STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF INSURANCE )
AND TREASURER, )
)
Petitioner, )
)
vs. ) CASE NO. 92-1476
) FIRST UNION MORTGAGE CORPORATION, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Mary Clark, held a formal hearing on the above- styled case on June 5, 1992, in Tallahassee, Florida.
APPEARANCES
For Petitioner Lisa S. Santucci, Esquire Department of Dennis Silverman, Esquire Insurance: Department of Insurance
Division of Legal Services
412 Larson Building
Tallahassee, Florida 32399-0300
For Respondent J. Thomas Cardwell Esquire First Union Virginia B. Townes, Esquire
Mortgage Akerman, Senterfitt & Eidson, P.A. Corporation: Post Office Box 231
255 South Orange Avenue Orlando, Florida 32802
STATEMENT OF THE ISSUES
A notice and order to show cause, issued to Respondent on January 15, 1992, seeks to terminate Respondent's grandfathered status under Section 626.988, F.S., and seeks to suspend or revoke Respondent's certificate of authority pursuant to Section 626.891, F.S.
Various violations are alleged, including expanding the scope of functions being performed on April 2, 1974; soliciting prospective insurance customers by placing enclosures and solicitations in First Union Bank customers' bank statements; adding resident life agents; and allowing an unlicensed individual to solicit applications of insurance in Florida.
The issues for resolution in this proceeding are whether the alleged violations occurred and if so, what discipline or remedial action is appropriate.
PRELIMINARY STATEMENT
Respondent replied to the order to show cause with a petition for formal proceeding pursuant to Section 120.57(1), F.S., and denied the material factual allegations of the order.
After referral to the Division of Administrative Hearings, the hearing proceeded as noticed.
Petitioner presented the following witnesses: William W. Tharpe, Jr.; Joseph G. Smith; Gail Connell and Donald A. Dowdell. Petitioner's three exhibits, A-C are, respectively, the declaratory statement file in case number DS-88-DS-OIWWT, the Respondent's application and licensure file, and the agency's investigative file. Exhibits B and C were received without objection; Exhibit A is received over objection as to relevance.
Respondent's witnesses were Charles M. Johnson and Peter Nagle. Exhibits number 1-5, 7, 21, 29 and 47 were received without objection. Also received by stipulation was an affidavit of Bruce W. Foudree and the model third party administrator statute attached to the affidavit.
After the hearing and the transcript's filing, both parties submitted proposed recommended orders. The findings of fact proposed by each are addressed in the attached appendix.
FINDINGS OF FACT
Respondent, First Union Mortgage Corporation (FUMC), is a North Carolina corporation with its principal place of business at 301 South Tryon Street, Charlotte, North Carolina. FUMC is a "financial institution agency" as defined in Section 626.988(1)(c), F.S.
FUMC is a wholly-owned subsidiary of First Union Corporation, a registered bank holding company with headquarters in Charlotte, North Carolina. First Union Corporation is also a financial institution as defined in Section 626.988(1)(a), F.S.
First Union National Bank of Florida, N.A., is a national bank authorized to do business in Florida and is a sister corporation of FUMC.
Until February 8, 1987, FUMC was known as Cameron Brown Mortgage Company. Under that name it had engaged in certain insurance activities in Florida since the late 1960's. When Cameron Brown became FUMC there was no change in ownership, affiliation or corporate structure. Before and after the name change the company was owned by First Union Corporation.
THE DECLARATORY STATEMENT
On April 2, 1974, Section 626.988, F.S., took effect, prohibiting insurance agents or solicitors licensed by the Department of Insurance (DOI) from engaging in insurance agency activities as employees, officers, directors, agents or associates of a financial institution agency.
The same section includes a "grandfather" provision for continued operation of financial institution agencies which were in existence and engaged in insurance agency activities as of April 2, 1974.
FUMC represented to DOI that it was entitled to the grandfather exemption for its pre-1974 insurance agency activities, and in February 1988, FUMC filed a petition for declaratory statement pursuant to Section 120.565,
F.S. for determination of its status.
After notice to FUMC and to the public, a proceeding on the petition was conducted on March 30, 1988 by a staffperson of DOI appointed as hearing officer.
On August 5, 1988, a declaratory statement was issued, and on September 2, 1988, an amended declaratory statement was issued. The latter statement finds in pertinent part:
First Union Insurance Group (formerly the insurance division of Cameron Brown Company) was engaged in insurance agency activities prior to April 2, 1974.
First Union Mortgage Corporation through First Union Insurance Group has continuously [word apparently deleted here] licensed agents and conducted insurance agency activities in Florida since and before April 2 1974.
The scope of insurance agency activities continuously conducted by First Union Mortgage Corporation has been limited to:
One life and health insurance agent, (Mr. Winifred Eugene Strickland), who served as an agent for the insurance division of Cameron-Brown Company while also serving as a salaried employee of American Heritage Life Insurance Company. Although Mr. Strickland apparently had one or more additional sub- agents involved in soliciting Cameron-Brown Customers, their involvement was sporadic and does not meet the test for "continuously
engaged" so as to entitle First Union Mortgage Corporation to more than one life and health insurance agent.
One non-resident property and casualty agent, (Charles Johnson). Mr. Johnson has been licensed as the successor agent for Mr. Hubert Reid Jones. Mr. Jones and Mr. Johnson sold, through countersignature relationships with Florida agents, property and casualty insurance prior and subsequent to April 2, 1974.
The solicitation and servicing of customers of Cameron-Brown Company (now First Union Mortgage Corporation) was the focus of its insurance agency activities.
. . .
(Petitioner's Exhibit A Pages 3-4)
The amended declaratory Statement also provides:
. . . But for application of the "grandfathering" provisions of Section 626.988(5), Florida Statutes, any insurance
agent or solicitor licensed by the Department of Insurance (the Department) would be prohibited from association with First Union Mortgage Corporation in insurance agency activities.
. . .
(Petitioner's Exhibit A Page 5)
The amended declaratory Statement concludes as follows:
. . .
Pursuant to Section 626.988(5), Florida Statutes, the Petitioner's subsidiary, First Union Mortgage Corporation, is entitled to continue to engage in insurance agency activities through First Union Insurance Group by utilizing one licensed non-resident property and casualty insurance (Class 9-20) and one licensed resident life and health insurance agent.
This recognition of grandfather status for Petitioner's subsidiary First Union Mortgage Corporation does not extend to Petitioner's subsidiary, First Union National Banks of Florida.
First Union Mortgage Corporation may solicit prospective insurance customers so long as neither the Petitioner, First Union Corporation, nor any subsidiary bank plays
an active role in such insurance solicitation through endorsements, bank mailings, providing space within bank offices, or similar activities.
. . .
(Petitioner's Exhibit A Pages 7-8) emphasis added.
CERTIFICATE OF AUTHORITY AS "THIRD PARTY ADMINISTRATOR"
In addition to its activities described in the amended declaratory statement, FUMC (then, Cameron Brown) was engaged in other insurance related activities prior to 1970. Under contracts with various life and health insurers Cameron Brown provided third party administrator services including receiving and reviewing applications, issuing policies, explaining and collecting premiums and accounting for and remitting premiums to the insurance companies.
The insurance companies with whom Cameron Brown contracted handled the actual solicitation and sale of the policies.
The contracts in effect in 1968, 1970 and 1978 between Cameron Brown and Minnesota Mutual Life Insurance Company were typical of the arrangements with other companies, according to Charles Johnson, Jr., retired vice president in charge of insurance agency operations at Cameron Brown. (Transcript, p. 102). As provided in the contracts with Minnesota Mutual Life Insurance Company, the administrative services were in connection with the mortgage insurance program made available by the insurance company to borrowers of Cameron Brown. (Respondent's Exhibits number 1, 2, 3).
This included borrowers in the State of Florida, although the services were being provided out of Cameron Brown/FUMC's principal offices in Charlotte, North Carolina.
Prior to 1983, when Chapter 626 Part VII, Florida Statutes was enacted, Florida did not regulate third party administrators as such. Section 626.8805, F.S. now requires a certificate of authority to be issued by the Department of Insurance (DOI).
On or about September 26, 1986, Cameron Brown applied to DOI for authorization to operate in the State of Florida as a third party administrator.
The application was prepared by Peter Nagle, senior vice-president of FUMC who had just recently joined what was then Cameron Brown. On the application, and later in October, in response to DOI's request for additional information, Nagle indicated that Cameron Brown had operated as an administrator of insurance plans since December 1983 and that the company was not providing such services on plans for Florida residents.
This information was an inadvertent error, primarily the result of Nagles unfamiliarity with the company's history. There is no evidence that the information was material to a determination of the company's eligibility for certification. Nor is there evidence of any scheme by the company to conceal its past practices at the time of application in 1986.
