STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF INSURANCE AND TREASURER, Petitioner, vs. | ) ) ) ) ) CASE | NO. 93-2422 |
JAMES MITCHELL AND COMPANY, d/b/a EMERALD PREFERRED SERVICES; JMC INSURANCE SERVICES, INC., d/b/a EMERALD INSURANCE SERVICES CORPORATION; JMC FINANCIAL CORPORATION, d/b/a EMERALD FINANCIAL SERVICES CORPORATION, AND JAMES K. MITCHELL, INDIVIDUALLY, Respondents. | ) ) ) ) ) ) ) ) ) |
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RECOMMENDED ORDER
The hearing was held on multiple days ending on February 21, 1994. The authority for conducting the hearing is set forth in Section 120.57(1), Florida Statutes. The hearing was held in the Offices of the Division of Administrative Hearings, The DeSoto Building, 1230 Apalachee Parkway, Tallahassee, Florida.
Charles C. Adams was hearing officer.
APPEARANCES
For Petitioner: Dennis Silverman, Esquire
Nancy J. Aliff, Esquire Robert Prentiss, Esquire Department of Insurance Division of Legal Services 612 Larson Building
200 East Gaines Street Tallahassee, Florida 32399-0333
For Respondents: William R. Scherer, Esquire
James F. Carroll, Esquire Kimberly Kisslan, Esquire Albert L. Frevola, Jr., Esquire Conrad, Scherer, James & Jenne
633 South Federal Highway, Eighth Floor Fort Lauderdale, Florida 33301
Bruce Culpepper, Esquire
Pennington, Haben, Wilkinson, Culpepper, Dunlap, Dunbar, Richmond & French, P.A.
306 North Monroe Street Tallahassee, Florida 32301
STATEMENT OF ISSUES
The issues in this case are those framed by the order to show cause brought by the Petitioner against the Respondents. The case number before the Department of Insurance is DOI 92-L-273DSS. The Respondents are charged with numerous violations of Chapters 624 and 626, Florida Statutes. Petitioner seeks to impose discipline against the insurance license held by James K. Mitchell, to order Respondents to cease and desist allegedly illegal business activities in Florida, and to impose licensure requirements upon the Respondents' insurance agency activities performed in Florida.
PRELIMINARY STATEMENT
When served with the order to show cause Respondents elected to have a formal hearing to resolve the dispute between Respondents and Petitioner concerning matters of fact and law. Petitioner referred the case to the Division of Administrative Hearings where a formal hearing was conducted in accordance with Section 120.57(1), Florida Statutes.
The transcript of the hearing contains an index which identifies those witnesses and exhibits presented at hearing. It also identifies the pages where determination was made on the admissibility of exhibits. Ruling was reserved on the admissibility of JMC Exhibits 1422, 1423 and 1424. JMC Exhibits 1422 and 1423 are denied admission. JMC Exhibit 1424 is admitted. See Department of Legal Affairs v. Sanford-Orlando Kennel Club, Inc., 434 So.2d 879 (Fla. 1983) and Battles v. State, 595 So.2d 183 (Fla. 1st DCA 1992). Ruling was also reserved on the admissibility of the depositions of Thomas Anthony Lynch taken on December 8 and 15, 1993. Those depositions are denied admission.
Petitioner moved to strike Respondents' trial memorandum as it would be utilized posthearing. That written motion was filed posthearing and was opposed. Upon consideration, the motion is granted.
As authorized, written argument and proposed recommended orders were filed by the parties. They were timely filed and have been considered. Taking into account the date upon which they were submitted, the requirement for rendering a recommended order within 30 days of receipt of the transcript was waived. See Rule 60Q-2.031, Florida Administrative Code. The proposed fact finding set forth in the proposed recommended orders is discussed in an appendix to the recommended order.
FINDINGS OF FACT
Petitioner has regulatory responsibility directed to insurance matters in Florida.
In August, 1990, James Mitchell & Co., a corporation doing business in Florida under the fictitious name of Emerald Preferred Services, referred to in the agreement as agent and trustor, entered into a services agreement with Barnett Banks, Inc. and Barnett Banks Trust Company, N.A. as trustee. There was a companion trust agreement in which Emerald Preferred Services was trustor and Barnett Bank Trust Company, N.A. was trustee of a trust for the benefit of individuals referred to as participants. Those individuals would become participants by executing a participation agreement. The respective agreements involved the sale of insurance products in Barnett Branch Banks located in Florida.
Inc.
Barnett Bank's Trust Company, N.A. is a subsidiary of Barnett Banks,
In addition, James Mitchell & Co. operates the subsidiaries JMC
Financial Corporation and JMC Insurance Services Corporation which are engaged in the business venture with the Barnett entities.
By amendments to the services agreement and trust agreement made on July 27, 1993, reference to the business name Emerald was substituted for by the initials JMC or James Mitchell & Co.
Individual insurance agents licensed in Florida, together with divisional vice presidents, regional vice presidents and regional marketing directors work for James Mitchell & Co. and its subsidiaries in carrying out the obligations that Emerald Preferred Services, later JMC Preferred Services, had committed to in the services agreement and trust agreement with Barnett Banks, Inc. and Barnett Banks Trust Company, N.A.
The program between James Mitchell & Co. and the Barnett entities began in November 1990.
The trust agreement and services agreement have continued in existence from August 1990 through the date upon which the hearing concluded and it is the intention of those contracting parties that they continue to do business in the future.
Absent certain contingencies which have not occurred, James Mitchell Company agreed with Barnett Banks, Inc. to forego entering into any agreement with any commercial bank, savings and loan association, credit union or brokerage firm in Florida or Georgia for purposes of creating a similar business arrangement to that contemplated by the services agreement. In turn, neither Barnett Banks Trust Company, N.A., nor Barnett Banks, Inc., nor any Barnett affiliates shall, within Florida, during the term of the services agreement, directly or indirectly, offer for sale to their customers or prospective customers, fixed or variable insurance or annuity products, which are competitive with any of the insurance products contemplated for sale by James Mitchell & Co. pursuant to the services agreement.
The services agreement between James Mitchell & Co. and the Barnett entities calls for the sale of various insurance products referred to in the services agreement as: (1) The Tax Advantage Growth Annuity, (2) The Tax Advantage Income Annuity, (3) The Tax Advantage Flexible Annuity, (4) The Tax Advantage Annuity-Immediate, (5) The Tax Advantage Single Premium Life Policy and (6) The Tax Advantage Flexible Life Policy. Pursuant to the agreements, fixed, immediate, and variable annuities have been sold. Single premium life insurance policies have also been sold. With the exception of the single premium life insurance policies, the products continue to be sold. The reasons that James Mitchell & Co. discontinued the sale of single pay life insurance in the program was based upon the decrease in interest rates which made the policies less competitive in the market, together with changes in the federal income tax laws. The sales are made by Mitchell insurance agents licensed in Florida, and take place in the several branch banks operated by Barnett Banks in Florida. Other operations between the principals have transpired in Georgia, but those arrangements are not relevant to this case.
Under the business arrangement between the Mitchell company and the Barnett entities the insurance agents are referred to as Tax Advantage Account Specialists, not as insurance agents.
As contemplated by the services agreement the customer base for the James Mitchell insurance agents is primarily constituted of Barnett bank customers who have been referred by Barnett Bank employees. The insurance agents and other employees who work for James Mitchell & Co. and its subsidiaries operating in Florida do not solicit insurance business unrelated to the tie-in with Barnett Banks, Inc. and its branches.
James K. Mitchell is chairman and CEO of James Mitchell & Co. He executed the original services agreement and trust agreement in behalf of James Mitchell & Co. and executed subsequent changes to those agreements as the principal officer for James Mitchell & Co.
James K. Mitchell is licensed by the Department of Insurance as a nonresident life insurance agent. He has not acted as a life insurance agent during times pertinent to this inquiry.
To perform its functions under the agreements with the Barnett entities, James Mitchell & Co. has established five regional processing centers in Florida located in Orlando, West Palm Beach, Tampa, Jacksonville and Hollywood, Florida.
When James Mitchell & Company began operations in its five regional processing centers it had not designated a primary agent for each location. James Mitchell & Company did make a designation in 1992. This designation met the advice by the Department of Insurance in its bulletin, The Intercom Vol. 3, No. 1, March, 1993, at page 8 where the following notice was provided:
URGENT NOTICE
FOR ALL AGENTS AND AGENCY OWNERS AND ADJUSTING FIRMS
Primary Agents: Florida Statutes 626.592
Primary Adjuster: Florida Statutes 626.8695
Pursuant to Sections 626.592 and 626.8695, F.S., each person operating an insurance agency, or adjusting firm, and each location of a multiple location agency, or adjusting firm, must designate a primary agent, or an adjuster, for each location and shall file the name and address of the designated person with the Department of Insurance on or before January 1 of each year.
The first filing was required by January 1, 1990, for Primary Agents and January 1, 1993, for Primary Adjusters. It is evident that many agencies and adjusting firms have not formally designated a primary agent or primary
adjuster. The Department will assess a fine for failure to file the required form on or before June 30, 1993. Designation forms postmarked after June 30, 1993, but prior to July 16, 1993, will be subject to a fine of up to $250; forms postmarked July 16, 1993, through July 31, 1993, will be subject to a fine of up to $500. All forms received on or after August 1, 1993, will be referred to the Bureau of Agent and Agency Investigations for appropriate administrative action.
Failure on the part of an agency or an adjusting firm, to designate a primary agent or a primary adjuster constitutes grounds for requiring that agency to obtain a license in accordance with Sections 626.112 and 626.172, F.S.; and requiring the adjusting firm to obtain a license in accordance with Section 626.8696, F.S. Florida Statutes also provide that no insurance agency location or adjusting firm shall conduct the business of insurance unless a primary agent, or primary adjuster is designated.
The required form has been reproduced on
Page 9 of this issue of The Intercom for your convenience. Submit your completed forms to the Bureau of Agent and Agency Licensing,
200 East Gaines Street, Tallahassee, Florida 32399-0900.
In a recent reporting period, the end of 1993, it was revealed that within the time that the agreement has been in existence James Mitchell insurance agents have sold insurance products to 40,000 participants in the program with the Barnett entities.
Thirty percent of those persons solicited purchased insurance products through the program between James Mitchell & Co. and Barnett Banks, Inc.
The James Mitchell Insurance agents sell insurance products in approximately 600 Barnett branches in Florida.
The James Mitchell insurance agents are paid a salary and bonuses based upon insurance production. The James Mitchell managers in the regional processing centers receive bonuses based on that insurance production. James Mitchell & Co. and Barnett entities are dependent on that production for them to be successful in their enterprise.
The Barnett Bank branches also provide free checking account services to James Mitchell Company's insurance agents and other James Mitchell employees if desired.
The James Mitchell Company goal for production by an individual insurance agent employed by the company is 4 million dollars in customer contributions per year.
Most of the annuities sold are issued by either Life Insurance Company of Virginia or Keyport Life Insurance Company.
James Mitchell Company would recommence the sale of life insurance in the Barnett branch banks in Florida should it become persuaded that a satisfactory product was available for the prospective customers in the program with the Barnett Bank entities.
James Mitchell & Co. is paid commissions from the insurers issuing the annuities and in the past based upon the issuance of life insurance policies from the insurers.
James Mitchell & Co. has revenues derived from sources other than the production of insurance through the program with the Barnett entities. From its overall revenues James Mitchell & Co. pays Barnett Bank's Trust Company, N.A. an amount of money comparable to 30 to 33 per cent of the commissions paid from the insurers to James Mitchell & Co. for annuities sold and in the past life insurance sold in the program with the Barnett entities. The payment from James Mitchell & Co. to Barnett Banks Trust Company, N.A. originates from the general account of James Mitchell & Company. The general account includes payment for commissions earned on the sale of insurance as well as mutual funds and some interest on the accounts of James Mitchell & Co. associated with investments made by James Mitchell & Co. The payments to the trust are in accordance with the services agreement. There are two parts to that compensation plan. The first part is a setup fee of 2.475 percent of the initial value of a participant's trust assets deposited at the time of the establishment of the participant's account with the trust and of the initial value of the trust assets thereafter deposited by a participant in his or her account. The second part of the compensation to the Barnett Bank Trust is at the value of .22 percent per annum of the accumulated value of the participant's trust assets.
