Smith, Mr. Lunsford or Georgia Life.

    
    

19. Mr. Holmes' misappropriations came to light after Messrs. Stewart and Beck received cancellation notices from Georgia Life and inquired of Mr. Lunsford regarding them. In each case, the policies were reinstated, and neither policy holder suffered actual damage.

    
    

    CONCLUSIONS OF LAW

    
    

20. Since the Department of Insurance referred respondent's hearing request to the Division of Administrative Hearings, in accordance with Section 120.57(1)(b)3., Florida Statutes (1990 Supp.), "the division has jurisdiction over the formal proceeding." Section 120.57(1)(b)3., Florida Statutes (1990 Supp.).

    
    

21. License revocation proceedings have been said to be "'penal' in nature." State ex rel. Vining vs. Florida Real Estate Commission, 281 So.2d 487, 491 (Fla. 1973); Kozerowitz vs. Florida Real Estate Commission, 289 So.2d

    391 (Fla. 1974); Bach vs. Florida State Board of Dentistry, 378 So.2d 34 (Fla. 1st DCA 1979) (reh. den. 1980). Strict procedural protections apply in disciplinary cases, and the prosecuting agency's burden is to prove its case clearly and convincingly. Ferris vs. Turlington, 510 So.2d 292 (Fla. 1987).

    See Addington vs. Texas, 441 U.S. 426 (1979); Ferris vs. Austin, 487 So.2d 1163 (Fla. 5th DCA 1986); Anheuser-Busch, Inc. vs. Department of Business Regulation,

    393 So.2d 1177 (Fla. 1st DCA 1981); Walker vs. State Board of Optometry, 322 So.2d 612 (Fla. 3rd DCA 1975); Reid vs. Florida Real Estate Commission, 188 So.2d 846, 851 (Fla. 2nd DCA 1966). A licensee's breach of duty justifies revocation only if the duty has a "substantial basis," Bowling vs. Department of Insurance, 394 So.2d 165, 173 (Fla. 1st DCA 1981) in the evidence, unless applicable statutes and rules create a clear duty, which the evidence shows has been breached.

    
    

22. Petitioner is authorized and required to "suspend, revoke, or refuse to renew or continue the license or appointment of any agent," Section 626.611,

    Florida Statutes (1991), whenever it can be proven that the agent is guilty of

    
    

    (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.

    
    

    Section 626.611, Florida Statutes (1991). Petitioner is authorized, but not required to "suspend, revoke, or refuse to renew or continue the license or appointment of any agent," Section 626.621, Florida Statutes (1991), whenever it can be proven that the agency 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.

    
    

    Section 626.621, Florida Statutes (1991). Petitioner has also alleged that respondent violated Section 626.9521, Florida Statutes (1991), which provides:

    
    

    No person shall engage in this state in any trade practice which is defined in this part as . . . an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance. . . .

    
    

    626.9541(1)(o)1, Florida Statutes (1991) defines deceptive acts or practices to include:

    
    

    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 acceptance of the risk by the insurer, by an insurance policy issued by an insurer as permitted by this code.

    
    

    The gravamen of petitioner's charge is that respondent collected premiums from Mr. Beck and Mr. Stewart which he had no intention of using to pay for their insurance, and did not use for that purpose. The statutes now on the books do not differ materially from those in force at the time of respondent's misconduct. See Solloway v. Department of Professional Regulation, 421 So. 2d 573 (3d DCA 1982) rev. den. 430 So. 2d 452 (Fla. 1983).

23. All premiums or other funds belonging to insurers received by a licensed insurance agent in transactions under his license are trust funds held by the licensee in a fiduciary capacity. Section 626.561(1), Florida Statutes (1991). The moneys Mr. Holmes collected from Rubbin Beck and Alvin M. Stewart were premium payments and, at least in part, fiduciary funds which belonged to Georgia Life. His failure to turn over the portion of Rubbin Beck's and Alvin

    M. Stewart's final premium payments that belonged to Georgia Life either to the company or to its general agent constituted misappropriation, conversion, and unlawful withholding of money belonging to an insurer, all in violation of Sections 626.561(1), 626.611(9)("dishonest practices in the conduct of business"), 626.611(10)("conversion or unlawful witholding"), 626.611(13)(willful violation of the insurance code), 626.621(2)(also willful violation of the insurance code), 626.621(6)(deceptive acts or practices), 626.9521 and 626.9541(1)(o)1, Florida Statutes (1991)("knowingly collecting any sum as a premium or charge for insurance which is not then provided").