In its application Cameron Brown disclosed its affiliation with First Union Corporation, and further provided that First Union National Bank of Florida conducted only credit insurance activities in First Union Corporation locations in Florida.
DOI issued a certificate of authority for Cameron Brown to operate as an administrator in the State of Florida on October 14, 1986. The cover letter provides, "the certificate is perpetual and shows no expiration date contingent upon your annual filing, due March 1st". (Petitioner's exhibit B, p.17) Those annual filings have been made, and on May 18, 1987, the certificate of authority was reissued in the name of FUMC.
During the declaratory statement proceeding, the company's third party administrator status was never an issue. DOI never asked about, and FUMC never mentioned, the existence of its certificate or the company's insurance administration activities.
The staff of DOI involved in the declaratory statement proceeding did not know about their agency's grant of the certificate to FUMC. Their pique at FUMC"s failure to affirmatively raise the certificate issue, however, is misplaced in the absence of any evidence that the outcome of the declaratory statement would have been altered with that knowledge. At most, the staff can only say that their investigation would have been different had they realized that FUMC was providing insurance administration services.
INVESTIGATION AND ALLEGED VIOLATIONS
After the third party administrator certificate was issued, and after the amended declaratory statement was issued, sometime in 1989, DOI began investigating all financial institutions claiming grandfathered status under Section 626.988, F.S.
This included FUMC, and during a two day visit to the Charlotte, North Carolina headquarters, DOI staff, obviously other than staff involved in the certificate process, learned for the first time that FUMC was operating as an administrator of insurance plans. Even then this did not trigger further investigation of the administrator activities, as there was no evidence that the company was out of compliance with its amended declaratory statement.
Approximately a year later, in the summer of 1990, DOI's Bureau of Agent and Agency Investigations began receiving inquiries regarding Monumental General Insurance solicitations mailed to First Union Bank customers in Florida. Gail Connell, DOI Analyst II, opened her investigation. A few months later complaints were received from insurance agents who were also customers of First Union Bank regarding solicitations done by American Heritage Life.
The brochure from Monumental General sent to First Union Bank customers listed a toll-free number for the plan administrator, First Union Insurance Group, a division of FUMC. The mailing included letters from the president of Monumental General and the senior vice-president of First Union National Bank of Florida, with an enrollment form for a $1,000 no-cost accidental death group policy and optional additional coverage. Benefits and premiums for the additional coverage were explained in the brochure. A pre-paid postage reply envelope was addressed to "First Union Insurance Group, Plan Administrator, Attn: Daniel J. McPherson, Licensed Resident Agent, P. O. Box 2678, Jacksonville, Florida 32203-9851". (Petitioner's Exhibit C; pp. 157-163.) Daniel McPherson is not one of FUMC's grandfathered agents nor a successor to a grandfathered agent.
The American Heritage Life mailings were stuffed in bank statements of customers of First Union National Bank. These mailings included a simple check- off form for the customer to return for more information and for a personalized quotation for term life insurance. Some mailings indicated return to "C. Dennis Wiggins, Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203- 9851", and others required return to "Robert T. Jones, Sr. Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203-2678" (Petitioner's Exhibit C, p 141, 154).
Neither of these agents are FUMC's grandfathered agents or their successors.
The American Heritage mailings also included a toll-free number for information. Gail Connell called that number and was eventually connected to a person identified as Sheila Auten, an insurance specialist for FUMC in North Carolina.
Ms. Connell said to Ms. Auten that she was interested in more information about the term life policy addressed in the brochure. Ms. Auten asked questions about Ms. Connell's name, address, age, occupation and general health. Ms. Auten gave some history about American Heritage Life, estimated a premium for Ms. Connell, and offered to take her application over the phone. In response to Ms. Connell's question, she indicated that the completed application would be mailed to American Heritage Life in Jacksonville. Ms. Connell did not reveal her occupation as DOI investigator.
Ms. Connell said she needed to think about the decisions and asked Ms. Auten to mail her something. A few days later Ms. Connell received a brochure explaining the product, a premium rate sheet and an application form.
A few weeks later, when Ms. Connell did not return the application she received this letter from Sheila Auten:
Dear Ms. Connell:
Recently we sent you a proposal for term life insurance from American Heritage Life Insurance Company. I regret I have been unable to reach you by telephone to discuss it and answer any questions you may have.
This term insurance is one of the best values on the market today. You can be sure it will provide you with a high level of life insurance protection at a very competitive rate.
Once you decide to apply for this valuable insurance coverage, I would be happy to answer your questions or help you apply.
Don't delay. Call me now at 1-800-366-8703. (Petitioner Exhibit C, p. 176)
Ms. Auten is not licensed in Florida as an insurance agent or customer account representative. DOI considers it necessary for third party administrators to use licensed agents if they are engaged in solicitation of insurance.
Based on her investigation, including a review of the compensation paid to FUMC for its agency activities compared to its administrator activities, Ms. Connell concluded that FUMC was using its administrator status to perform functions beyond the scope of its amended declaratory statement. She also concluded that FUMC was using unlicensed agents (Sheila Auten) to solicit insurance. These conclusions form the basis for the allegations in the agency's Notice and Order to Show Cause issued to FUMC on January 15, 1992.
FUMC concedes that no grandfathered agent participated in the Monumental and American Heritage solicitations which triggered Ms. Connell's investigation. The two insurance companies solicit customers through direct mailings conducted by their licensed agents, which mailings go to customer lists provided by First Union National Bank of Florida or are enclosed in bank statements sent out by that institution. The bank has endorsed some of the products offered by the insurance companies.
Other than provide marketing advice to the insurance company, FUMC plays no part at all in the sending or preparation of the mail solicitations. The bank sends out its statements; the insurance company or its agent, unaffiliated with FUMC, sends the inserts to the place where the bank statements are prepared; and a machine stuffs the inserts.
The returned inquiry forms go to a Florida post office box, as indicated in paragraphs 18 and 19 above, and are forwarded to FUMC for its administrative support services. Those services include the further response to inquiries (as evidenced by Ms. Connell's encounter with Sheila Auten), review and approval of applications based on the insurance company's underwriting guidelines, entry into the administrative system, issuance of the policy and explanation to the customer, drafting the premiums out of the customer's account, and general servicing of the policy. These functions are consistent with administrator agreements between FUMC and Monumental General effective October 1, 1986; and FUMC and American Heritage Life effective November 1, 1989.
There is no evidence that FUMC has been subject to discipline in the past, has operated unprofessionally or has caused harm or risk of harm other than through what DOI asserts is the impermissible involvement of a financial institution in the insurance business. It is primarily its status as a financial institution that has resulted in this proceeding against FUMC.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to Section 120.57(1), F.S.
49. Because the department seeks to revoke Respondent's certificate as administrator and its grandfathered status, it must meet the elevated standard of proof adopted in Ferris v. Turlington, 510 So.2d 292 (Fla. 1987); that is, it must prove the violations alleged in its notice and order to show cause with evidence that is clear and convincing.
Those alleged violations include the conduct of activities and association of agents not grandfathered under Section 626.988, F.S. as described in an amended declaratory statement; violation of Sections 626.891(1)(b), (2)(a) and (2)(e), F.S., with regard to FUMC's certificate of authority as an administrator; and violations of Sections 626.051 and .071, F.S. regarding the employment of an unlicensed individual.
Section 626.988, F.S. provides in pertinent part:
626.988 Financial institutions; agents and solicitors prohibited from employment; exceptions.
For the purpose of this section, the following definitions shall apply:
. . .
"Insurance agency activities" mean the procurement of applications for, or the solicitation, negotiation, selling, effectuating, or servicing of, any policy or contract of insurance other than credit life insurance and credit disability insurance.
"Financial institution agency" means any person, firm, partnership, or corporate entity which is engaged in insurance agency activities, as herein defined, and is associated with, or owned, controlled, employed, or retained by, a financial institution as herein defined.
No insurance agent or solicitor licensed by the Department of Insurance under the provisions of this chapter who is associated with, under contract with, retained by, owned or controlled by, to any degree, directly or indirectly, or employed by, a financial institution shall engage in insurance agency activities as an employee, officer, director, agent, or associate of a financial institution agency.
. . .
The Department of Insurance shall not grant, renew, continue, or permit to exist any license as such agent or solicitor as to any applicant therefor or licensee thereunder if it finds that the license has been, is being or will probably be used by the applicant or licensee for any purpose prohibited by this section.