Therefore, the amount of fees earned by Barnett Banks Trust Company,
N.A. is directly related to James Mitchell & Co.'s success in selling insurance products in the Barnett Bank branch locations.
In addition, employees of the Barnett Bank branches where James Mitchell insurance agents sell insurance have been paid referral fees of a minimum of $5.00 for each customer appointment that the Barnett Bank branch employees arranged between a bank customer and the James Mitchell insurance agent which appointment was kept. The money to pay the referral fee came from James Mitchell in payment to Barnett Banks, Inc., who in turn paid the Barnett Bank branch employee. This practice of paying Barnett Bank branch employees referral fees has been discontinued.
Notwithstanding the discontinuation of referral fees, the services agreement contemplates that Barnett Banks, Inc. shall furnish James Mitchell insurance agents referrals that eventuate in 20 kept appointments per week with individuals who are determined by James Mitchell insurance agents to be qualified potential participants. In reality, a somewhat lesser number of appointments are kept with the individual James Mitchell insurance agents on a weekly basis. The James Mitchell insurance agents average 12 to 13 kept appointments per week. In order to process this volume of appointments and to carry out other obligations which James Mitchell & Co. has under the terms of the services agreement, the James Mitchell insurance agent is required to spend the majority of his or her time in the Barnett Bank branches as opposed to time spent in the business day at the James Mitchell regional processing centers or in other locales. Approximately one-third of the employment time of James
Mitchell insurance agents is involved with the training of Barnett Banks branch staff about their role in the program and in maintaining a good working relationship between insurance agents and Barnett Banks branch staff. The training of Barnett Bank personnel is in accordance with the services agreement.
The services agreement contemplates that and James Mitchell insurance agents and managers attend meetings conducted by Barnett branch personnel, to include attendance at Barnett Bank regional branch manager meetings, all in the interest of advancing the program between James Mitchell & Co. and the Barnett entities.
Under the terms of the services agreement James Mitchell & Co. advertises the insurance products which its insurance agents sell. Barnett Banks, Inc. advertises the trust operated by Barnett Banks Trust Company, N.A. The advertising done by James Mitchell and Barnett Banks, Inc. of their respective functions in the program is through media and methods that James Mitchell and Barnett Banks, Inc. mutually determine to be appropriate, after consultation regarding propriety, legality and advisability of the advertising. Under the terms of the services agreement Barnett Banks, Inc. shall be consulted with respect to the propriety and legality of all promotional materials and has the right to determine the form and content of all materials which relate to the trust, Barnett Bank's Trust Company, N.A., Barnett Banks, Inc., trust services and to Barnett Banks, Inc. customers. On the other hand, to the extent that materials relate to the insurance products sold or the offering and sales of those products, the form and content of the advertising for insurance products sold shall be determined solely by James Mitchell & Co. James Mitchell & Co. may not use the Barnett Bank, Inc. name, logo, or identification in promotional material without gaining Barnett Banks, Inc.'s consent.
Under the terms of the services agreement James Mitchell & Co. is obligated to prepare and implement the program to market insurance products as previously described, for the benefit of potential participants. James Mitchell & Co. is responsible for supervising and training its personnel as well as Barnett Banks, Inc. personnel.
James Mitchell & Co. is responsible for providing record keeping services, which includes maintenance of records with respect to the participation agreements and participant instructions, fund transfers to the trust, product selections, beneficiary designations or changes, provision of reports regarding the status of assets of the trust, transferring trust assets or funds and performing other necessary acts related to the orderly maintenance of the records of trust assets and activities of the trust, Barnett Bank's Trust Company, N.A., Barnett Banks, Inc. and the participants. Connected to these activities James Mitchell & Co. shall specifically provide appropriate training to its personnel and employees of Barnett Banks Trust Company, N.A. and Barnett Banks, Inc.
The assets of the trust are comprised of the assets contributed or purchased by participants and other payments, proceeds, rights, and privileges under the trust and related documents.
James Mitchell & Co. is obligated, pursuant to the services agreement, to perform necessary acts to insure that its activities and those of the trust, Barnett Bank Trust Company, N.A. and Barnett Banks, Inc. and their respective officers, directors, employees or agents comply with applicable law, to include the obtaining of licenses and the necessary approval or matters advisable to carry forward the program.
James Mitchell & Co. is responsible, pursuant to the services agreement, to provide initial and ongoing training to Barnett Bank, Inc. personnel who have contact with the public and who supervise the Barnett Banks, Inc. personnel, specifically, in a manner which in the judgment of James Mitchell & Co. and Barnett Banks, Inc. will insure compliance with the applicable law. The training is expected to familiarize Barnett Banks, Inc. personnel with appropriate procedures for directing customers to the employees of James Mitchell & Co. for purposes of obtaining trust related services, having in mind the need for compliance with governmental regulations applicable to the trust, to Barnett Banks Trust Company, N.A. and to Barnett Banks, Inc., in aid of fulfilling Barnett Banks, Inc.'s obligations under the services agreement.
Pursuant to the services agreement, James Mitchell & Co. is expected to provide training for its own personnel to enable those individuals to describe the trust and the insurance products and to provide all necessary and advisable sales and administrative services.
Pursuant to the services agreement, before designating sales personnel (insurance agents) who are assigned exclusively to activities on behalf of the trust, James Mitchell & Co. is obligated to discuss with Barnett Banks, Inc. the appropriateness of such personnel in light of qualifications for the function to be performed by the insurance agents and James Mitchell & Co. shall designate only personnel with the requisite qualifications. Barnett Banks, Inc., also has the right to request the replacement of any of those sales personnel (insurance agents) should the conduct of the sales personnel working with James Mitchell & Co. as insurance agents adversely impact the objectives of the services agreement.
James Mitchell & Company prospective insurance agent employees are subjected to a final interview by an officer in a Barnett Bank branch.
In practice, when hiring an insurance agent James Mitchell & Co. has considered the point of view of Barnett Banks, Inc. related to the proper geographical placement of an employee who may not fit in well in certain locations because of cultural concerns.
Subject to the direction of Barnett Bank Trust Company, N.A., in fulfilling its duties as trustee under the trust agreement, James Mitchell & Co., pursuant to the services agreement, is obligated to perform accounting and record keeping services in connection with the marketing of the trust and the sale of the insurance products to participants. Those duties include accounting for all amounts contributed under the participation agreements, maintaining separate records for each participant, paying trust fees, administering the payment for promotional fees and incentives, calculating and paying withdrawals and other similar accounting services. James Mitchell & Co. is obligated to provide Barnett Banks Trust Company, N.A. with information as may be required to permit the trustee, directly or indirectly, to carry out its duties under the trust agreement, to include prompt transmittal of funds to and on behalf of participants pursuant to instructions from those participants or James Mitchell & Co. Without those instructions Barnett Banks Trust Company, N.A. has no obligation to transmit the trust funds.
Under the services agreement, the trustee is reminded of its duties set out in the trust agreement. As established, basically the trustee acts as custodian of trust assets and receives and disperses funds, executes documents and takes other appropriate action related to the purchase, realization,
administration and disposition of trust assets and is obligated to maintain, directly or indirectly, consistent with the services agreement, those records of trust assets and of the participants' interests in those trust assets.
Approximately 99 per cent of the trust assets are derived from insurance products sold by James Mitchell & Co. insurance agents.
Barnett Banks Trust Company, N.A., in accordance with the trust agreement, maintains the trust for the use and benefit of the participants.
Pursuant to the trust agreement, the trustee receives, holds and distributes trust assets in accordance with the trust agreement, the participation agreements related to the individual participants and the written instructions of the participants.
The purpose of the trust is to protect and conserve trust assets and to provide ministerial and custodial services to the participants. The individual trusts do not create power to engage in business and the trustee is instructed not to make investment decisions regarding products, which, in the program, are constituted solely of insurance products, the parties to the service agreement and trust agreement having elected not to offer non-insurance products in that Barnett Banks, Inc. subsidiaries would be in competition with those efforts.
In its capacity as trustee, Barnett Banks Trust Company, N.A. is only liable for its gross negligence or willful misconduct.
Under the terms of the trust agreement no participant has an interest in trust assets attributable to any other participant. These are individual trusts.
The trustee may maintain such records as its deems appropriate but it is entitled to rely entirely on the records provided to it by James Mitchell & Co. who is solely responsible for the contents of those records. As a consequence, the trustee incurs no liability for relying on the records maintained by or on behalf of James Mitchell & Co.
Under the services agreement James Mitchell & Co., at its expense, files tax returns for the individual trusts under any applicable law and it pays taxes and assessments due from the trust or from the trustee.
Under the services agreement, Barnett Bank, Inc. is responsible for marketing the trust services related to the trust directed to existing and prospective customers of Barnett Banks, Inc. On the other hand, it is not expected to sell or participate in the sale of the products under the program.
Pursuant to the services agreement, James Mitchell & Co. shall provide Barnett Banks, Inc. monthly reports on the progress of the marketing plan. Barnett Banks, Inc. has the right to review the implementation of the marketing plan and to audit results, data, and working papers.
Under the services agreement, consistent with law and regulations, Barnett Banks, Inc. and its branch affiliates are expected to cooperate with James Mitchell and Co. in the implementation of the marketing program and it is expected that bank employees will support the day-to-day function of the plan, without participating in the marketing of the product. Barnett Banks, Inc.'s management is expected to use its best efforts to assure active participation by Barnett Banks, Inc.'s employees in the implementation of the plan through use of
a variety of existing and internal media. Barnett Banks, Inc.'s management is expected to emphasize that a Barnett Banks employee's participation in the implementation is as important to Barnett Banks, Inc. as the employee's participation in other Barnett Banks, Inc.'s programs.
As alluded to before, pursuant to the services agreement Barnett Banks, Inc. shall provide James Mitchell & Co. referrals of potential participants as contemplated by the business arrangement. Barnett Banks, Inc. is expected to sponsor and to make known to potential participants the availability of seminars relating to the trust, which may take place on the premises of Barnett Bank Trust Company, N.A. James Mitchell & Co. may request, and Barnett Banks, Inc. shall, to the extent possible, make its premises available for seminars and meetings between James Mitchell & Co. personnel and potential participants. At the seminars Barnett Banks, Inc. participation is limited to providing information with respect to Barnett Banks Trust Company, N.A., the trust and related trust services. Product information in those seminars is provided by James Mitchell & Co.
Pursuant to the services agreement, Barnett Bank is prohibited from disseminating information or making representations describing insurance products. Its employees are prohibited from soliciting or assisting in the preparation of applications for insurance products or providing advice with respect to the products. If inquiry is made, Barnett Bank, Inc.'s employees shall limit their activity to referring potential participants and existing participants to James Mitchell & Co. to obtain information and assistance from licensed employees (insurance agents) of James Mitchell & Co. Barnett Banks, Inc.'s employees are limited to making available to participants and potential participants generic materials concerning the trustee, the trust and related trust services.
Pursuant to the services agreement, Barnett Banks, Inc., on the basis of prudence, can assert control over the insurance products offered by James Mitchell & Co., as well as the insurers who offer those products.