    
    

24. Petitioner has proven its case by clear and convincing evidence, and has clearly and convincingly shown respondent's "lack of fitness or trustworthiness to engage in the business of insurance," Section 626.611(7), Florida Statutes (1991), and that he was, although not a source of actual injury and loss to the public, clearly guilty of deceptive acts, in violation of Section 626.621(6), Florida Statutes (1991).

RECOMMENDATION

It is, accordingly, RECOMMENDED:

That petitioner suspend any license it has issued that respondent now holds and deny any application for licensure or relicensure he may make for a period of three years.

DONE and ENTERED this 6th day of November, 1992, in Tallahassee, Florida.

ROBERT T. BENTON, II

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 6th day of November, 1992.

APPENDIX

Petitioner's proposed findings of fact Nos. 1, 3, 5, 7, 8, 10, 11, 13 and

14 have been adopted, in substance, insofar as material.

With respect to petitioner's proposed finding of fact No. 2, the payment also included a registration fee.

With respect to petitioner's proposed findings of fact Nos. 4, 6 and 12, sums Ms. Smith paid Messrs. Holmes and Lunsford were reduced by the amount she kept for herself.

Also with respect to petitioner's proposed finding of fact No. 6, the premium forwarded to Georgia Life was $141.68, not $212.52.

Respondent's proposed findings of fact Nos. 1 and 3 have been adopted, in substance, insofar as material.

With respect to respondent's proposed finding of fact No. 2, respondent's appointment by Georgia Life ended in February, but he had terminated the partnership the preceding September.

With respect to Respondent's proposed findings of fact Nos. 4 and 5 while Mr. Lunsford's testimony has not been credited in every detail, it was clearly and convincingly established that he never received the moneys in question.

COPIES FURNISHED:

Joseph D. Mandt, Esquire

412 Larson Building Tallahassee, FL 32399-0300

Clifford L. Davis, Esquire 1105 Hayes Street

Tallahassee, FL 32301

Don Dowdell, General Counsel Department of Insurance Division of Legal Services

412 Larson Building,

200 East Gaines Street Tallahassee, FL 32399-0300

Tom Gallagher, State Treasurer Department of Insurance and

Treasurer

The Capitol, Plaza Level Tallahassee, FL 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. 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.

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AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA OFFICE OF THE TREASURER DEPARTMENT OF INSURANCE

IN THE MATTER OF:

CASE NO. 91-L-322JDM

JOHN THOMAS HOLMES DOAH CASE NO. 91-6054

/

FINAL ORDER

THIS CAUSE came on before the undersigned Treasurer of the State of Florida, acting in his capacity as Insurance Commissioner, for consideration and final agency action. On August 23, 1991, an Administrative Complaint was filed charging Respondent with various violations of the Insurance Code. The Respondent timely filed a request for a formal proceeding pursuant to section 120.57(1), Florida Statutes. Pursuant to notice, the matter was heard before Robert T. Benton, II, Hearing Officer, Division of Administrative Hearings, on July 10, 1992.

After consideration of the evidence, argument and testimony presented at hearing and the subsequent written submissions by the parties, the hearing officer issued his Recommended Order. (Attached as Exhibit "A"). The hearing officer recommended that Respondent's license as a health insurance agent be suspended for a period of three (3) years.

The Department filed exceptions to the hearing officer's Written Report and Recommendation on November 13, 1992, within the 10-day period for filing exceptions. Fla. Admin. Code Rule 4-121.075(2); Fla. Admin. Code Rule 22I- 6.022.

RULINGS ON THE DEPARTMENT'S EXCEPTIONS

The Department's two exceptions address the hearing officer's recommended disciplinary action to be imposed against the Respondent. The hearing officer recommended that the Respondent's insurance license be suspended for a period of three (3) years.

The standards for imposition of license suspension are found in section 626.641, Florida Statutes. Subsection one of this statute states that the period of license suspension may not exceed two (2) years. Accordingly, by law, the maximum period of time for suspension of the Respondent's licensure that the hearing officer may recommend is two (2) years.