Notwithstanding any provision of this section, the Department of Insurance shall permit the continued operation under the same ownership and control of all financial institution agencies which were in existence and engaged in insurance agency activities as of April 2, 1974. To make possible such continuation; the Department of insurance may license agents and solicitors who are otherwise qualified, as successors to those agents and solicitors who are exempt from the provisions of this section and their successors, for so long as the specified financial institution agency continues to function as it was constituted on April 2, 1974. However, no agent or solicitor so licensed under this section shall be permitted to be employed, or controlled to any degree, directly or indirectly, by any financial institution agency except the particular agency for which he was so licensed as a successor for the purposes of this section.
. . .
(7) This section shall not apply to agents or solicitors who were engaged as of April 2, 1974, in activities prohibited by this section and who have been continuously so engaged since that date, but this exemption applies only with respect to the specific type of licensed held and the financial institution with which the agent or solicitor was associated on said date.
In a sense, both parties seek to repudiate the amended declaratory statement described in paragraph 7, above. DOI seeks to revoke it, and FUMC seeks to expand it. There is no authority for the former, and insufficient evidence for the latter.
The exemption contained in Section 626.988(5), F.S. exists by operation of statute and not by some grant of authority by DOI. The amended declaratory statement defines the scope of that exemption but does not confer it. There is nothing in Section 626.988, F.S. stating or suggesting that the exemptions may be "revoked".
Moreover, the prohibited association and activities described in Section 626.988, F.S. are directed to insurance agents or solicitors licensed by the Department, and not to financial institutions. Remedial action or discipline by DOI is taken against those agents' or solicitors' licenses as described in Section 626.988(4), F.S.
In this case, however, the department produced no evidence that the two agents specifically grandfathered under Section 626.988(5), F.S. are being utilized by FUMC for any functions not described in the amended declaratory statement. They are not, for example, involved in the third party administrator activities that were the subject of Ms. Connell's investigation. The agents involved were independent agents, according to the weight of evidence.
Those independent agents, and not FUMC's agents solicited insurance customers through the bank mailings for Monumental General and American Heritage Life. Paragraph (e) of the Amended Declaratory Statement reflected in paragraph 7, above was not, therefore, violated.
FUMC produced evidence in this proceeding that it was operating as a third party administrator well before April 2, 1974, and before a certificate was required for that function. It admits, and the evidence reflects, that the scope of its functions has increased over the years. For example, the agreements with Minnesota Mutual Life Insurance Company in effect in 1968, 1970 and 1978 related to mortgage insurance only, while the agreements with Monumental Life and American Heritage plainly relate to other lines or products of the companies.
In a broad sense, but not as to specific products, specific insurance agency customers, or specific employees, FUMC is functioning as it was constituted on April 2, 1974, as required in Section 626.988(5), F.S.
FUMC's status as a financial institution does not itself preclude its functioning as a third party administrator. If DOI has a policy to the contrary, it was not clearly explicated in this proceeding and DOI's certification of FUMC in 1986 would belie such policy.
In order to apply agency policy in a formal administrative hearing when that policy is not contained in a rule or in discoverable precedent, the agency must support its policy by expert testimony, documentary opinions or other competent evidence. Anglickis and American Heritage Realty, Inc. v. Department of Professional Regulation, Division of Real Estate. 17 FLW D324, 325 (2nd DCA 1/24/92).
The definition of "administrator" in Section 626.88, F.S., provides, in pertinent part:
For the purposes of this part, an "administrator" is any person who directly or indirectly solicits or effects coverage of, collects charges or premiums from, or adjusts or settles claims on residents of this state in connection with authorized commercial self- insurance funds or with insured or self- insured programs which provide life or health insurance coverage or coverage of any other expenses described in s. 624.33(1), other than any of the following persons:
. . .
(c) An insurance company which is either authorized to transact insurance in this state or is acting as an insurer with respect to a policy lawfully issued and delivered by such company in and pursuant to the laws of a state in which the insurer was authorized to transact an insurance business.
. . .
(e) An insurance agent licensed in this state whose activities are limited exclusively to the sale of insurance.
. . .
(emphasis added)
The activities of an administrator are similar to the activities designated "insurance agency activities" in section 626.988(1)(b), F.S., but the statute only prohibits insurance agents or solicitors associated with financial institutions from engaging in insurance activities, and does not mention administrators. The definition of administrator, cited above, distinguishes this person from an insurance company or insurance agent.
Nothing in Chapter 626, Part VII, F.S. providing for the regulation of insurance administrators precludes a financial institution from being certified.
The notice and order to show cause cites these grounds for revocation of FUMC's certificate of authority:
626.891 Ground for suspension or revocation of certificate of authority.
The certificate of authority of an administrator shall be suspended or revoked if the department determines that the administrator:
. . .
(b) Is using such methods or practices in the conduct of its business so as to render its further transaction of business in this state hazardous or injurious to insured persons or the public;
. . .
The department may, in its discretion, suspend or revoke the certificate of authority of an administrator if its finds that the administrator:
Has violated any lawful rule or order of the department or any provision of this chapter;
. . .
(e) At any time fails to meet any qualification for which issuance of the certificate could have been refused had such failure then existed and been known to the department;
There is no evidence whatsoever of hazardous or injurious practices by FUMC. DOI argues that Section 626.988, Florida Statutes, was created in the recognition that involvement of banks in insurance activities is per se
hazardous or injurious to the consumer. There is no competent evidence of that intent and no statute is cited by DOI to support an evidentiary presumption of such hazard or injury. No executive agency has the authority to create such presumptions. B.R. and W.C. v. Dept. of HRS, 558 So.2d 1027 (Fla. 2nd DCA 1989).
The order of the department alleged to have been violated is the amended declaratory statement. As discussed above, this order has not been violated by FUMC.
DOI also alleges violations of these provisions of Chapter 626, Florida Statutes, in FUMC's use of Sheila Auten to provide information to potential consumers:
626.051 "Life agent" defined.
For the purposes of this part, a "life agent" is one representing an insurer as to life insurance and annuity contracts. The term also includes an agent appointed as such as to life insurance, fixed-dollar annuity contracts, variable contracts, and health insurance contracts by the same insurer.
Except as provided in s. 626.112(7), with respect to any such insurances or contracts, no person shall, unless licensed as an agent:
Solicit insurance or annuities or procure applications; or
In this state engage or hold himself out as engaging in the business of analyzing or abstracting insurance policies or of counseling or advising or giving opinions to persons relative to insurance or insurance contracts...
626.071 "Solicitor" defined.
For the purposes of this code, a "solicitor" is an individual appointed by a general lines agent to solicit applications for insurance as a representative of the agent.
No person without being duly licensed and conforming to this code shall directly or indirectly represent himself to be the solicitor for any agent or agency, or as solicitor, to collect or forward any insurance premium, or to solicit, negotiate,
effect, procure, receive, deliver, or forward, directly or indirectly, any insurance contract or renewal thereof or any endorsement relating to an insurance contract.
Sheila Auten, as an employee of FUMC, was engaged in the company's services as third party administrator. The contacts with Ms. Connell did not clearly constitute soliciting insurance or procuring applications as an agent, and the Department did not prove that she or any other employee of FUMC was so engaged in this state. "Soliciting" is not defined in the statute or rules, and
the Department's interpretation to include the activity by Ms. Auten is not so commonly accepted as to put the certificate holder on notice as to what conduct may be proscribed. See, Rush v. Department of Professional Regulation, 448 So.2d 26 (Fla. 1st DCA 1984). The general nature of the contact initiated by Ms. Connell was the two-way exchange of information. Moreover, since the contacts were in furtherance of FUMC's function as an administrator, and since such functions, as defined in section 626.88, F.S. may include solicitation by other than insurance companies or agents, her activity is not clearly proscribed.
This activity is distinguished from those determined to be solicitation in National Federation of Retired Persons v. Department of Insurance, 553 So.2d 1289 (Fla. 1st DCA 1989). In that case, the appellant (NFRP) proposed to send out an informational pamphlet to its members, inviting them to inquire further of NFRP with respect to the availability of supplemental medicare insurance. The pamphlet indicated that NFRP had reviewed policies and described various highly attractive terms. The names of persons responding to the mailing were to be compiled in lists which would be sold to insurance companies. NFRP's activity more closely resembles the mail-out material provided to the bank customers by Monumental Life and American Heritage. It is uncontroverted that those mail-outs comprised solicitations.
The convoluted and confusing regulatory scheme of Chapter 626, Florida Statutes, has been acknowledged by the First District Court of Appeals in Dyer
v. Department of Insurance, 585 So.2d 1009 (Fla. 1st DCA 1991). That case also acknowledges the long-standing principles that an agency of the state is afforded wide discretion in interpreting statutes, yet penal statutes must be strictly construed in favor of the person against whom the penalty is being imposed. See, also, Fleischman v. Department of Professional Regulation, 441 So.2d 1121 (Fla. 3d DCA 1983), and Lester v. Department of Professional Regulation, 348 So.2d 923 (Fla. 1st DCA 1977). If, as theorized by the Department, FUMC has deliberately and deceptively fabricated a plan to circumvent the proscriptions of Section 626.988, Florida Statutes, the evidence in this proceeding has not "clearly and convincingly" exposed that plan. Nor, as discussed above, do the peculiar statutes relied on by the Department support the discipline it seeks to impose.