In operation, the program works on the basis that Barnett Bank branch employees, including tellers and customer service representatives, refer customers to the James Mitchell & Co. insurance agents for purposes of having the insurance agents sell the products. The referrals come about as customers have questions that they present to bank employees concerning investments or through suggestions made by the bank employees based upon some knowledge about the bank customers' financial situations, if it appears that the customers might be potential participants in the program. To qualify as a potential participant, the services agreement contemplates, and in practice the Barnett Bank branch personnel are aware, that the potential participant is an individual with at least $5,000.00 to invest. On average the individual participants have invested $23,000.00.
Consistent with the services agreement, in discussing the program which involves the purchase of insurance products, the Barnett Bank branch employee describes the program as the Tax Advantage Account and describes the James Mitchell & Co. insurance agent as the Tax Advantage Account Specialist.
In addition to the personal contact with the bank customers in the bank proper, Barnett Bank, Inc. uses its telemarketing unit in promoting the program, wherein qualified potential participants who are Barnett Bank customers would be referred to James Mitchell & Co. insurance agents.
Customer appointments are scheduled by the Barnett Bank branch employee making a phone call to one of the five James Mitchell & Co. regional service centers where arrangements are made for the insurance agent to meet the prospective customer. Ordinarily the appointments are scheduled for the branch bank at which the Barnett Bank customer does business.
An appointment card has been used at times which reflects the title "Tax Advantage Account Appointment" with the Barnett Bank logo and the word "Trustee" under the logo. The appointment card sets out the date, time, place, and telephone number for the appointment location and carries the signature of the Barnett Bank employee making the referral. In the appointment card text it is stated:
So that you may discover the considerable tax benefits associated with Barnett Bank's Tax Advantage Account, the following appointment has been set aside just for you.
Please present this card to the Tax Advantage Account representative.
The Tax Advantage Account representative referred to is the James Mitchell & Co. insurance agent.
In talking to the Barnett Bank customers, leading to the referral for appointment with a James Mitchell & Company insurance agent, Barnett Bank branch employees do not always make it clear that the James Mitchell & Co. insurance agent is not an employee of Barnett Bank, Inc. or its branch affiliate.
At times, the Barnett Bank branch staff in arranging for the referrals have indicated that annuity products have different rates of return up to 7.4 per cent.
Barnett Bank brochures in the lobbies of Barnett Bank branch locations which have been used to describe the Tax Advantage Account, as established through the services agreement between James Mitchell & Company and the Barnett entities, prominently display the Barnett Bank logo and refer to the trustee with the word "Trustee." The text of the brochures has not always referred to the fact that life insurance products are being marketed. Such mention as has been made of James Mitchell & Company and its business name is in smaller print when referring to the fact that insurance products are distributed through James Mitchell & Co. under its business name. Moreover, given the basic design of the brochures it appears that the program is a Barnett Bank activity, notwithstanding the reference to the fact that the trustee does not engage in the offering or the sale of insurance products and that those products must be purchased through an entity licensed to offer such products. At times the brochures have been emerald green in color, symbolic of Barnett Bank.
The former use of the term Emerald in referring to the business name of James Mitchell & Co. and its arrangement with the Barnett entities, coincides with the green trademark color of Barnett Bank and the name of financial products offered by Barnett Banks, Inc. unassociated with James Mitchell & Co.
Separate annuity product brochures are provided by James Mitchell & Co. insurance agents. The brochures give the name of the underwriter/insurance company. The Barnett Bank logo and reference to the word "Trustee" under that logo have been left out of the brochures for the most part. Barnett Bank is mentioned in the fact that products offered are not deposits and obligations of
the bank and the products are not insured by the FDIC. The same caveats as set forth in the Barnett brochures. Moreover, in the James Mitchell brochures reference is made to the trustee in the Tax Advantage Account not engaging in the offer or sale of any insurance products to be held in the trust. Reference is made to the fact that insurance products are distributed by James Mitchell & Co. in its business name. In these brochures reference is made to the nature of the annuity. These brochures are not located in the lobby.
The average age of a participant in the James Mitchell & Co. program with the Barnett entities is 60 to 61 years old.
In the course of appointments between James Mitchell & Co. insurance agents and the potential participants referred by Barnett Bank branch employees, the insurance agents often provide the prospective customers with business cards. Originally, the business card, in the upper left, in bold print, had the words "Tax Advantage Account" and to the upper right had the Barnett Bank logo with the word "Trustee" underneath the logo. Centered in the card would be the name of the person distributing the card described on the card as a Tax Advantage Account Specialist, with an address of the regional center from which the insurance products sold by the James Mitchell & Co. insurance agent would be serviced. The telephone number of that service center would also be found on the card. A horizontal line would be drawn at the bottom of the business card with the reference Emerald Insurance Services Corporation and Emerald Financial Corporation.
In 1992 and forward, the business card in the upper left named the person who was distributing the card and immediately underneath the name placed the reference to Tax Advantage Account Specialist, and to the right placed in bold print would be reference to the Tax Advantage Account. Below a horizontal line would be the address of the regional service center. Other information on the card would include reference to the fact that any securities that might be offered would be offered through JMC Financial Corp., member NASD and the fact that insurance services were offered by JMC Insurance Services Corp., with another reference to the name of the person whose business card was distributed, identified as Tax Advantage Account Specialist, Registered Representative, licensed agent. Also on the new business card would be the comment "The Tax Advantage Account is a group trust account through which individuals may purchase selected products offering tax advantages." Neither in the prior business cards nor the more recent business cards are the customers specifically told that they are dealing with insurance agents.
The business cards as changed in 1992 no longer reflected the Barnett Bank logo and the word "Trustee."
Each James Mitchell & Co. insurance agent visits approximately eight Barnett Bank branches for several hours per week at each branch.
Barnett Bank branch employees assign the James Mitchell insurance agent any available work space that is not taken up by other activities on the premises.
When the James Mitchell & Co. insurance agents meet prospective customers those meetings may take place at offices separated from the bank lobby, conference rooms which maintain privacy by glass dividers or doors, or at times at empty desks in the lobby not being used by Barnett Bank employees.
Typically, in a meeting with a prospective customer, the James Mitchell & Company insurance agent would refer to himself or herself as an employee of James Mitchell & Co., or in the past, before the name change, as an employee of Emerald. The insurance agents describe themselves as Tax Advantage Specialists. In the discussion the insurance agent would make reference to marketing investment products through the Tax Advantage Account. The prospective customer is told that the Tax Advantage Account is a trust account with the Barnett Trust Department. The prospective customer is also told that James Mitchell & Co. provides alternative investments for its customers.
Prior to December 1993, the locations at which the James Mitchell & Co. insurance agents performed their function within the bank premises did not contain any signage which would disclose the nature of the activity performed by the insurance agents. Since December 1993 there has been signage in bank branches where James Mitchell & Co. insurance agents perform their function.
The signage states:
There's One Word
For The Alternative Savings and Investment Experts We Provide.
PROFESSIONAL.
Here's Proof:
Tax Advantage Account Specialists are employed by James Mitchell & Co.
Investment Officers are employed by Barnett Securities, Inc.
Business Development Officers are employed by Barnett Banks Trust Company, N.A.
PLEASE NOTE: Products offered through the Tax Advantage Account and Barnett Securities, Inc. as well as non-cash assets held in a Barnett Banks Trust Company account are not FDIC insured, are not obligations of Barnett Bank, are not guaranteed by the bank, and may involve some investment risk, including possible gain or loss of principal. In addition, dividends paid on some products may go up or down.
The signage which was provided in the Barnett Bank branches beginning in December 1993 is found in the insurance agent's work area and in the lobbies to the branch banks.
The signage or disclosure information which has been provided beginning December 1993 refers to the James Mitchell & Co. insurance agents as a Tax Advantage Account Specialists, not making it evident that these individuals are insurance agents.
When an insurance agent interviews a prospective customer, questions are asked to ascertain whether the insurance products sold by James Mitchell & Co. would meet the investment needs of the customer. To assist in this process a form is utilized referred to as a "confidential customer profile". In the event that the customer is not interested in making a purchase of insurance from James Mitchell & Co., or if it appears that products which are offered by
Barnett Banks, Inc. separate and apart from the product line marketed by James Mitchell & Co. are more appropriate, then the customer is referred back to Barnett Banks, Inc.
The present customer profile form makes reference to the fact that the product purchased is not insured by the FDIC nor is it a bank deposit. This form also addresses the interest rate returned on the product, as applicable, together with information concerning penalties for premature surrender of the annuity. The customer who is interested in purchasing a product signs the confidential client profile form and the insurance agent also signs that form.
Having selected a product, the customer then completes a separate application form provided by the insurer and a trust participation agreement, which allows Barnett Banks Trust Company, N.A. to hold the annuity contract and in the past life insurance policy.
While the insurance agent explains the nature of the product and the insurance transaction in some detail, the expectation by the insurance agent is that the customer will be responsible for a more detailed review of the various documents that are involved in the transaction.
Although the customers are granted access to the trust agreement, which describes the obligations of the trustee in this arrangement, and the customers are requested to sign an acknowledgment that the customer has read the trust agreement, typically the customers do not actually read the trust agreement. The James Mitchell & Co. employee is aware of that inattention to the details when it occurs.
The customer is not provided access to the services agreement during the course of the transaction to the extent that the trust agreement makes reference to the services agreement and the terms set forth in the services agreement.
The James Mitchell insurance agent does not inform the prospective customer that Barnett Banks Trust Company, N.A. is receiving trust fees pursuant to the services agreement.
The confidential client profile information is reviewed by James Mitchell & Co. management in the regional processing centers to verify the completeness of the information and the suitability of that customer's participation in the program.
As part of the transaction, the customer typically provides a check in the amount necessary to fund the annuity (or in the past to pay for the life insurance premium), which is made payable to Barnett Bank Trust Company, N.A.
At times other funds transfers are utilized in paying for the product.
In turn, the trustee uses the funds to purchase an annuity and in the past a life insurance policy. Barnett Banks Trust Company, N.A., opens a separate file for each customer in which documentation concerning the transaction is maintained. The annuity application and in the past the life insurance application is executed in the name of Barnett Banks Trust Company,
N.A. for the benefit of the participant. All funds provided by the customer at the time of the application are submitted in furtherance of the application. Once the application is accepted, the trustee takes title to the annuity and in the past life insurance policy, in trust for the benefit of the customer and
maintains the annuity or life insurance policy. The authority is granted by the services agreement for James Mitchell & Co. to accept a preprinted signature of the trustee on certain annuity applications.
After the sale James Mitchell & Co. keeps records in its service centers, to include duplicates of original records maintained by the trustee. James Mitchell & Co. responds to inquiries about the annuities or life insurance policies, to include information about the annuity products sold and any requests to make changes in the investments or to change the beneficiaries. James Mitchell & Co. responds to ministerial duties such as change of customer addresses.
The James Mitchell & Co. insurance agents at times have business contacts with these customers beyond the initial sale for purposes of selling an additional insurance product.
The customers who have purchased these insurance products do not typically interact with Barnett Bank Trust Company, N.A.
James Mitchell & Co. and the Barnett entities do not divulge to the customers the fact of, the amount of or method of payment of trust fees from James Mitchell & Company to Barnett Banks Trust Company, N.A.
The investment purposes which the customers have in mind in purchasing the insurance products to be held in trust are basically the same as direct purchases from insurance agents in settings unrelated to the type of business arrangement between James Mitchell & Co. and the Barnett Bank entities.
The vast majority of customers who purchase insurance products from James Mitchell & Co. insurance agents operating in the Barnett Bank branch are Barnett Bank customers.
Barnett Bank personnel critique the performance of the James Mitchell & Co. insurance agents in the manner in which the insurance agents carry out the program with Barnett Bank customers.