Section 120.57(1)(b), F.S., establishes that this agency has discretion to increase the recommended penalty of the hearing officer upon a review of the complete record, and with an articulation of the rationale for the increased penalty and the particular portion of the record that justifies that action. In Criminal Justice Standards and Training Commission v. Bradley, 596 So.2d 661 (Fla. 1992), the Florida Supreme Court acknowledged that:

Although hearing officers are entitled to substantial deference, they are judicial generalists who are trained in the law but not necessarily in any specific profession. The various administrative boards have far great expertise in their designated specialties and should be permitted to develop policy concerning penalties within their professions.

In his Recommended Order, the hearing officer found in his conclusions of law that the Respondent had violated sections 626.561(1), 626.611(7), (9), (10),

and (13), 626.621(2) and (6), 626.9521 and 626.9541(1)(o)1., Florida Statutes. The violations of Section 626.611, Florida Statutes, carry a mandatory penalty of suspension or revocation of licensure in case of violation of one or more of the provisions of this statute. In the instant case, there were two distinct instances where the Respondent committed a total of eight separate violations of Section 626.611, Florida Statutes. In addition, he was found to have committed two violations of Section 626.561(1), Florida Statutes, which prohibits the misappropriation or mishandling of fiduciary funds, and eight less severe violations of the insurance code, sections 626.621, 626.9521 and 626.9541, Florida Statutes, which impose a discretionary penalty of revocation or suspension.

It should further be noted that in his finding of facts and conclusions of law (paragraph nos. 19 and 23), the hearing officer determined that the Respondent had intentionally misappropriated the insurance premiums given him by Messrs. Beck and Stewart. The record clearly shows that this situation was not a case of an agent committing a fiduciary violation as a result of negligence, carelessness, or some clerical error.

The hearing officer noted in his conclusions of law (paragraph no. 24) that the Respondent was not a source of actual injury to the two consumers due to the fact that their Medicare supplement policies were not cancelled. However, a careful review of the record at hearing reveals that this was not due to any action by the Respondent. The record shows that the only reason Messrs. Beck and Stewart did not have their Medicare supplement policies cancel led was because of the diligent followup by James R. Lunsford and the decision by Georgia Life to honor their policies as if the company had received the final premium payments. Accordingly, the absence of injury to the insureds should not be considered as a mitigating factor in assessing a penalty.

The foregoing facts are sufficient in and of themselves to warrant the enhancement of the hearing officer's recommended penalty of suspension to that of revocation. Accordingly, based on the reasoning above, and based in particular on the record of these proceedings which support the hearing officer's conclusion that the Respondent is guilty of violation of subsections 626.611(7), and 626.621(6), Florida Statutes, the penalty recommended by the hearing officer is rejected as not being commensurate with the Insurance Code violations committed by the Respondent. That penalty should be increased to that of license revocation.

Upon consideration of the foregoing and the record and being otherwise fully advised of the premises, it is,

ORDERED:

1. The findings of fact of the hearing officer are adopted as the agency's findings of fact.

   
   

2. The hearing officer's conclusions of law are adopted as the agency's conclusions of law.

   
   

3. That the hearing officer's recommendation for suspension of licensure is rejected in accordance with the provisions of section 120.57(1)(b)10., Florida Statutes and Criminal Justice Standards and Training Commission v. Bradley, 596 So.2d 661 (Fla. 1992). Instead, revocation of the Respondent's licensure and eligibility for licensure is hereby imposed.

ACCORDINGLY, all insurance licenses and eligibility for licensure held by JOHN THOMAS HOLMES are hereby REVOKED.

Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to section 120.68, Florida Statutes, and Rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing a Notice of Appeal with the General Counsel, acting as the agency clerk, at 645 Larson Building, Tallahassee, Florida 32399-0300, and a copy of the same and the filing fee with the appropriate District Court of Appeal within thirty (30) days of rendition of this Order.

DONE and ORDERED this 22nd day of January 1993.

TOM GALLAGHER

Treasurer and Insurance Commissioner

COPIES FURNISHED:

ROBERT T. BENTON, II

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

CLIFFORD L. DAVIS, ESQUIRE

1105 Hayes Street

Tallahassee, Florida 32301

JOSEPH D. MANDT, ESQUIRE

Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0300

Docket for Case No: 91-006054

Orders for Case No: 91-006054