Based upon the foregoing, it is hereby
RECOMMENDED that the amended notice and order to show cause be dismissed. DONE AND ENTERED this 22nd day of October, 1992, in Tallahassee, Leon
County, Florida.
MARY CLARK
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 22nd day of October, 1992.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1476
The following constitute rulings on the findings of fact proposed by the parties.
Petitioner's Proposed Findings of Fact
Adopted generally in paragraph 1.
Adopted in paragraph 2.
Adopted in paragraph 1.
Adopted in paragraph 14.
Adopted in paragraph 6.
Adopted generally in paragraph 7, but the implied characterization of that order as establishing the only way that insurance activities might be conducted is rejected as discussed in the conclusions of law.
Rejected as irrelevant.
Rejected as an inappropriate characterization as a grant of exemption, as discussed in the conclusions of law.
Adopted in part in paragraph 7, but the characterization of the order as a permit is rejected. See paragraph 8, above.
Rejected as contrary to the evidence and law.
Rejected as improperly precluding the possibility of Respondent's later presenting evidence of other activities
in which it engaged as of April 2, 1974, if it is determined that third-party administrator status must also
be grandfathered in order to continue. This was not an issue in the prior proceeding.
Rejected as contrary to the evidence, as to deliberate concealment.
Adopted in paragraph 14.
Adopted in part, as to the first sentence. Otherwise, rejected as unsupported by the evidence.
Rejected as argument rather than proposed finding of fact.
Adopted in paragraph 12.
17-18. Adopted generally but Respondent's contention as to evidence in this proceeding is rejected, as provided in conclusions of law, paragraph 32.
19. Rejected as unnecessary. 20-27. Rejected as argument.
28-29. (not included in the filing).
30-33. Rejected as contrary to the weight of the evidence.
Adopted in paragraphs 20-22, except for the characterization of the activity as "soliciting".
Rejected as unsubstantiated by the evidence. This case establishes only that the department now interprets FUMC's administrator activities as solicitation, not that it is a policy supported by rule, procedure or reason.
Rejected as contrary to the evidence. The level of compensation did not establish the association the department theorizes.
Rejected as unsupported by the weight of the evidence. The response given by the witness on page 189 was a qualified, inconclusive response.
Respondent's Proposed Findings of Fact
Adopted in paragraph 1.
Adopted in paragraph 2.
Adopted in paragraph 7.
Adopted in paragraph 8.
Adopted in paragraph 3.
Included in Conclusions of Law.
Adopted in paragraph 11.
Adopted by implication in paragraph 11. 9-10. Adopted in paragraph 8.
11-14. Adopted in substance in paragraph 9.
15. Rejected as unnecessary. 16-17. Adopted in paragraph 12.
Adopted in paragraph 14.
Adopted in paragraph 12.
Adopted in paragraph 13.
Adopted in substance in paragraph 9, but there is no competent evidence that the same kinds of services were being provided since 1970.
Rejected as unnecessary.
Adopted in paragraphs 4 and 14.
Adopted in paragraph 7.
25-26. Adopted in substance in paragraph 6. 27-31. Rejected as unnecessary.
Adopted in paragraph 13.
Adopted in paragraph 15.
Adopted in substance in paragraph 7.
Adopted in paragraph 15. 36-37. Adopted in paragraph 7.
Addressed in Conclusions of Law.
Rejected as unnecessary and cumulative.
Adopted in paragraph 25. 41-42. Adopted in paragraph 26.
43-44. Rejected as cumulative and unnecessary.
45. Adopted in paragraph 26.
46-49. Adopted in paragraphs 20-22.
Included in Conclusions of Law.
Rejected as cumulative and unnecessary. 52-53. Adopted in paragraph 27.
COPIES FURNISHED:
Lisa S. Santucci, Esquire Dennis Silverman, Esquire Department of Insurance Division off Legal Services
412 Larson Building
Tallahassee, Florida 32399-0300
J. Thomas Cardwell, Esquire Virginia B. Townes, Esquire Akerman, Senterfitt & Eidson, P.A. Post Office Box 231
255 South Orange Avenue Orlando, Florida 32802
Tom Gallagher
State Treasurer and Insurance Commissioner
The Capitol, Plaza Level Tallahassee, Florida 32399-2152
Bill O'Neil General Counsel
Department of Insurance The Capitol, PL-11
Tallahassee, Florida 32399-0300
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
ALL PARTIES HAVE THE RIGHT TO SUBMIT TO THE AGENCY WRITTEN EXCEPTIONS TO THIS RECOMMENDED ORDER. ALL AGENCIES ALLOW EACH PARTY AT LEAST TEN DAYS IN WHICH TO SUBMIT WRITTEN EXCEPTIONS. SOME AGENCIES ALLOW A LARGER PERIOD WITHIN WHICH TO SUBMIT WRITTEN EXCEPTIONS. YOU SHOULD CONSULT WITH THE AGENCY CONCERNING ITS RULES ON THE DEADLINE FOR FILING EXCEPTIONS TO THIS RECOMMENDED ORDER.
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AGENCY FINAL ORDER
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STATE OF FLORIDA OFFICE OF THE TREASURER DEPARTMENT OF INSURANCE
IN THE MATTER OF:
CASE NO. 91-L-285LSS
FIRST UNION MORTGAGE CORPORATION DOAH CASE NO. 92-1476
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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 January 15, 1992, a Notice and Order to Show Cause was filed charging Respondent with various violations of the Insurance Code.
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 Mary Clark, Hearing Officer, Division of Administrative Hearings, on June 5, 1992.
After consideration of the evidence, argument and testimony presented at hearing, and subsequent written submissions by the parties the Hearing Officer issued her Recommended Order (attached as Exhibit A). The Hearing Officer recommended that the Notice and Order to Show Cause be dismissed. On November 2, 1992, Petitioner filed exceptions to the Recommended Order. On November 13, 1992, Respondent filed a Response to Department of Insurance's Exceptions to Recommended Order. On November 25, 1992, Petitioner filed a Motion to Strike Respondent's Response to Department of Insurance's Exceptions to Recommended Order. Based on a complete review of the record, including the original charging document, the transcript and evidence received at the hearing, the recommended order, Petitioner's exceptions, and the relevant statutes, rules and case law, I find as follows:
RULINGS ON PETITIONER'S EXCEPTIONS TO FINDINGS OF FACT
Petitioner first excepts to the Hearing Officer's Finding of Fact number 12, arguing that the incomplete and inaccurate, and for those reasons, misleading, information supplied to the Department by Respondent, First Union Mortgage Corporation, on its application for certification as a third party administrator in 1986 was not in fact "inadvertent," as found by the Hearing Officer, but was part of a "pattern of deceptive omissions" citing the failure of Respondent to disclose the extent of its TPA activities at the 1988 declaratory proceeding. This exception is rejected because the determination of the credibility of a witness is the sole prerogative of the trier of fact.
Note, however, that the missing information would have affected both Respondent's application for certification as a third party administrator and the content of the declaratory statement issued in 1988. See Second Additional Conclusion of Law, below.
Petitioner next excepts to the Hearing Officer's Finding of Fact number 13, regarding Respondent's inaccurate statement on its TPA application that it conducted only credit insurance activities in Florida, as irrelevant. This exception is rejected. Respondent's representation that its transaction of insurance was limited to credit insurance is relevant because it helps to clarify the Department's determination of Respondent's status. See First and Second Additional Conclusions of Law, below.
Petitioner next excepts to the Hearing Officer's Finding of Fact number 15, that the Department never asked about the company's "insurance administration" activities in the 1988 declaratory statement proceeding. This exception is accepted for the following reasons. The Hearing Officer is factually incorrect in her statement that the Department never asked about Respondent's TPA activities. As Petitioner's exception correctly notes, the Department asked about all of Respondent's insurance activities. (Dept. Exh. A., 51-52; 141-143; T 41-42; 48; 50; 65; 238) The Hearing Officer is also factually incorrect in her statement that there was no evidence indicating that the outcome of the declaratory proceeding would have been affected by knowledge of Respondent's TPA activities. Witness Dowdell, who has been intimately and continuously involved with the issue of financial institutions selling insurance since the mid-1970's and as the Department's chief policymaker, is uniquely qualified to state the Department's position, (T 171-181) clearly testified to the contrary (T 190-194, 204-205). Therefore, the exception is accepted because the Hearing Officer's Finding of Fact was not based on competent, substantial evidence and is in fact contradicted by the record.