In 1985 and 1990, prior to commencing the arrangement between James Mitchell & Co. and the Barnett Bank entities, James Mitchell & Co. had conferred with the Department of Insurance concerning marketing insurance products where financial institutions might be involved, together with a trust. The details of those prospective arrangements as presented to the Department of Insurance in 1985 and 1990 were incomplete and did not correspond to the business arrangement reached between James Mitchell & Co. and the Barnett Bank entities through the services agreement and trust agreement. The Department of Insurance in its discussions with James Mitchell & Co. in 1985 and 1990 did not grant permission to James Mitchell & Co. and its prospective partners to proceed with their business arrangements without placing themselves at risk that they might promote violations of statutory provisions that preclude certain affiliations between insurance agents operating out of certain insurance agencies and financial institutions. This refers to Section 626.988(2), Florida Statutes. The Department has never granted permission to James Mitchell & Co. and the Barnett Bank entities which countenances the business arrangement that has been described in these findings of fact.
Neither has Barnett Bank established the factual predicate to sell one or more types of annuities in Florida in its own right pursuant to Section 626.988(8), Florida Statutes. The facts as presented in this case do not describe the independent attempt for Barnett Bank to sell one or more types of annuities in Florida through licensed resident insurance agents directly affiliated with Barnett. Instead, the Barnett Bank entities have engaged in a business arrangement whereby the resident insurance agents are James Mitchell & Co. employees who sell insurance on the bank premises under terms established by the services agreement. This approach does not contemplate an employment or contractual arrangement between these resident insurance agents and Barnett after notifying the Department of Insurance that Barnett intends to sell one or more types of annuities in Florida. Therefore, the permission which Barnett Banks, Inc. has received from the Florida Department of Banking and Finance to proceed under Section 626.988(8), Florida Statutes, is to no avail.
The Department of Insurance has previously examined the circumstances where various forms of business affiliation existed between insurance agencies, their agents and financial institutions. This included occasions in which insurance agents sold insurance products in financial institutions. In some instances the arrangements between the insurance agencies and financial institutions were allowed to transpire. In other instances they were not and met with regulatory rebuff. Some of these precedents were made known to counsel for James Mitchell & Co. in the mid-1980s. Others were discovered in the course of the preparation for this hearing. Regardless, the Respondents have had reasonable access to those precedents to allow a comparison between those situations and the present facts. There are significant factual differences in the present case and prior precedents. Accordingly, the prior precedents are not useful in examining the propriety of the conduct by Respondents or in examining the agency's performance for consistency in carrying out its regulatory duties set forth in the order to show cause.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action pursuant to Section 120.57(1), Florida Statutes.
To the extent that the Department of Insurance intends to impose discipline against the nonresident life insurance agent license held by James K. Mitchell, the proof must be clear and convincing. See State ex rel. Vining v. Florida Real Estate Commission, 281 So.2d 487 (Fla. 1973); Ferris v. Turlington,
510 So.2d 292 (Fla. 1987) and Slomowitz v. Walker, 429 So.2d 797 (Fla. 4th DCA 1983).
To the extent that the Department of Insurance intends to impose remedial requirements calling upon James Mitchell & Company, its subsidiaries and James K. Mitchell, as officer and director of James Mitchell & Company and the subsidiaries, to cease and desist their alleged illegal practices, the proof must be by a preponderance of the evidence. See Department of Environmental Regulation v. Goldring, 477 So.2d 532 (Fla. 1985).
The case of Osborne Stern and Company, Inc. v. Department of Banking and Finance, 19 Fla. L. Weekly D 882 (Fla. 1st DCA 1994), indicating that when an applicant for license has made a prima facie showing of entitlement to a license, that the regulatory agency must then prove by clear and convincing evidence that there are reasons for disallowing the license application, in the same manner that proof would be incumbent upon the regulatory agency should it
seek to revoke or suspend a license, does not address the circumstances of a cease and desist order, nor create a convincing analogy concerning the proper burden of proof.
The conduct about which the Department of Insurance complains is as set forth in the order to show cause. The order to show cause makes neither reference to substantive violations of policies and guidelines which have not been promulgated as rules nor reference to Rule 4-223, Florida Administrative Code. (Considered and declared valid in part and invalid in part, in the case of Great Northern Insured Annuity Corporation, et al., Petitioners v. Department of Insurance and Treasurer, Respondent, DOAH Case No. 92-4332RP, result stayed pending appeal.)
The parties agree that Rule 4-223, Florida Administrative Code, as described does not apply to this dispute. For different reasons the parties argue that the policies and guidelines, unpromulgated as rules, which predate Rule 4-223, Florida Administrative Code, have application in this case.
The Department of Insurance asserts that it may impose its prior policies and guidelines, notwithstanding the lack of reference to those policies and guidelines in the order to show cause. For this proposition it cites to Health Care and Retirement Corp. v. Dept. of Health and Rehabilitative Services,
559 So.2d 665 (Fla. 1st DCA 1990) and St. Francis Hospital, Inc. v. Dept. of HRS, 553 So.2d 1351 (Fla. 1st DCA 1989). While those opinions dealing with applications for certificates of need to perform health care services hold that a regulatory agency, even where prior notice of an existing policy is not provided, may establish its policy position de novo through expert testimony, documentary opinions and other appropriate evidence, provided that the nongovernmental party had a clear point of entry into the proceedings, the reasoning in those cases does not control the outcome here.
First, although the Department of Insurance in attempting to impose a cease and desist order need not have provided prior notice concerning the alleged conduct by the Respondents which it considers violative of prior substantive policies and guidelines, the point of entry which was present in the certificate of need application cases in which the reasons for denying those applications was explained, has no functional equivalent to the present case. Instead, the Department of Insurance through the order to show cause has related factual allegations which are said to establish violations of the Insurance Code without creating a point of entry by commenting on prior policies and guidelines as a means to require remedial action. The order to show cause leaves off any reference to prior policies and guidelines. Therefore, a meaningful point of entry is not presented to the Respondents to challenge the agency attempt to explicate or elucidate the policies at hearing.
Secondly, the prior policies and guidelines which the Department of Insurance seeks to impose as remedial action, by calling upon James Mitchell & Company and James K. Mitchell to cease and desist their activities, even if theoretically available as proof de novo, may not be presented on this occasion because they have been superseded by the passage of Rule 4-223, Florida Administrative Code, whose rationale may only be set aside by repeal consistent with Section 120.54(1), Florida Statutes. Although Rule 4-223, Florida Administrative Code, to the extent that it has been upheld, is stayed pending appeal, its rationale has superseded the prior policies and guidelines and constitutes the current statement of law concerning the subject matter.
Finally, the Department of Insurance did not prove that it provided prior notice and following that notice James K. Mitchell violated the prior policies and guidelines. Discipline against James K. Mitchell is penal in nature when imposed against that licensee's rights and privileges exercised pursuant to his insurance license. That license status requires proof of prior notice of prohibited conduct under the prior policies and guidelines and proof of a violation of a prior policy or guideline once notice is given before discipline may be imposed against his license for such violation.
Respondents in defending the case have pointed out prior agency policies and guidelines (precedents) by the Department of Insurance which instruct persons engaged in insurance businesses on how to conduct themselves to be consistent with law and the manner in which Respondents claim to have complied with those pronouncements, as have others. In this category Respondents contend that the Department of Insurance has inconsistently applied the law in penalizing the Respondents' conduct while condoning the conduct of the others who were similarly situated.
The Respondents have also asserted that some prior agency policies and guidelines are inapplicable to the facts which underlie the arrangement between the Respondents and the Barnett Bank entities. Taken from Respondents' viewpoint or that of the agency, the circumstances relating to the exercise of any of the prior agency policies and guidelines on other occasions are not sufficiently similar to be meaningful when contrasted with the present facts. Such comparison does not establish inconsistent agency practices, and fails to establish a successful defense to the accusations set forth in the order to show cause. See North Miami General Hospital v. Department of Health and Rehabilitative Services, 355 So.2d 1272 (Fla. 1st DCA 1978); Florida Medical Center v. Department of Health and Rehabilitative Services, 463 So.2d 380 (Fla. 3rd DCA 1985) and Martin Memorial Hospital v. Department of Health and Rehabilitative Services, 584 So.2d 39 (Fla. 4th DCA 1991).
The Department of Insurance has met the requirements for maintaining a subject matter index that are set forth in Section 120.53(2), Florida Statutes, and has provided reasonable access to its precedents as they might influence the outcome in this case. Therefore, the Department of Insurance is not subject to the limitations set forth in the decision in the case Gessler v. Department of Business and Professional Regulation, 627 So.2d 501 (Fla. 4th DCA 1993).
When interpreting the statutes that are referenced in the order to show cause the appellate court affords deference to the Department of Insurance in its statutory interpretations, provided that those interpretations are within the range of possible interpretations. See P W Ventures, Inc. v. Nichols, 533 So.2d 281 (Fla. 1988) and Natelson v. Dept of Ins., 454 So.2d 31 (Fla. 1st DCA 1984). Nevertheless, in construing disciplinary statutes that process is strict, and ambiguity in the construction favors the accused. See Dyer v. Department of Insurance, 585 So.2d 1009 (Fla. 1st DCA 1991); Bach v. Florida State Board of Dentistry, 378 So.2d 34 (Fla. 1st DCA 1979) and Lester v. Board of Medical Examiners, 348 So.2d 923 (Fla. 1st DCA 1977).
The following is a specific discussion of the alleged violations in the order to show cause:
COUNT I
Paragraphs 1-52 are hereby realleged and incorporated by reference.
The trust fees paid by JMC to Barnett constitute the prohibited sharing of commissions, in violation of Section 626.794, Florida Statutes.
Section 626.988, F.S. provides that insurance agents may not be associated or controlled to any degree, directly or indirectly, with a financial institution while associated with a financial institution agency. The intent of this provision is to prevent financial institutions from becoming associated with insurance agents engaged in the business of insurance and from sharing in the proceeds of same. Additionally, Section 626.794, F.S., prohibits licensed life insurance agents from sharing commissions, directly or indirectly, with unlicensed persons.
By means of its trust arrangement with Barnett Bank, the Respondents place the premiums of insurance policies and annuities into the trust. These monies, now characterized by Plaintiffs as "trust assets", are then shared with Barnett Bank as trustee, based upon a percentage of these assets. Consequently, the "trust" is clearly just a vehicle for circumventing the prohibitions
of Section 626.988, Florida Statutes.
By contracting with Barnett to share in the proceeds of insurance production in the form of premium and annuity payments (under the guise of payment of trustee fees), JMC
has established an illegal association with Barnett that is violative of Section 626.988, Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
Are selling annuities and life insurance in illegal association with Barnett, in violation of Section 626.988, Florida Statutes.
Are illegally sharing commissions with an unlicensed entity, which is also a financial institution, in violation of Sections 626.592 and 626.988, Florida Statutes.
Section 626.592, Florida Statutes, is within Part I of Chapter 626, entitled: Insurance Representatives; Licensing Procedures and General Requirements. Section 626.592, Florida Statutes, states:
Primary agents.
On or before January 1, 1990, and annually thereafter, each person operating an insurance agency and each location of a multiple location agency shall designate a primary agent for each insurance agency location and shall file the name of the person so designated, and the address of the
insurance agency location where he is primary agent, with the Department of Insurance, on a form approved by the department. The
designation of the primary agent may be changed at the option of the agency and any change shall be effective upon notification to the department.
For the purpose of this section, a "primary agent" is the licensed agent who is responsible for the hiring and supervision of all individuals within an insurance agency location who deal with the public in the solicitation or negotiation of insurance contracts or in the collection or accounting of moneys from the general public. An agent may be designated as primary agent for only one insurance agency location.
For the purpose of this section, an "insurance agency" is a location where any agent is engaged in the business of insurance.
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(7) No insurance agency location shall conduct the business of insurance unless a primary agent is designated at all times. Failure to designate a primary agent as required under this section shall constitute grounds for requiring that
the agency obtain a license in accordance with ss. 626.112 and 626.172.
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The allegations in Count I are not related to failure to designate a primary agent. Therefore, no violation of that provision has been proven in this count.
Section 626.794, Florida Statutes, is within Part III of Chapter 626, entitled: Life Insurance Agents. Section 626.794, Florida Statutes, states:
626.794 Unlawful payment or sharing of commissions.
No life insurer or licensed life agent shall pay directly or indirectly any commission or other valuable consideration to any person for services as a life insurance agent within this state, unless such person holds a currently valid license and appointment to act
as a life insurance agent as required by the laws of this state; except that a life insurer may pay such commission or other valuable consideration to, and a licensed and appointed life insurance agent may share any commission or other valuable consideration with, an incorporated insurance agency in which all employees, stockholders, directors, or officers who solicit, negotiate, or effectuate life insurance contracts are qualified life insurance agents holding currently valid licenses and appointments.
No person other than a licensed and appointed life agent shall accept any such commission or other valuable consideration, except as provided in subsection (1).
* * *
James Mitchell & Company is not a "life agent" as defined in Section 626.779, Florida Statutes, nor is it a "life insurer" as defined at Section 626.780, Florida Statutes. James Mitchell & Company is not an "insurer" as defined at Section 624.03, Florida Statutes. Rather, James Mitchell & Company is an "insurance agency" as defined in Section 626.094, Florida Statutes. Therefore, James Mitchell & Company has not violated Section 626.794, Florida Statutes, in that the provision does not pertain to it.
Section 626.988, Florida Statutes, is within Chapter 626, Part X, entitled: Unfair Insurance Trade Practices. It states:
626.988 Financial institutions; agents and solicitors prohibited from employment; exceptions.
For the purpose of this section, the following definitions shall apply:
"Financial institution" means any bank, bank holding company, savings and loan association, savings and loan association holding company, or savings and loan association service corporation or any subsidiary, affiliate, or foundation of
any of the foregoing. This definition shall not, however, include any financial institution which has been granted an exemption by the Board of Governors of the Federal Reserve System pursuant to s. 4(d) of the Federal Bank Holding Company Act of 1956, as amended, or any financial institution which neither owns more than 10 percent of the capital stock, nor exercises effective control, of a bank, savings and loan association, or entity licensed under chapter 494 and licensed or authorized to
transact business in this state. Specifically excluded from this definition is any bank which is not a subsidiary or affiliate of a bank holding company and is located in a city having a population of less than 5,000 according to the last preceding census.
"Insurance agency activities" means 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.
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(8) In the event that a national bank is authorized, other than as authorized by
12 U.S.C. s. 92, to sell one or more types of annuities in Florida pursuant to federal law, then Florida chartered banks, savings and loan associations and savings banks, and federally chartered savings and loan associations and savings banks shall be
authorized to sell the same type of annuities notwithstanding the provisions of this
section; provided, however, that any such sales by any bank, savings bank, or savings and loan association shall be made in compliance with
all other applicable requirements of the Florida Insurance Code and that such sales are made through a licensed resident agent. Nothing in this subsection is intended to grant national banks, federal savings and loan associations,
or federal savings banks any power or authority in addition to those granted under federal law nor to provide that federal law supersedes this section. Nothing herein shall
be construed to limit the Florida Comptroller's authority pursuant to chapters 655, 658, and 665. Prior to any financial institution employing or contracting with a licensed resident agent to sell annuities, the financial institution shall notify the Department of Insurance and shall obtain approval to sell annuities from the Department of Banking and
Finance. The prohibition set forth in subsection
of this section shall apply with respect to any agent during any period in which any financial institution is enjoined from selling annuities in Florida with respect to its authority to do so under federal law or Florida statute. For the purposes of this subsection, "national bank" means a bank authorized and regulated pursuant to the National Bank Act,
12 U.S.C., ss. 21 et seq.
The prohibition against associations set forth in Section 626.988, Florida Statutes, is between insurance agents or solicitors, in this instance James Mitchell insurance agents and the Barnett entities while engaged in insurance agency activities, not between James Mitchell & Company and the Barnett entities. Therefore, Section 626.988, Florida Statutes, as alleged in Count I is inapplicable to James Mitchell & Company and it has not violated that provision. In reaching this conclusion the cases of State, ex rel Wedgeworth Farms, Inc. v. Thompson, 101 So.2d 381 (Fla. 1958); Green v. State, 604 So.2d
471 (Fla. 1992); and Glendale Federal Savings and Loan v. Department of Insurance, 587 So.2d 534 (Fla. 1st DCA 1991), rev. denied 599 So.2d 656 (Fla. 1991) have been considered in interpreting Section 626.988, Florida Statutes.
COUNT II
Paragraphs 1-57 are hereby realleged and incorporated by reference.
By allowing and contracting with Barnett to exercise influence and control over the hiring, training, directing and continued employment of JMC agents pursuant to the Agreements, and by permitting JMC agents to participate in the training and directing by Barnett employees, JMC has established an illegal association with Barnett in violation of Section 626.988, Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
(1) Are selling annuities and life insurance in illegal association with Barnett, in violation of Section 626.988, Florida Statutes.
For the reasons as described in the discussion of Count I, James Mitchell & Company has not violated Section 626.988, Florida Statutes. (See discussion in Paragraph No. 117.)
COUNT III
60. Paragraphs 1-59 are hereby realleged and incorporated by reference.
51. By failing to differentiate JMC agents from Barnett personnel in terms of marketing the trust program, including but not limited to the: (1) advertising; (2) office layout,
signage, (4) marketing literature, (5) customer appointment process, (6) personal
and telephonic solicitation of customers, and
the business cards of JMC agents, JMC has established an illegal association with Barnett in violation of Section 626.988, Florida Statutes and has engaged in unfair or deceptive acts in violation of Section 626.9541(b). Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
Are selling annuities and life insurance in illegal association with Barnett, in violation of Section 626.988, Florida Statutes.
Has knowingly made or disseminated or placed before the public, or cause directly or indirectly to be placed before the public, an advertisement, announcement or statement which is untrue deceptive or misleading, in violation of Section 626.9541(1)(b), Florida Statutes.
For reasons described in Count I James Mitchell & Company has not violated Section 626.988, Florida Statutes. (See discussion in Paragraph No. 117.)
Section 626.9541(1)(b), Florida Statutes, is found within Chapter 626, Part X. Section 626.9541, Florida Statutes:
Unfair methods of competition and unfair or deceptive acts or practices defined.
(1) UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE ACTS. The following are defined as unfair methods of competition and unfair or deceptive acts or practices:
* * *
False information and advertising generally.
Knowingly making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public:
In a newspaper, magazine, or other publication,
In the form of a notice, circular, pamphlet, letter, or poster,
Over any radio or television station, or
In any other way,
an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading.
James Mitchell & Company is a "person" as defined in Section 626.9511(1), Florida Statutes, and is subject to the prohibitions set forth in Section 626.9541(1)(b), Florida Statutes. James Mitchell & Company has violated Section 626.9541(1)(b), Florida Statutes, in the manner alleged. Specifically, James Mitchell & Company has knowingly established its own written advertising, and benefited from Barnett advertising pursuant to the services agreement.
James Mitchell & Company has made statements about, and benefited from statements by Barnett employees pursuant to the services agreement. The advertising and statements concerned insurance sales through the Tax Advantage Account by Mitchell Tax Advantage Account Specialists (insurance agents). By these arrangements James Mitchell & Company has placed before the consuming public information which is deceptive and misleading as to the fact that insurance products are being sold by insurance agents who work for James Mitchell & Company. James Mitchell & Company has committed these violations both by direct and indirect actions. Violations of Section 626.9541(1)(b), Florida Statutes, pertaining to the deceptive and misleading actions by James Mitchell & Company are found in the use of business cards which the James Mitchell & Company insurance agents provide to customers, appointment cards prepared by Barnett employees, and brochures disseminated by Barnett employees and Mitchell employees, which materials contribute to the deceptive and misleading nature of the Mitchell/Barnett program. The office layout in which the James Mitchell & Company insurance agents market the products on the premises of the Barnett branch banks contributes to the deceptive and misleading nature of the program. The personal and telephonic solicitations of customers by James Mitchell & Company insurance agents and through actions of Barnett Bank employees, contemplated by the services agreement, contribute to the deceptive and misleading nature of the program. Recent attempts at disclosure directed to potential customers through the provision of signage and other changes to the program have not sufficiently clarified the nature of the insurance program and corrected the aforementioned violations.
COUNT IV
Paragraphs 1-61 are hereby realleged and incorporated by reference.
By allowing Barnett, pursuant to the Agreement, to exercise control over the advertising and marketing materials used
by JMC to market insurance products, JMC has established an illegal association with Barnett in violation of Section 626.988, Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
(1) Are selling annuities and life insurance in illegal association with Barnett, in violation of Section 626.988, Florida Statutes.
For reasons explained in Count I, the Department of Insurance has not proven that James Mitchell & Company violated Section 626.988, Florida Statutes, in the manner alleged in Count IV. (See discussion in Paragraph No. 117.)
COUNT V
Paragraphs 1-63 are hereby realleged and incorporated by reference.
By failing to designate primary agents at each of the JMC regional centers in Florida, JMC violated Section 626.592, Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
(1) Has violated the primary agent requirements of Section 626.592, F.S., from approximately October 1990 through May 1992, and are therefore required to obtain an agency license as specified in Section 626.592(7), Florida Statutes.
Earlier reference was made to the text in Section 626.592, Florida Statutes. (See Paragraph No. 108) There was delay in obtaining primary agent designation for the James Mitchell & Company's regional service centers. That delay was countenanced by a policy announced by the Department of Insurance in its bulletin. Consequently, there is no violation of Section 626.592, Florida Statutes, as alleged in Count V and there is no requirement for James Mitchell & Company to obtain a license in accordance with Sections 626.112 and 626.172, Florida Statutes.
COUNT VI
Paragraphs 1-65 are hereby realleged and incorporated by reference.
By knowingly failing to inform Barnett customers that they are JMC insurance agents selling an insurance product, JMC and their agents have committed unfair or deceptive practices prohibited by Section 626.9541, Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
(1) Has knowingly made or disseminated or placed before the public, or caused directly or indirectly to be placed before the public, an advertisement, announcement or statement which is untrue deceptive or misleading, in violation of Section 626.9541(1)(b), Florida Statutes.
The Department of Insurance has proven that James Mitchell & Co. violated Section 626.9541(1)(b), Florida Statutes, as alleged in Count VI, in that the facts established that James Mitchell & Company was aware that its insurance agents knowingly were deceptive and misleading in their failure to make clear that they were insurance agents selling insurance products.
COUNT VII
Paragraphs 1-67 are hereby realleged and incorporated by reference.
By arranging with and knowingly assisting Barnett employees to illegally act as life insurance agents, James K. Mitchell and JMC have assisted, aided or abetted Barnett employees in the violation of Section 626.988, Florida Statutes and thus, have also violated Sections 626.051 and 626.621(12), Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES K. MITCHELL and JAMES MITCHELL & COMPANY, in
the conduct of their insurance activities in Florida:
(1) Have knowingly aided, assisted, procured, advised or abetted any person in the violation of, or to violate, a provision of the Insurance Code. [Section 626.621(12), Florida Statutes.]
For reasons described in Count I, James Mitchell & Company could not violate Section 626.988, Florida Statutes. (See discussion in Paragraph No. 117). Neither has James K. Mitchell violated Section 626.988, Florida Statutes, in the manner described in Count VII. No one is found to have arranged for or assisted Barnett employees to act as insurance agents. No Barnett employees have acted as insurance agents in this case.
James K. Mitchell and James Mitchell & Company are also alleged to have violated Section 626.051, Florida Statutes. Section 626.051 is within Chapter 626, Part I, entitled Insurance Representatives: License and Procedures and General Requirements. Section 626.051, Florida Statutes, states:
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 other than:
As a consulting actuary advising an insurer; or
As to the counseling and advising of labor unions, associations, trustees, employers or other business entities, the subsidiaries and affiliates of each, relative to their
interests and those of their members or employees under insurance benefit plans.