Petitioner next excepts to the Hearing Officer's Finding of Fact number 23, regarding the necessity for TPA personnel engaged in the solicitation of insurance to be licensed. The Hearing Officer states that "DOI considers [emphasis added] it necessary" for such licensure. Petitioner interprets the Hearing Officer's use of the word "consider" to indicate that the Department has merely expressed an opinion which may or may not be entitled to much weight and on that basis takes exception. And on that basis, Petitioner's exception is accepted. Licensure is required by statute, specifically Section 626.041(2), for general lines agents (property/casualty); 626.051(2), for life agents; 626.062(2), for health agents; and 626.071(2), for solicitors. No interpretation is involved. This finding was therefore not based on competent, substantial evidence and was really more in the nature of a Conclusion of Law.
Petitioner next excepts to the Hearing Officer's Finding of Fact number 26, that the two insurance companies sending out inserts in bank statements are "unaffiliated." The exception is rejected, if the Hearing Officer is making the point that the insurance companies are not corporate "affiliates" of First Union Mortgage Corporation, as the term "affiliate" is used in Section 626.988(1)(a). However, Petitioner is correct in pointing out the existing contractual relationship, as evidenced by Respondent's own Exhibits 7 and 29.
Petitioner next excepts to the Hearing Officer's Finding of Fact number 27, primarily, it would seem, on the basis that the Finding of Fact is in fact a Conclusion of Law or that the Finding implies a Conclusion of Law, and that Petitioner finds that Conclusion of Law, in turn, exceptionable. The Hearing Officer is correct that Respondent has not been subject to discipline in the past. The Hearing Officer is not correct in the assertions that Respondent has not operated unprofessionally and that Respondent has not caused harm or risk of harm. The preceding sentence in this paragraph is based on the Rulings on Petitioner's Exceptions to Conclusions of Law in the next section, specifically regarding the conclusions that Respondent has used unlicensed persons to engage in the business of insurance and that Respondent has engaged in the business of insurance in violation of the limited exemption provided by Section 626.988(5), Florida Statutes. See paragraph 16, below.
FIRST ADDITIONAL CONCLUSION OF LAW
My complete review of the record in this matter has revealed that the Hearing Officer has not fully understood the statutory provisions which govern this case. Therefore, before addressing Petitioner's Exceptions to Conclusions of Law, I will review the applicable statutes, rules, and case law to present a clear outline of the law involved.
First, however, it is noted that the following facts are undisputed: That Respondent was engaged in TPA activities prior to 1974; that Respondent was, acting as a financial institution agency prior to 1974; that Florida did not require licensure as a TPA until 1983; that Respondent applied for licensure as a TPA in 1986; that Respondent represented on its TPA application that it sold only credit insurance; that Respondent was issued a certificate of authority in 1986 as a TPA; that in 1988 Respondent petitioned for a declaratory statement as to whether it was entitled to the limited exemption permitted by subsection (5) of Section 626.988; that the proceeding resulting in the Amended Declaratory Statement did not include any discussion or consideration of Respondent's TPA activities; that the Amended Declaratory Statement focused on a small number of insurance agents and their successors; that financial institutions are allowed to sell credit insurance; and that Respondent has increased the scope of its activities since 1974.
With this in mind, the statutory situation is as follows:
Section 624.401, Florida Statutes, requires persons transacting insurance in this state to be licensed and subsection (4) specifically makes it a felony to transact insurance without a license.
"Transacting insurance" is defined in Section 624.10, Florida Statutes, and includes solicitation, negotiation, effectuation of a contract, and transaction of those matters which arise out of the contract. As a matter of law, this means that the following activities are included in "transacting insurance:" calling on people at their homes or places of business; sending letters or advertisements, or otherwise communicating regarding specific premium amounts or other details of coverage; taking applications; issuing contracts; billing premiums; collecting premiums; investigating and adjusting claims; paying claims; denying claims; litigating claims; cancelling or nonrenewing policies.
Section 626.112, Florida Statutes, requires persons soliciting insurance to be licensed as agents. The various kinds of agents are defined in Sections
626.031 through 626.101, Florida Statutes.
Based on the Department's experience and expertise in regulating the insurance industry over several decades and taking the record in the instant case as a whole, the following is true: Insurers conduct their businesses in a variety of ways. Some control all their business from beginning to end by using only agents employed exclusively by them to sell and by using those same agents or their own adjusters to handle claims and by using in-house counsel to handle litigation. Other insurers do virtually nothing in-house. Instead, business is solicited by agents properly appointed by the insurer but otherwise not an employee; the agent collects and remits the premium or that function is handled by an outside firm; the agent or an independent adjuster or another kind of outside firm processes claims (receives the paperwork, investigates, determines the amount due, sends a check); litigation is handled by independent firms. Other insurers conduct their businesses using methods which fall somewhere in between these two extremes.
(e) Focusing more specifically on this case, many insurers, as early as the 1960's, and with increasing frequency during the 1970's, started hiring outside firms to handle claims, and eventually to handle even more of the activities which constitute "transacting insurance." Since these firms are in fact "transacting insurance," it became obvious that licensure was necessary and that was accomplished in this state in 1983. These firms are known in the business as "third party administrators," more familiarly referred to as TPAs. As is so often the case with legislation, the well-known industry term is not used in the statutes. Instead, Florida regulates TPAs under Part VII of Chapter 626 and calls them "insurance administrators."
f) The provisions of Part VII of Chapter 626 make the following things clear:
TPAs have to be licensed and "must otherwise be in compliance with [the Florida Insurance Code]": Section 626.8805(1), Florida Statutes.
Certain insurance activities must remain the responsibility of the insurer with whom the TPA has the contract. These are acting as an indemnitor,
determining benefits, rates, underwriting criteria, claims payment procedures, and securing reinsurance. See Section 626.8817, Florida Statutes.
There has to be a written agreement between the insurer and the TPA which shall include all the requirements of Part VII, "except as those requirements do not apply to the functions performed by the administrator." See Section 626.882, Florida Statutes. This exception clause reflects the Legislature's understanding that not all TPAs perform all allowable TPA functions for all their insurer clients.
If the TPA collects premiums, that money is considered to be the insurer's money and to be held by the TPA in a fiduciary capacity. This parallels the fiduciary capacity requirement applicable to agents. See Sections 626.883(2) and 626.561, Florida Statutes.
Not coincidentally, Section 626.988(1)(b), Florida Statutes, defines "insurance agency activities" as "the procurement of applications for, or the solicitation, negotiation, selling, effectuating, or servicing of, any policy or contract of insurance other than credit life insurance and credit disability insurance."
Again, not coincidentally, these are the very activities which fit the definition of "transact insurance," with the exception of the core insurance company functions which must remain with the insurer, i.e., benefits, rates, underwriting criteria, claims payment procedures, and reinsurance.
The statutory scheme clearly reflects the legislative intent that all aspects of transacting insurance be carried out by licensed persons or entities. If a TPA does just claims processing, it has to have an administrator's license. If a TPA also does soliciting, it has to use licensed agents (the kind of license will depend on what lines of insurance it is selling), as well as the administrator's license. One minor exception to the everybody-has-to-be- licensed requirement exists for insurance agency clerical help, under carefully circumscribed conditions; see Section 626.0428, Florida Statutes. Those circumscribed conditions, however, were so often routinely exceeded that in 1990 the Legislature created yet another licensure category (customer representative, Section 626.072, Florida Statutes) to license the office people who were in fact really performing the functions of the agent in the office while the agent was making calls outside the office.
A plain reading of the Florida Insurance Code, in pari materia, makes it clear that, as a matter of law: 1) only individuals licensed by the Department may solicit insurance or otherwise act as insurance agents in this state; 2) the activities performed by a TPA include "insurance agency activities," as defined in Section 626.988(1), Florida Statutes; 3) to the extent a TPA is associated with or owned, controlled, employed or retained by a financial institution, it is a "financial institution agency," as defined in Section 626.988(1), Florida Statutes; and 4) to the extent a TPA which is a financial institution agency utilizes insurance agents to solicit insurance, those agents are subject to the prohibition set forth in Section 626.988(2), Florida Statutes.
The Department has addressed the issue of solicitation in four separate rule chapters: Chapter 4-150, Life and Health Advertising Requirements; Chapter 4-156, Medicare Supplement Insurance; Chapter 4-193, Continuing Care Contracts; and Chapter 4C-6, Employees Deferred Compensation Plan. The provisions of the first three chapters are, not coincidentally, substantially similar.