The Respondents have not violated Section 626.051, Florida Statutes, in the manner described in Count VII. James K. Mitchell is entitled to act as an insurance agent pursuant to Section 626.051, Florida Statutes, in that he is licensed to do so. James Mitchell & Company has not acted as an insurance agent in that the statute does not contemplate that the company is a "person" who might violate the terms set forth in Section 626.051, Florida Statutes.
Finally, this provision does not deal with aiding, abetting, assisting, procuring, or advising persons to act as insurance agents. It deals with the requirement to be licensed when involved with insurance sales. Under these facts, the only persons who might have violated Section 626.051, Florida Statutes, would be the Barnett employees, who are not accused of such violation.
Count VII accuses James K. Mitchell and James Mitchell & Company of a violation of Section 626.621(12), Florida Statutes. That section is also within Part I to Chapter 626. Section 626.621(12), Florida Statutes states:
626.621 Grounds for discretionary refusal, suspension, or revocation of agent's, solicitor's, adjuster's, service representative's, managing general agent's, or claims investigator's license or appointment.--
The department may, in its discretion, deny, suspend, revoke, or refuse to renew or continue the license or appointment of any agent, solicitor, adjuster, service representative, managing general agent, or claims investigator, and it may suspend or revoke the eligibility to hold a license or appointment of any such person, if it
finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist under circumstances for which such denial, suspension, revocation, or refusal is not mandatory under s. 626.611:
* * *
(12) Knowingly aiding, assisting, procuring, advising, or abetting any person in the violation of or to violate a provision of the insurance code or any order or rule of the department.
James K. Mitchell, individually, has not violated Section 626.621(12), Florida Statutes, by knowingly aiding, assisting, procuring, advising, or abetting Barnett employees to violate a provision of the Insurance Code, to wit Section 626.051, Florida Statutes. James Mitchell & Company has not violated Section 626.621(12), Florida Statutes, in that it is not one of the categories of licensee subject to discipline pursuant to this provision.
COUNT VIII
Paragraphs 1-69 are hereby realleged and incorporated by reference.
By misrepresenting the nature of the insurance transaction or insurance product sold, by engaging in unfair or deceptive acts, and by violating or wilfully circumventing provisions of the Insurance Code, as described in Counts I-VII herein, JMC must, as a condition precedent to continuing to do business, obtain an insurance agency license pursuant to Section 626.112, Florida Statutes.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL
& COMPANY, in the conduct of their insurance activities in Florida:
(1) Has, by its improper actions, subjected themselves to the insurance agency licensure requirements of Section 626.112(8), Florida Statutes.
Section 626.112(8), Florida Statutes, is found within Chapter 626, Part I, entitled Insurance Representatives; Licensing Procedures and General Requirements. Section 626.112(8), Florida Statutes, states:
626.112 License and appointment required; agents, customer representatives, solicitors, adjusters, insurance agencies, service representatives, managing general agents, claims investigators.
* * *
(8) (b) An insurance agency shall, as a condition precedent to continuing business, obtain an insurance agency license if the department finds that, with respect to any majority owner, partner, manager, director, officer, or other person who manages or controls the agency, any person has, subsequent to the effective date of this act:
* * *
4.d. Misrepresented any insurance policy or annuity contract, or used deception with regard to any policy or contract, done either in person or by any form of dissemination of information or advertising.
* * *
4.i. In the conduct of business, engaged in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited under part X of this chapter.
* * *
6. Willfully circumvented the requirements or prohibitions of this code.
The facts do not reveal a violation of Section 626.112(8)(b)4.d, Florida Statutes. Based upon actions by James K. Mitchell as director and officer violations have been established concerning Sections 626.112(8)(b)4.i. and 6., Florida Statutes. James K. Mitchell's actions as director and officer in entering into the business arrangement with the Barnett entities and the subsequent conduct of business pursuant to that arrangement detailed in the fact finding, have resulted in deceptive acts and practices by James Mitchell & Company and its insurance agent employees and have led to the willful circumvention of the requirements and prohibitions of the Insurance Code by James Mitchell & Company and its insurance agent employees. Therefore, as a condition precedent to continuing business, James Mitchell & Company must obtain an insurance agency license from the Department of Insurance.
COUNT IX
Paragraphs 1-71 are hereby realleged and incorporated by reference.
JAMES K. MITCHELL, as President and chief controlling officer of JMC, is responsible for the activities and attendant violations of that company as cited herein and was also personally engaged in the violations set forth herein.
IT IS THEREFORE CHARGED THAT JAMES K.
MITCHELL, in the conduct of his insurance activities in Florida:
Has knowingly aided, assisted, procured, advised or abetted any person in the
violation of, or to violate, a provision of the Insurance Code. [Section 626.621(12), Florida Statutes]
Has demonstrated a lack of fitness or trustworthiness to engage in the business
of insurance. [Section 626.611(7), Florida Statutes]
As alleged in Count IX, James K. Mitchell has violated Section 626.621(12), Florida Statutes, by knowingly aiding, assisting, procuring, advising, or abetting other persons to violate provisions of the Insurance Code in a manner previously described and is subject to the penalties set forth in Section 626.621, Florida Statutes.
Section 626.611(7), Florida Statutes, as found within Chapter 626, Part I, entitled Insurance Representatives; License and Procedures and General Requirements. Section 626.611(7), Florida Statutes, states:
626.611 Grounds for compulsory refusal, suspension, or revocation of agent's,
title agency's, title agency's solicitor's, adjuster's, customer representative's, service representative's, managing general agent's, or claims investigator's license or appointment.--The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, solicitor, adjuster, customer representative, service representative,
managing general agent, or claims investigator, and it shall suspend or revoke the
eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist:
* * *
(7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.
For reasons previously described, James K. Mitchell has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance, as alleged in Count IX, has violated Section 626.611(7), Florida Statutes, and is subject to the discipline in Section 626.611, Florida Statutes.
COUNT X
74. Paragraphs 1-73 are hereby realleged and incorporated by reference.
73. JAMES MITCHELL & COMPANY and JAMES K. MITCHELL, as "affiliated parties" of licensees, have engaged in conduct, as
cited herein, that demonstrates a lack of fitness or trustworthiness to engage in the business of insurance, is hazardous or detrimental to the insurance-buying public
and constitutes a violation of the Insurance Code or Rules of the Department of Insurance.
IT IS THEREFORE CHARGED THAT JAMES MITCHELL & COMPANY and JAMES K. MITCHELL, in the
conduct of their insurance activities in Florida:
(1)(a) Have engaged in conduct that is:
An act that demonstrates a lack of fitness or trustworthiness to engage in the business of insurance, is hazardous to the insurance buying public, or constitutes business operations that are a detriment to policyholders, stockholders, investors, creditors, or the public;
A violation of any provision of the Florida Insurance code;
A violation of any rule of the department.
This count in ambiguous in its allegations, in that it fails to set forth any particular statute or rule which has been violated. Its overall reference to actions of James Mitchell & Company and James K. Mitchell tends to reflect prior allegations as set forth in Counts I through IX. Consequently, no finding is made of a violation of Count X as it pertains to James Mitchell & Company or James K. Mitchell.
There is an overall prayer for relief which follows Count X. It invites James Mitchell & Company and James K. Mitchell to show cause why the Department of Insurance should not enter an order to cease and desist consistent with the authority set forth in Sections 624.310, 626.9541 and 626.9571, Florida Statutes.
Section 624.310, Florida Statutes, is within Chapter 624, Florida Statutes, Part II; in pertinent part it states:
Enforcement; cease and desist orders; removal of certain persons; fines.--
DEFINITIONS. For the purposes of this section, the term:
"Affiliated party" means any person who directs or participates in the conduct of
the affairs of a licensee and who is:
A director, officer, employee, trustee, committee member, or controlling stockholder of a licensee or a subsidiary or service corporation of the licensee, other than a controlling stockholder which is a holding company, or an agent of a licensee or a subsidiary or service corporation of the licensee;
A person who has filed or is required to file a statement or any other information required to be filed under s. 628.461 or
s. 628.4615;
A stockholder, other than a stockholder that is a holding company of the licensee, who participates in the conduct of the affairs of the licensee; or
An independent contractor who:
Renders a written opinion required by the laws of this state under his professional credentials on behalf of the licensee, which opinion is reasonably relied on by the department in the performance of its duties; or
Affirmatively and knowingly conceals facts, through a written misrepresentation to the department, with knowledge that such misrepresentation:
Constitutes a violation of the insurance code or a lawful rule or order of the department; and
Directly and materially endangers the ability of the licensee to meet its obligations to policyholders.
For the purposes of this subparagraph, any representation of fact made by an independent contractor on behalf of a licensee, affirmatively communicated as a representation of the licensee to the independent contractor, shall not be considered a misrepresentation
by the independent contractor to the department.
"Licensee" means a person issued a license or certificate of authority or approval under this code or a person registered under a provision of this code.
ENFORCEMENT GENERALLY. The department may institute such suits or other legal proceedings as may be required to enforce any provision of this code. If it appears that any person has violated any provision of this code for which criminal prosecution is provided, the department shall provide the appropriate state attorney or other prosecuting agency having jurisdiction with respect to such prosecution with the relevant information in its possession.
CEASE AND DESIST ORDERS.
The department may issue and serve a complaint stating charges upon any licensee or upon any affiliated party, whenever the department has reasonable cause to believe that the person or individual named therein is engaging in or has engaged in conduct that is:
An act that demonstrates a lack of fitness or trustworthiness to engage in the business
of insurance, is hazardous to the insurance buying public, or constitutes business operations that are a detriment to policyholders, stockholders, investors, creditors, or the public;
A violation of any provision of the Florida Insurance Code;
A violation of any rule of the department;
A violation of any order of the department; or
A breach of any written agreement with the department.
* * *
James K. Mitchell is a "licensee" as defined. James K. Mitchell is also an "affiliated party" as defined. James Mitchell & Company is neither a "licensee" nor is it an "affiliated party" as defined. James K. Mitchell is subject to a cease and desist order pursuant to Section 624.310, Florida Statutes, for reasons previously described. James Mitchell & Company is not subject to a cease and desist order pursuant to that provision.
In the overall prayer for relief set forth in the latter paragraph to the order to show cause further reference is made to Section 626.9541, Florida Statutes, as creating some authority for entering a cease and desist order. Section 626.9541, Florida Statutes, does not establish that authority. It defines certain practices as constituting unfair methods of competition and unfair acts or practices but is, alone, without a remedy.
Reference in the overall summarizing prayer for relief found in the last paragraph to the order to show cause to Section 626.9571, Florida Statutes, as creating the opportunity to impose a cease and desist order is without
significance. Section 626.9571, Florida Statutes, establishes certain procedural information concerning the conduct of hearings that address Part X to Chapter 626, Florida Statutes.
However, James Mitchell and Company and James K. Mitchell are subject to a cease and desist order calling for the Respondents to discontinue the conduct which has been found to violate Section 626.9541, Florida Statutes. Authority for the order to cease and desist is found at Section 626.9581, Florida Statutes, which states:
626.9581 Cease and desist and penalty orders.--After the hearing provided in
s. 626.9571, the department shall enter a final order in accordance with s. 120.59.
If it is determined that the person charged has engaged in an unfair or deceptive act or practice of the unlawful transaction of insurance, the department shall also issue an order requiring the violator to cease and desist from engaging in such method of competition act, or practice of the unlawful transaction of insurance. . . .
The reference in the concluding paragraph to the order to show cause concerning the imposition of agency license requirements pursuant to Section 626.112, Florida Statutes, was previously addressed in the discussion of Count VIII.
The last sentence calls upon James K. Mitchell to show cause why an order should not be entered suspending or revoking his insurance license and eligibility for licensure and to impose other penalties as provided in Sections 626.6111, 626.621 and 626.681, Florida Statutes. As described in the discussion of Count IX James K. Mitchell is subject to discipline pursuant to Section 626.611 and 626.621, Florida Statutes.
Section 626.681, Florida Statutes, is within Chapter 626, Part I entitled Insurance Representatives; Licensing Procedures and General Requirements. Section 626.681, Florida Statutes, states:
626.681 Administrative fine in lieu of suspension, revocation, or refusal of license or appointment.
Except as to insurance agencies, if the department finds that one or more
grounds exist for the suspension, revocation, or refusal to renew or continue any license or appointment issued under this chapter,
the department may, in its discretion, in lieu of such suspension, revocation, or refusal, and except on a second offense or when such suspension, revocation, or refusal is mandatory, impose upon the licensee or appointee an administrative penalty in an amount up to $500 or, if the department has found willful misconduct or willful violation on the part of the licensee or appointee, up
to $2,500. The administrative penalty may, in the discretion of the department, be
augmented by an amount equal to any commissions received by or accruing to the credit of the licensee or appointee in connection with any transaction as to which the grounds for suspension, revocation, or refusal related.
With respect to insurance agencies, if the department finds that one or more
grounds exist for the suspension, revocation, or refusal to renew or continue any license issued under this chapter, the department may, in its discretion, in lieu of such suspension, revocation, or refusal, impose upon the licensee an administrative penalty in an amount not to exceed $10,000 per violation.
The administrative penalty may, in the discretion of the department, be augmented by an amount equal to any commissions received by or accruing to the credit of the licensee in connection with any transaction as to which the grounds for suspension, revocation, or refusal related.
The department may allow the licensee or appointee a reasonable period, not to exceed
30 days, within which to pay to the department the amount of the penalty so imposed. If the licensee or appointee fails to pay the penalty in its entirety to the department within the period so allowed, the license or appointments of the licensee or appointee shall stand suspended or revoked or renewal or continuation shall be refused, as the case may be, upon expiration of such period.
This creates an alternative means of discipline for the offenses by James K. Mitchell which have been previously described.
It has been contended by the Respondents that Section 626.988(8), Florida Statutes, would allow the activities contemplated by this business arrangement with the Barnett entities. Again Section 626.988(8), Florida Statutes, states:
(8) In the event that a national bank is authorized, other than as authorized by
12 U.S.C. s. 92, to sell one or more types of annuities in Florida pursuant to federal law, then Florida chartered banks, savings and loan associations and savings banks, and federally chartered savings and loan associations and savings banks shall be
authorized to sell the same type of annuities notwithstanding the provisions of this section; provided, however, that any such
sales by any bank, savings bank, or savings and loan association shall be made in compliance with all other applicable requirements of the Florida Insurance Code and that such sales are made through a licensed resident agent. Nothing in this subsection is intended to grant national banks, federal savings and loan associations, or federal savings banks any power or authority in addition to those granted under federal law nor to provide that federal law supersedes this section. Nothing herein shall be construed to limit the Florida Comptroller's authority pursuant to chapters 655, 658, and 665. Prior to any financial institution employing or contracting with
a licensed resident agent to sell annuities, the financial institution shall notify the Department of Insurance and shall obtain approval to sell annuities from the Department of Banking and Finance. The prohibition set forth in subsection (2) of this section shall apply with respect to any agent during any period in which any financial institution is enjoined from selling annuities in Florida with respect
to its authority to do so under federal law or Florida statute. For the purposes of this subsection, "national bank" means a bank authorized and regulated pursuant to the National Bank Act, 12 U.S.C., ss. 21 et seq.
The decisions by the United States Office of the Comptroller of the Currency which allow national banks to sell one or more types of annuities in Florida under federal law were upheld in the decision in Variable Annuity Life Company v. Clarke, 786 F.Supp. 639 (S.D. Tex. 1991) and reversed in Variable Annuity Life Company v. Clarke, 998 F.2d 1295 (5th Cir. 1993), reh. den. 13F.3d 833 (5th Cir. 1994), a decision stayed upon appeal.
Barnett Banks, Inc. has sought and obtained approval from the Florida Department of Banking and Finance to sell annuities in Florida. Given the status of the federal court proceedings concerning the rights and opportunities of national banks to sell annuities, a Florida chartered bank arguably might have an interim opportunity to sell one or more types of annuities in Florida pending the outcome of the appeal in federal court. Yet, the arrangement between James Mitchell & Company and the Barnett entities is one in which James Mitchell & Company is the principal involved with the sale of annuities through Mitchell agents, not Barnett employees. Although Barnett Bank has obtained approval from the Florida Department of Banking and Finance allowing it to sell annuities, Barnett Banks, Inc. has not notified the Department of Insurance of that intention. In summary, the case was not brought for the purposes of establishing the rights which Barnett Banks, Inc. has to proceed pursuant to Section 626.988(8), Florida Statutes, and has not established those rights.
The decision by the hearing officer in Great Northern Insured Annuity Corporation, et al. Petitioners v. Department of Insurance, Respondent, DOAH Case No. 92-4332RP, concerning the challenge to proposed rules 4-223.001 - .011, which discussed in summary fashion the right of Barnett Banks, Inc. and its subsidiaries under Section 626.988(8), Florida Statutes, does not control the outcome of the present litigation. The doctrine of collateral estoppel discussed in the decisions Trucking Employees of North Jersey v. Romano, 457 So.2d 843 (Fla. 1984) and Brown v. Department of Professional Regulation, 602 So.2d 1337 (Fla. 1st DCA 1992) does not control the outcome in the present case. In this proceeding the Department of Insurance is not estopped from litigating issues pertaining to the business arrangement between the Respondents and the Barnett entities.
Based upon a consideration of the fact found and the conclusions of law reached, it is,
RECOMMENDED:
That a final order be entered which dismisses Counts I, II, IV, V, VII, and X as to James Mitchell & Company, and that finds James Mitchell & Company in violation of Counts III, VI, and VIII; that finds James K. Mitchell in violation of Count IX, and dismisses Counts VII and X as to James K. Mitchell; that revokes the nonresident life insurance agent's license issued to James K. Mitchell by the Department of Insurance; that orders James Mitchell & Company and James K. Mitchell in his capacity as officer and director of James Mitchell & Company to cease and desist the prohibited practices that have been described in the recommended order; and that requires James Mitchell & Company as an insurance agency operating in Florida to obtain an insurance agency license before it continues to do business in Florida.
DONE and ENTERED this 30th day of August, 1994, in Tallahassee, Florida.
CHARLES C. ADAMS, 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 30th day of August, 1994.
APPENDIX
The following discussion is given concerning the proposed findings of fact by the parties:
Petitioner's Facts:
Paragraphs 1 and 2 constitute legal argument. Paragraphs 3 and 4 are subordinate to facts found.
Paragraphs 5 and 6 are not necessary to the resolution of the dispute. Paragraphs 7 and 8 are subordinate to facts found.
Paragraphs 9 through 11 are not necessary to the resolution of the dispute. Paragraphs 12 through 14 are subordinate to facts found.
Paragraph 15 constitutes legal argument.
Paragraph 16 is not necessary to the resolution of the dispute. Paragraph 17 is not relevant.
Paragraphs 18 through 21 are subordinate to facts found with the exception that the last sentence to Paragraph 21 constitutes legal argument.
Paragraph 22 is not relevant.
Paragraphs 23 through the first sentence of Paragraph 30 are subordinate to facts found. The remaining sentences to Paragraph 30 constitutes legal argument.
Paragraphs 31 and 32 constitute legal argument. Paragraphs 33 through 37 are subordinate to facts found.
Paragraph 38 is not necessary to the resolution of the dispute.
Paragraphs 39 through the first sentence in 44 are subordinate to facts found. The second sentence in Paragraph 44 constitutes legal argument.
Paragraphs 46 through 49 constitutes legal argument. Paragraphs 50 through 55 are subordinate to facts found. Paragraphs 56 and 57 constitute legal argument.
Paragraphs 58 through the first sentence in Paragraph 61 are subordinate to facts found. The latter sentence constitutes legal argument.
Paragraph 62 is subordinate to facts found. Paragraphs 63 through 65 constitutes legal argument.
Paragraphs 66 through 72 are subordinate to facts found to the extent that they are consistent with the order to show cause fact allegations. Otherwise, they have not been utilized.
Paragraph 73 is not relevant.
Paragraph 74 is subordinate to facts found.
Paragraph 75 in the first sentence is subordinate to facts found. The second sentence is not necessary to the resolution of the dispute.
Paragraph 76 is not necessary to the resolution of the dispute. Paragraphs 77 and 78 constitute legal argument.
Paragraphs 79 and 80 are not relevant in that there has been no allegation of violation of any substantive guidelines in the order to show cause which would be necessary if the Department of Insurance intended to prosecute the Respondents for such violation.
Paragraphs 81 through 92 constitutes legal argument. Paragraphs 93 through 102 are subordinate to facts found.
Paragraph 103 is not necessary to the resolution of the dispute. Paragraphs 104 through 107 are subordinate to facts found.
Paragraph 108 constitutes legal argument. Paragraph 109 is subordinate to facts found. Paragraphs 110 and 111 constitute legal argument.
Paragraphs 112 through 115 are not necessary to the resolution of the dispute.
Paragraph 116 is subordinate to facts found.
Paragraphs 117 and 118 constitute legal argument. Paragraph 119 is subordinate to facts found.
Paragraphs 120 through 124 are not necessary to the resolution of the dispute.
Paragraphs 125 and 126 are subordinate to facts found.
Paragraphs 127 through 130 are not necessary to the resolution of the dispute.
Paragraph 131 is subordinate to facts found. Paragraphs 132 through 135 constitute legal argument. Paragraph 136 is subordinate to facts found.
Paragraphs 137 through 139 are not necessary to the resolution of the dispute.
Paragraphs 140 through 150 are subordinate to facts found.
Paragraphs 151 through 154 are rejected in the suggestion that there was competent proof showing the truth of the complaints.
Respondents' Facts:
Paragraphs 1 through 3 are not necessary to the resolution of the dispute.
Paragraphs 4 through 6 are subordinate to facts found with the exception that customers were informed of the ceiling on interest rate return on annuities.
Paragraph 7 is subordinate to facts found with the exception that the last sentence constitutes legal argument.
Paragraph 8 is subordinate to facts found with the exception of the language in the last phrase to sentence 4 which is not necessary to the resolution of the dispute and the remaining portion of Paragraph 8 which constitutes legal argument.
The first two sentences to Paragraph 9 are not necessary to the resolution of the dispute. The remaining sentences to Paragraph 9 are subordinate to facts found with the exception that the proposed facts do not overcome the fact finding in the recommended order related to the opportunity which Barnett has pursuant to the services agreement to influence James Mitchell & Company's hiring practices.
Paragraphs 10 and 11 are subordinate to facts found with the exception of the last sentence in Paragraph 11 constitutes legal argument.
Paragraphs 12 through 14 are subordinate to facts found with the exception that the fiduciary responsibility of Barnett Banks Trust Company, N.A. is limited in its liability for its acts. The sentence dealing with responsibilities of Barnett Banks Trust Company, N.A. in the absence of the participation of the James Mitchell & Company service centers is not relevant nor is the discussion of the usual fee for providing trust services in retail trust.
Paragraph 15 is not necessary to the resolution of the dispute.
Paragraph 16 is subordinate to facts found with the exception that the discussion of Barnett practices unassociated with this case and trust arrangements unaffiliated with the present case and the discussion of the life of retail trusts and other Barnett transactions are not relevant.