Chapter 4-150 addresses the advertising and solicitation of both life and health insurance in an identical manner. Using health insurance as the exemplar:
Rule 4-150.008(3) requires a spokesperson who performs any of the following acts, which "shall be considered soliciting an insurance product," to be licensed as an agent if he: solicits insurance; procures applications; engages in analyzing or abstracting insurance policies; engages in counseling, advising, or giving opinions to persons relative to insurance contracts; or performs invitations to contract (with an exception for a company officer under certain conditions). An "invitation to contract" is defined by exclusion in Rule 4-150.003(10) as something which is neither an institutional advertisement nor an invitation to inquire. An "institutional advertisement" is defined in Rule 4-150.003(8) as an advertisement "having as its sole purpose the promotion of the readers', viewers' or listeners' interest in the concept of Health Insurance or the promotion of the insurer as the seller of Health Insurance." Note that there is nothing in here permitting reference to any particular policy. An "invitation to inquire" is defined in Rule 4-150.003(11) as an advertisement "having as its objective the creation of a desire to inquire further about a Health Insurance Policy and which advertisement is limited to a brief description of coverage which does not describe specific policy benefits or premiums ..." "Solicitation" is therefore an invitation to contract and anyone doing the inviting has to be a licensed agent. This distinction between an invitation to inquire and an invitation to contract has been in place for over 20 years and was occasioned by groups using famous people as spokespersons.
Rule Chapter 4C-6 implements the State of Florida Employees Deferred Compensation Plan. Part II of that chapter establishes the procedures for provider companies in marketing their products. Provider companies are permitted to market their products through Deferred Compensation Specialists who, in addition to holding the appropriate Florida license pursuant to Rule 4C- 6.007(1), must also undergo specialized training, pursuant to other provisions of Rule 4C-6.007. Rule 4C-6.006(1) defines "solicit" as "the utilization of marketing techniques, strategies and material including, but not limited to, direct mailers, referrals, telephone solicitations, newspaper advertisements, etc., the purpose of which is to produce sales."
Not coincidentally, the Department's various definitions of "solicit" square quite nicely with the dictionary definition: "to seek to obtain by persuasion, entreaty, or formal application;" and "to petition persistently; importune." [From the American Heritage Dictionary, 2d college edition]
We now proceed to the
RULINGS ON PETITIONER'S EXCEPTIONS TO CONCLUSIONS OF LAW
Petitioner excepts to the Hearing Officer's Conclusion of Law number 29, regarding the standard of proof to be met to terminate Respondent's "grandfathered" status under Section 626.988(5), Florida Statutes. The limited exemption in Section 626.988(5), Florida Statutes, is not a license. A plain reading of the definition of "license" in Section 120.52(9), Florida Statutes, indicates that a license is an affirmative approval granted by some agency to an individual or entity to allow that individual or entity to engage in some activity. In contrast, subsection (5) of Section 626.988 provides an exemption to the blanket prohibition in subsection (2) of Section 626.988. This is not a
grant of approval; it is permission to continue an already-existing activity, but only, as the second sentence in subsection (5) indicates, under certain circumstances. The second sentence provides for the termination of the exemption. It reads:
To make possible such continuation, the Department of Insurance may license agents and solicitors who are otherwise qualified, as successors to those agents and solicitors who are exempt from the provisions of this section and their successors, for so lone as the specified financial institution agency continues to function as it was constituted on April 2, 1974." [emphasis added]
In addition, the case law cited by Petitioner in its exception is persuasive. In State v. Nourse, 340 So.2d 966, 969 (Fla. 3d DCA 1976), the Court held that "...any [exception to a general provision] is normally construed strictly against the one who attempts to take advantage of the exception."
A grandfather provision is the common legislative response to already- existing businesses which have become subject to licensing or to some form of prohibition. The Legislature generally does not want to put existing entities out of business but at the same time recognizes that the public is best served by licensing standards or a prohibition of the activity. Typically, existing businesses are given a certain number of years in which to meet the newly- enacted standards or are permitted to continue operating the way they are but are subject either to the new standards or to losing permission to operate if the scope of the business changes. The gradual reduction of grandfathered entities is clearly anticipated through attrition.
In this case, the Legislature has determined that the public is harmed if a licensed insurance agent acts as an agent while associated with or under the control of a financial institution. This harm or risk of harm has been recognized by the First District Court of Appeal, in Glendale Federal Savings and Loan Association v. State Department of Insurance, 587 So.2d 534 (Fla. 1st DCA 1991). That harm is coercion, unfair trade practices, and undue concentration of resources. Id. at 536 and 537. Hence, the blanket prohibition in subsection (2) of Section 626.988. Existing arrangements were allowed to continue, but only under the narrow parameters of subsection (5). The plain meaning of subsection (5) is that the exemption is lost if the financial institution agency ceases to function the way it was functioning on April 2, 1974.
Therefore, the Hearing Officer's Conclusion of Law is correct that the Department seeks to revoke Respondent's certificate of authority as a TPA and that the standard of proof in Ferris v. Turlington is required to be met. The Hearing Officer is not correct regarding the Department's action in the matter of the limited exemption permitted by subsection (5) of Section 626.988. In that instance, the Department has to show by a preponderance of the evidence that Respondent no longer meets the requirements for exemption so that the grandfathered status is terminated by operation of law. The difference in the standards of proof is occasioned by the fact that the TPA certificate of authority is a license affirmatively granted while the exemption status is something Respondent simply has (a) by virtue of being in existence on April 2, 1974, and (b) by continuing to function the way it was functioning on April 2, 1974. The preponderance of the evidence standard is therefore the applicable standard when what is being terminated is an exemption to a blanket prohibition.
Note, however, that even if the standard of proof for the termination of the exemption were the "clear and convincing" level in Ferris v. Turlington, the Department has met that burden as well, given that Respondent has clearly increased the scope of its activities since April 2, 1974. Petitioner's exception is accepted.
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 32, in which the Hearing Officer again uses the word "revoke" in conjunction with the Department's action regarding the limited exemption permitted by subsection (5) of Section 626.988. For the reasons stated in paragraph 7, above, the exception is accepted.
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 33, in which the Hearing Officer points out that the limited exemption permitted by subsection (5) of Section 626.988 exists by operation of statute, which is correct, and that there is no provision in Section 626.988 for revocation, which is also correct. However, the necessary inference from this Conclusion of Law is that the Hearing Officer has concluded that the exemption cannot be "revoked" but that the Department is in fact attempting to revoke the exemption. As indicated in paragraph 7, above, the Department is not attempting to revoke the exemption, but is instead arguing that the statute contains the method for the termination of the exemption by operation of law, which is to say, that the exemption terminates if the grandfathered agency fails to continue to "function as constituted on April 2, 1974." Therefore, the Hearing Officer and the Department are in agreement but that agreement has for some reason not been made clear to the Hearing Officer. And so, to the extent that the Hearing Officer has misunderstood the Department's position on how the limited exemption is terminated, the exception is accepted.
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 34, regarding the Hearing Officer's implication that Section 626.988 is directed solely to agents and solicitors. The exception is accepted. While the penalties specified in Section 626.988 are applicable only to insurance agents and solicitors, the prohibition in subsection (2) of Section 626.988 is expressly directed to agents, to solicitors, and to financial institution agencies. The last of these is defined in subsection (1)(c).
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 35, in which the Hearing Officer concludes that the Amended Declaratory Statement was not violated by the activities of Respondent and First Union Bank in connection with the solicitation of insurance coverage provided by Monumental General and American Heritage Life. This exception is accepted. The Hearing Officer's Findings of Fact 18, 25, and 26 detail Respondent's activities involving bank mailings and endorsements by First Union Bank. This is in direct violation of Conclusion (c) of the Amended Declaratory Statement, which reads: "First Union Mortgage Corporation may solicit prospective insurance customers so long as neither the Petitioner, First Union Corporation, nor any subsidiary bank plays an active role in such insurance solicitation through endorsements, bank mailings, providing space within bank offices, or similar activities." (Pet. Exh. A, 7-8). The Amended Declaratory Statement was clearly violated.
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 36, in which the Hearing Officer concludes that Respondent continues to be entitled to the limited exemption in subsection (5) of Section 626.988. The exception is accepted for three reasons. First, the Hearing Officer's statement that the "scope of [FUMC's] functions has increased over the years" (which is supported by Findings of Fact number 8, 18, and 19 in the Recommended Order) is
in direct contradiction to the statement at the end of 36, in which the Hearing Officer states that "FUMC is functioning as it was constituted on April 2, 1974." Subsection (5) requires agents and successor agents to still be working for the agency they were working for on April 2, 1974. Subsection (7) permits those agents to keep the exemption "only with respect to the specific type of license held." The Hearing Officer cannot have it both ways by finding (correctly) that Respondent has increased the scope of its activities and yet concluding (incorrectly) that Respondent is still doing today what it was doing on April 2, 1974. Second, as indicated in paragraph 7, above, grandfather provisions are to be strictly construed against the holder of an exemption for the obvious reason that such exemptions are meant eventually to wither away so that the clear prohibition in subsection (2) of Section 626.988 is met by everyone. Allowing a grandfathered institution to increase the scope of its activities and yet maintain its exemption is contrary to clear legislative intent. Third, in determining that Respondent meets the test of "continu[ing] to function as it was constituted on April 2, 1974," as required by subsection (5), the Hearing Officer has improperly usurped Petitioner's statutory responsibility to interpret the statutes it is charged with enforcing. The case law is clear that an agency's interpretation of the statutes and rules which it is responsible for administering will not be overturned unless it is clearly erroneous. It is also axiomatic that an agency's interpretation need not be the best one, only that it be reasonable. PW Ventures, Inc. v. Nichols, 533 So.2d
281 (Fla. 1988); Department of Revenue v. First Union National Bank of Florida,
513 So.2d 114 (Fla. 1987); Daniel v. Florida State Turnpike Authority, 213 So.2d
585 (Fla. 1968); Gay v. Canada Dry Bottling Co., 59 So.2d 788 (Fla. 1952). In this instance, the Department's interpretation strictly construes what "as it was constituted" means in line with the clear requirement that grandfather provisions be strictly construed against the holder. The Department's interpretation, in this instance, is not only a reasonable interpretation, but is also the one which best accomplishes the underlying intent that grandfathered activities not be expanded but instead expire by attrition.
Petitioner's next two exceptions, to the Hearing Officer's Conclusions of Law number 37 and 39, will be considered together. These two Conclusions of Law indicate a fundamental misunderstanding on the part of the Hearing Officer of the nature of insurance administrator activities. Please refer to the First Additional Conclusion of Law, above. The first sentence in Conclusion of Law number 37 is correct as far as it goes. However, the second sentence in number
37 reveals the misunderstanding. A financial institution can be licensed as a TPA when it deals only in credit insurance. This is not a matter of Department policy. This is a matter of law. Section 626.988 exempts financial institutions from the prohibition against insurance agency activities if what they sell is credit life or credit disability. See 626.988(1)(b). In addition, the Department's issuance of a certificate of authority as a TPA to Respondent was based on Respondent's statement (since found to be false) in its application that it sold only credit insurance. Therefore, the Department does not have "a policy to the contrary" which the issuance of the certificate of authority "belie[s]."
Conclusion of Law number 39 is another muddle, reflecting misunderstanding of the role of administrators in transacting insurance. In number 39, the Hearing Officer states that "the activities of an administrator are similar to the activities designated `insurance agency activities' in section 626.988(1)(b)..." This is legally incorrect. Section 626.88(1) defines "administrator" as "any person who directly or indirectly solicits or effects coverage of, collects charges or premiums from, or adjusts or settles claims on residents of this state ..." Section 626.988 defines "insurance agency
activities" as "the procurement of applications for, or the solicitation, negotiation, selling, effectuating, or servicing of, any policy or contract of insurance ..." As defined, "insurance agency activities" encompass all activities which a third party administrator engages in. TPA activities are a subset of the larger universe of insurance agency activities. As a result, a TPA necessarily engages in insurance agency activities as defined in Section 626.988(1)(b), Florida Statutes. The Hearing Officer seems to have concluded that because administrators are not mentioned in Section 626.988, the section is not directed to administrators. It is true that administrators are not mentioned in Section 626.988. However, that section does not have to refer specifically to administrators because to the extent the contract between the TPA and the insurer includes activities for which an agent's or solicitor's license is required, the TPA will have to have the personnel who are performing those activities properly licensed. Section 626.988 then is addressed to TPA employees because those employees are licensed as agents or solicitors.
The Hearing Officer also states that the definition of administrator distinguishes that person from an insurer and from an agent. This is legally incorrect. The definition of administrator does distinguish an administrator from an insurer by virtue of requiring certain insurance activities to remain solely under the purview of the insurer (benefits, rates, etc., as set out in 626.8817). However, the statutory definition of a TPA does not distinguish such a licensee from an agent. By definition, a TPA is a person who does one or more of the following: solicits coverage, or effects coverage, or collects premiums, or adjusts claims. Section 626.88(1)(e), Florida Statutes, recognizes that an individual who limits his activities to soliciting coverage and is licensed as an agent need not be licensed as a TPA. But when any person solicits coverage and performs other functions, that entity must be licensed as a TPA and must act through licensed agents.
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 41, regarding the legislative intent in creating the prohibition in Section 626.988. The Department did not create or otherwise fabricate the legislative intent. The legislative intent to create Section 626.988 to prevent the evils of coercion of debtors by lenders, of unfair trade practices, and of undue concentration of resources has been recognized by the First District Court of Appeal in Glendale Federal Savings and Loan Association v. State Department of Insurance, 587 So.2d 534 (Fla. 1st DCA 1991). Petitioner's exception is accepted.
Petitioner next excepts to the Hearing Officer's Conclusion of Law number 42, which states that Respondent has not violated the Amended Declaratory Statement. As indicated in paragraph 11, above, this is incorrect.
Petitioner's exception is accepted for the reasons stated in paragraph 11.
Petitioner's exceptions to the Hearing Officer's Conclusions of Law number 44 and 45, regarding Ms. Auten and whether or not she solicited insurance, will be considered together. As indicated in the First Additional Conclusion of Law, above, there are in fact rules as well as ad hoc proceedings in which the Department has defined solicitation and gone to great lengths to indicate what may be done by an unlicensed person and what activities require a license. Ms. Auten's activities cross the line and as indicated in Petitioner's exception, were more extensive than those cited in National Federation of Retired Persons v. Department of Insurance, 553 So.2d 1289 (Fla. 1st DCA 1989). Even in the absence of the rules cited in the First Additional Conclusion of Law, above, the Department's interpretation would be entitled to great weight. The Hearing Officer is legally incorrect in the statement that "the Department's
interpretation ... is not so commonly accepted as to put the certificate holder on notice as to what conduct may be proscribed." It does not matter whether the Department's interpretation is "commonly accepted." What matters is whether the Department's interpretation is a permissible one. Id. at 1289. As with the phrase "function as it was constituted on April 2, 1974," the Hearing Officer is once again usurping the Department's responsibility and proper function to interpret the statutes it is charged with enforcing. Note also, that the Hearing Officer has once again improperly accepted Respondent's attempt to pretend that one entity is two entities, which is to say, that Respondent is really two things: the grandfathered agency and the TPA. As noted in the Second Additional Conclusion of Law, below, this is legally improper.
Petitioner's exceptions are accepted.
Petitioner finally excepts to the Hearing Officer's Conclusion of Law number 46 on two bases: the standard of proof and the reference to Dyer. Regarding the standard of proof as to the issue of the continued viability of the grandfather exemption, this exception is accepted for the reasons set out in paragraph 7, above. Regarding the reference to Dyer, a plain reading of Dyer v. Department of Insurance, 585 So.2d 1009 (Fla. 1st DCA 1991) cannot lead to the conclusion that the First District Court of Appeal referred to the regulatory scheme of Chapter 626 as "convoluted and confusing." In Dyer, the Court had before it the single issue of whether or not a license suspension and an administrative fine could be imposed at the same time, pursuant to the provisions of Sections 624.4211, 626.611, 626.621, and 626.9541, Florida Statutes. The Court chastised the Legislature for the use of cross-references to statutes which did not regulate agents and sympathized with the Department's attorney "for having to attempt enforcement of such poorly drafted and confusing legislation." Id. at 1016. However, the specific statutes which were considered in Dyer are not involved here and that case is, therefore, irrelevant. Petitioner's exception notes further that the use of Dyer is inappropriate because there penal statutes were involved, whereas this Conclusion of Law addresses the issue of the termination by operation of law of a limited exemption (the grandfather provision) to a blanket prohibition. Petitioner's exception is accepted.
SECOND ADDITIONAL CONCLUSION OF LAW
Based on a complete review of the extensive record adduced in this matter, I conclude the following in regard to the limited exemption permitted by subsection (5) of Section 626.988 to the blanket prohibition contained in subsection (2) of Section 626.988:
Respondent is one entity. The insurance activities of First Union Mortgage Corporation were the subject of the declaratory statement proceeding in 1988 and First Union Mortgage Corporation was the entity licensed as a TPA in 1986. Respondent cannot have it both ways by describing it as one company with two divisions. To accept this situation would be to permit financial institutions to circumvent the prohibition of subsection (2) in Section 626.988 simply by creating a TPA and running the solicitation operation out of it.
The evidence adduced at the hearing in this case proves that Respondent's representation on its TPA application that it sold only credit insurance was false. The evidence also shows that Respondent was engaged in TPA activities before 1974. The evidence finally shows, and the Hearing Officer recognized in Conclusion of Law number 36, that the scope of those activities has increased since 1974. (T 251-252).
Based on the foregoing, Respondent's entire operation would be entitled to the limited exemption in subsection (5) if their agents and their agents' successors were the only licensed ones and their lines of business remain today as they were on April 2, 1974, and either the TPA sold only credit or Respondent's TPA activities today have not changed from what Cameron-Brown's were in 1974.
Further, based on Respondent's representation on its TPA application that it sold only credit life insurance (T 79, 81), and with the understanding that Respondent was a financial institution, it was appropriate to license Respondent as a TPA in 1986, because the sale of credit insurance is the exception to the Section 626.988 prohibition.
Respondent is no longer entitled to the subsection (5) exemption because it is using agents in addition to the grandfathered ones (T 251-252) and because its TPA activities have broadened since 1974 (T 251-252). Respondent is no longer functioning as it was constituted on April 2, 1974.
Even apart from the issue of the original agents and their successor agents, Respondent is not entitled to a license as a TPA because it is a financial institution; financial institutions can sell only credit life and disability insurance, and Respondent sells life, health, and property insurance. (T 117; Dept. Exh. A, 141-143). Respondent is therefore in violation of Section 626.891(1)(b), as a hazard to the public, and of Section 626.891(2)(e), for failing to meet the qualifications for licensure as a TPA in the first place.
Respondent has violated the Amended Declaratory Statement by allowing First Union Bank to actively participate in bank mailings and endorsements. Respondent is therefore in violation of Section 626.891(2)(a), having violated a lawful order of the Department.
RULING ON PETITIONER'S EXCEPTION TO RECOMMENDATION
Based on the Rulings on Petitioner's Exceptions to Findings of Fact and Conclusions of Law, as well as on the additional conclusions indicated above, Petitioner's exception to the Hearing Officer's recommendation is accepted.
This ruling is reflected in the final disposition of this matter below.
RULING ON RESPONDENT'S RESPONSE TO
THE DEPARTMENT'S EXCEPTIONS TO RECOMMENDED ORDER
I have not considered Respondent's responses to Petitioner's exceptions.
There is no statutory provision for the filing of a response to any party's exceptions. Addressing Respondent's Response would raise the question of whether they were timely filed. That question is unanswerable since there is no provision for them in the first place. Addressing Respondent's Response would also raise the question of whether or not fairness would require that Petitioner be given an opportunity to respond to the Response. Therefore, Petitioner's Motion to Strike Respondent's Response is granted.
IT IS THEREFORE ORDERED:
That the Findings of Fact of the Hearing Officer are adopted with the exceptions noted above.
That the Conclusions of Law of the Hearing Officer are adopted with the exceptions noted above.
That the two Additional Conclusions of Law are adopted.
That the dismissal recommended by the Hearing Officer is rejected.
That Respondent's grandfathered status under subsection (5) of Section 626.988, Florida Statutes, be terminated and that Respondent's certificate of authority as an insurance administrator be revoked.
ACCORDINGLY, the limited exemption in subsection (5) from the prohibitions of Section 626.988, Florida Statutes, to which Respondent, First Union Mortgage Corporation, was found by the Department in its Amended Declaratory Statement issued on September 2, 1988, to be entitled, is hereby terminated and further, the certificate of authority presently held by Respondent, First Union Mortgage Corporation, as an administrator pursuant to the provisions of Part VII of Chapter 626, Florida Statutes, is 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 the Larson Building, 6th floor, 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 the rendition of this Order.
DONE and ORDERED this 19th day of January, 1993.
TOM GALLAGHER
Treasurer and Insurance Commissioner
COPIES FURNISHED:
Mary Clark, Hearing Officer
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
J. Thomas Cardwell, Esquire Virginia B. Townes, Esquire Akerman, Senterfitt & Eidson, P.A. Post Office Box 231
255 South Orange Avenue Orlando, Florida 32802
Lisa S. Santucci, Esquire Dennis Silverman, Esquire Department of Insurance Division of Legal Services Larson Building, 6th Floor Tallahassee, Florida 32399-0300
| Issue Date | Proceedings |
|---|---|
| Aug. 16, 1994 | Opinion and Mandate filed. |
| Aug. 05, 1994 | The Department's First Notice of Supplemental Authority(4 Copies) filed. |
| Feb. 19, 1993 | AGENCY APPEAL, ONCE THE RETENTION SCHEDULE of -KEEP ONE YEAR AFTER CLOSURE- IS MET, CASE FILE IS RETURNED TO AGENCY GENERAL COUNSEL. -ac |
| Feb. 19, 1993 | AGENCY APPEAL, ONCE THE RETENTION SCHEDULE of -KEEP ONE YEAR AFTER CLOSURE- IS MET, CASE FILE IS RETURNED TO AGENCY GENERAL COUNSEL. -ac |
| Feb. 01, 1993 | (joint) Petition for Stay filed. |
| Jan. 22, 1993 | Final Order filed. |
| Nov. 12, 1992 | (Respondent) Response to Department of Insurance`s Exceptions to Recommended Order filed. |
| Oct. 22, 1992 | Recommended Order sent out. CASE CLOSED. Hearing held 6-5-92. |
| Aug. 17, 1992 | Petitioner`s Proposed Recommended Order filed. |
| Aug. 17, 1992 | Brief in Support of Respondent`s Proposed Recommended Order; Respondent`s Proposed Recommended Order filed. |
| Aug. 07, 1992 | Respondent`s #47; & Cover Letter to MWC from V. Townes filed. |
| Jul. 27, 1992 | Transcript (Vols 1&2) filed. |
| Jul. 10, 1992 | Attachments to Affidavit filed. (From J. Thomas Cardwell) |
| Jul. 02, 1992 | Notice of Filing w/Affidavit of Bruce W. Foudree filed. |
| Jun. 29, 1992 | Letter to MWC from J. Thomas Cardwell (re: joint agreement) filed. |
| Jun. 05, 1992 | CASE STATUS: Hearing Held. |
| Jun. 04, 1992 | (Petitioner) Notice of Appearance filed. |
| Jun. 02, 1992 | Order sent out. (motion for continuance denied) |
| Jun. 01, 1992 | (Petitioner) Notice of Taking Deposition filed. |
| May 29, 1992 | (Petitioner) Notice of Hearing filed. |
| May 28, 1992 | Prehearing Stipulation w/Exhibit A-C filed. |
| May 28, 1992 | (Petitioner) Motion for Continuance filed. |
| May 22, 1992 | Amended Notice of Hearing sent out. (hearing set for 6-5-92; 9:00am; Tallahassee) |
| May 21, 1992 | (Petitioner) Notice of Taking Deposition to First Union Mortgage Corporation filed. |
| May 19, 1992 | (Petitioner) Motion for Change of Venue filed. |
| May 13, 1992 | (Petitioner) Response to Respondent`s Notice of Taking Deposition filed. |
| Apr. 29, 1992 | (Petitioner) Notice of Service of Interrogatories filed. |
| Apr. 29, 1992 | (Respondent) Notice of Taking Deposition Pursuant to Rule 1.310(b)(6)to Department of Insurance filed. |
| Apr. 28, 1992 | (joint) Stipulation Regarding Production of Documents filed. |
| Apr. 17, 1992 | (Respondent) Motion to Shorten Time filed. |
| Apr. 16, 1992 | (Respondent) Request for Production of Documents filed. |
| Mar. 25, 1992 | Prehearing Order; Notice of Hearing sent out. (hearing set for 6-5-92; 9:00am; Orlando) |
| Mar. 23, 1992 | CC Letter to MWC from J. Thomas Cardwell (re: ltr confirming a telephone calls regard scheduling hearing) filed. |
| Mar. 11, 1992 | Initial Order issued. |
| Issue Date | Document | Summary |
|---|---|---|
| May 05, 1994 | Opinion | |
| Jan. 19, 1993 | Agency Final Order | |
| Oct. 22, 1992 | Recommended Order | No clear prohibition of financial institution being certified as an administrator. No authority to revoke grandfather status. No violation of deciding statute |
DEPARTMENT OF INSURANCE AND TREASURER vs. JULES MAXWELL HANKEN, 92-001476 (1992)
DEPARTMENT OF FINANCIAL SERVICES vs RICHARD ROLAND MORRIS, 92-001476 (1992)
DEPARTMENT OF INSURANCE vs ALLAN BURTON CARMEL, 92-001476 (1992)
DEPARTMENT OF FINANCIAL SERVICES vs JIBRI KHALEID KNIGHT, 92-001476 (1992)
DEPARTMENT OF INSURANCE AND TREASURER vs NELSON SPEER BENZING, 92-001476 (1992)