Paragraph 17 is not necessary to the resolution of the dispute with the exception of the reference to 40,000 customer participants. Neither is Paragraph 18 necessary to the resolution of the dispute in that the Department of Insurance failed to prove that any Florida complaints were true.
Paragraphs 19 through 24 are rejected in any suggestion by the proposed facts that the Department of Insurance has granted approval to the program between James Mitchell & Company and the Barnett entities or failed to properly inform the Respondents concerning alleged violations. Finally, the order to
show cause does not call upon the Respondents to defend against alleged violations of substantiative guidelines.
Paragraphs 25 through 39 as they discuss the guidelines have no significance in that the Department of Insurance has not affirmatively pled a violation of substantive guidelines and the Respondents may not defend by reference to the other factual circumstances in the enforcement history of the Department of Insurance on the theory that the Department of Insurance has been inconsistent in its regulatory function because the facts in the other cases are not sufficiently similar to the present facts.
Paragraph 40 in its suggestion that the Department of Insurance has not maintained a proper subject matter index and provided proper access to statements of precedent and policy is rejected.
Paragraph 41 constitutes legal argument. Paragraph 42 is subordinate to facts found.
Paragraphs 43 through 46 constitute legal argument. Paragraph 47 is contrary to facts found.
Paragraphs 48 through 50 constitutes legal argument.
Paragraph 51 is subordinate to facts found with the exception of the reference to complaints in other states or by the Office of the Comptroller which is not relevant.
Paragraph 52 constitutes legal argument.
Paragraph 53 is subordinate to facts found with the exception that the last sentence constitutes legal argument as does Paragraph 54.
Paragraph 55 is subordinate to facts found with the exception that the last sentence is contrary to facts found in that the service agreement contemplates that Barnett Banks, Inc. shall be consulted with respect to the propriety and legality of all promotional materials. This would include advertisement of insurance products by James Mitchell & Company.
Paragraphs 56 and 57 are subordinate to facts found. Paragraphs 58 and 59 constitute legal argument.
COPIES FURNISHED:
William R. Scherer, Esquire James F. Carroll, Esquire Kimberly Kisslan, Esquire Albert L. Frevola, Jr., Esquire Conrad, Scherer, James & Jenne Eighth Floor
633 South Federal Highway Fort Lauderdale, FL 33301
Bruce Culpepper, Esquire
Pennington, Haben, Wilkinson, Culpepper, Dunlap, Dunbar, Richmond & French, P.A.
306 North Monroe Street Tallahassee, FL 32399-0333
Dennis Silverman, Esquire Nancy J. Aliff, Esquire Robert Prentiss, Esquire Department of Insurance 612 Larson Building
200 East Gaines Street Tallahassee, FL 32399-0333
Tom Gallagher, Commissioner 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. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF INSURANCE AND TREASURER, )
)
Petitioner, )
)
vs. ) CASE NO. 93-2422
) JAMES MITCHELL AND COMPANY, d/b/a ) EMERALD PREFERRED SERVICES; JMC )
INSURANCE SERVICES, INC., d/b/a ) EMERALD INSURANCE SERVICES CORPORATION; ) JMC FINANCIAL CORPORATION, d/b/a ) EMERALD FINANCIAL SERVICES CORPORATION, ) AND JAMES K. MITCHELL, INDIVIDUALLY, )
)
Respondents. )
)
)
CORRECTION TO RECOMMENDED ORDER
The recommended order is corrected to reflect that the hearing was concluded on March 8, 1994. See Rule 60Q-2.032, Florida Administrative Code.
DONE and ENTERED this 31st day of August, 1994, in Tallahassee, Florida.
CHARLES C. ADAMS, 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 31st day of August, 1994.
COPIES FURNISHED:
William R. Scherer, Esquire Conrad, Scherer, James & Jenne Eighth Floor
633 South Federal Highway Fort Lauderdale, FL 33301
Bruce Culpepper, Esquire
Pennington, Haben, Wilkinson, Culpepper, Dunlap, Dunbar, Richmond & French, P.A.
306 North Monroe Street Tallahassee, FL 32399-0333
Dennis Silverman, Esquire Department of Insurance 612 Larson Building
200 East Gaines Street Tallahassee, FL 32399-0333
Tom Gallagher, Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level
Tallahassee, FL 32399-0300
================================================================= AGENCY FINAL ORDER
=================================================================
THE TREASURER OF THE STATE OF FLORIDA DEPARTMENT OF INSURANCE
IN THE MATTER OF:
JAMES MITCHELL AND COMPANY, d/b/a
EMERALD PREFERRED SERVICES; JMC CASE NO. 92-L-273DTG INSURANCE SERVICES, INC., d/b/a DOAH Case No. 93-2422 EMERALD INSURANCE SERVICES
CORPORATION; JMC FINANCIAL CORPORATION, d/b/a EMERALD FINANCIAL SERVICES CORPORATION, AND JAMES K. MITCHELL, INDIVIDUALLY,
Respondents.
/
FINAL ORDER
This cause came before the undersigned Treasurer and Insurance Commissioner of the State of Florida, acting in his capacity as Insurance Commissioner, for consideration and final agency action. On March 11,1993, an Order to Show Cause was filed alleging the Respondents engaged in violations of chapters 624 and 626, F.S.. The Respondents timely filed a request for a formal proceeding pursuant to section 120.57(1), F.S. Pursuant to notice, the matter was heard before Charles C. Adams, Hearing Officer for the Division of Administrative Hearings, beginning February 7, 1994 and concluding on March 8, 1994.
After consideration of the evidence, testimony, exhibits and post-hearing submissions of the parties, on August 30, 1994, the Hearing Officer rendered a Recommended Order (Attached as Exhibit "A") covering all findings of fact and conclusions of law and also containing a five page appendix of rulings on proposed findings of both parties. The Hearing Officer recommended that the Respondent, James K. Mitchell's license as a nonresident life insurance agent be revoked; that an Order to Cease and Desist be entered against Respondents, James
K. Mitchell and James Mitchell & Company; and that Respondent, James Mitchell & Company be required to be licensed as an insurance agency before it continues business in Florida.
Thereafter, on October 3, 1994, in response to the Recommended Order, the Petitioner filed 28 pages of double spaced numbered Exceptions directed to specific Conclusions of Law. Respondents filed 89 pages of single spaced Exceptions. With its Exceptions, Respondent also filed a 98 page Appendix. The undersigned has fully considered the parties' filed Exceptions and related Appendix and pursuant to rule 28-5, F.A.C. rendered a ruling on each exception, with a brief statement of the grounds which support each ruling.
References to the Transcript of Hearing are represented by T. , followed by the page number. References to Exhibits are represented by Pet. Ex. or JMC Ex. followed by the exhibit number.
ACCEPTANCE OF FINDINGS OF FACT
Under the Administrative Procedures Act, a Hearing Officer's Findings of Fact in a Recommended Order are entitled to great weight and may not be rejected or modified if supported by competent substantial evidence from which the findings could reasonably be inferred. Heifetz v. Dept. of Business Regulation,
475 So.2d 1277 (Fla. 1st DCA 1985). Further in Gruman v. State, 379 So.2d 1313 (Fla. 2nd DCA 1980), the court states:
The findings of a trier of fact are entitled to as much weight and respect as the verdict of a jury. Hamilton v. Title Insurance Agency of Tampa Inc. 338 So.2d 569 (Fla. 2d
DCA 1976). They may not be ignored or overturned unless review of the entire record reveals a total lack of substantial evidence to support them. Chakford v. Strum, 87 So.2d 419
(Fla. 1956). Florida's Administrative
Procedure Act expressly adopted those principles. s. 120.57(1)(b)(9), Fla. Stat.
Also, the agency may not reweigh the evidence, even if conflicting, where there is competent evidence in the record to support the findings of the Hearing Officer. AT&T Communications v. Marks, 515 So.2d 741 (Fla. 1987).
The Hearing Officer in this cause after review of 32 volumes of transcript and 2 boxes of exhibits made 96 Findings of Fact. After a review of the complete record, including exceptions filed by each party, and applying the legal standard recited above, find that these Findings of Fact are based on competent substantial evidence and are therefore adopted in full in this Final Order.
MODIFICATIONS TO CONCLUSIONS OF LAW
I have reviewed the Conclusions of Law prepared by the Hearing Officer. The Conclusions of Law of the Hearing Officer may be rejected and modified by the agency responsible for the enforcement of the law. Public Employees
Relations Commission v. Dade County Police Benevolent Association, 467 So.2d 987 (Fla. 1985); Maynard v. Florida Unemployment Appeals Commission, 609 So.2d 143 (Fla. 4th DCA 1992); Harloff v. City of Sarasota, 575 So.2d 1324 (Fla. 2nd DCA 1991); Siess v. Department of Health and Rehabilitative Services, 468 So.2d 478 (Fla. 2d DCA 1985); Alles v. Department of Professional Regulation, 423 So.2d 624 (Fla. 5th DCA 1982).
The Department of Insurance is the state agency responsible for the interpretation, implementation and enforcement of the Florida Insurance Code, and as such I have relied upon its expertise and experience with respect to the proper interpretation of the Insurance Code to reject Conclusion of Law numbers 117, 118, 119, 122, and 125 and have made the following substituted Conclusions of Law as well as those contained in subheading II herein:
James Mitchell & Company is not a "life agent" as defined in Section 626.779, F.S., nor is it a "life insurer" as defined at Section 626.780, F.S.. Further, James Mitchell & Company is not an "insurer" as defined in Section 624.03, F.S.. Rather, James Mitchell & Company is an "insurance agency" as defined in Section 626.094, F.S..
An insurance agency is the entity whereby insurance agents join to pursue their business interests. See s. 626.094, F.S. An insurance agency could not function without licensed agents.
Insurance agencies may not operate lawfully except through licensed agents or solicitors. In general, the statutory scheme in Florida does not mandate the licensure of an insurance agency. There are specific exceptions to this general rule and when one of the triggering events occurs, an insurance agency is required to obtain a license. See ss. 626.112 and 626.172, F.S. Where a license has been determined to be necessary, the agency's license may, for future violations, become subject to disciplinary action including revocation. However, in most cases an insurance agency does not hold a license that can be revoked. The Legislature was aware of this when it drafted s. 626.988, F.S. Thus, the specific limitation in s. 626.988(2), F.S., was directed to agents and solicitors.
The scope of s. 626.988, F.S., necessarily and reasonably encompasses the regulation of agents, solicitors, insurance companies, and insurance agencies in order for the Department to effectively implement the purposes of the enabling legislation. Section 626.988, F.S., specifically mentions 'agents' and 'solicitors'. However, section 626.988, F.S., regulates the relationship between financial institutions and the agents and solicitors. This prohibited relationship encompasses more than solicitors and agents, because it focuses on financial institutions' entry into insurance activities. As stated in Glendale Fed. S & L. Ass'n v. Fla. Dept. of Ins., 587 So.2d 534 (Fla. 1st DCA 1991) rev. denied, 599 So.2d 656 (Fla. 1992), the legislature was guarding against the dangers of financial institutions becoming involved in the business of insurance: the prevention of coercion, unfair trade practices, and undue concentration of resources. Limiting the scope to agents and solicitors ignores the nature and definition of insurance agencies.
James Mitchell & Company is associated with Barnett Banks, Inc. with respect to the sale of life insurance products, as prohibited in s. 626.988(2), F.S., as alleged in Count II.
James Mitchell & Company is associated with Barnett Banks, Inc. with respect to the sale of life insurance products, as prohibited in s. 626.988(2), F.S., as alleged in Count III.
James Mitchell & Company is associated with Barnett Banks, Inc. with respect to the sale of life insurance products, as prohibited in s. 626.988(2), F.S., as alleged in Count IV.
PRELIMINARY MATTER
During the course of review of the Hearing Officer's Recommended Order and preparation of this Final Order, the United States Supreme Court rendered a decision in the case of NationsBank of North Carolina N.A. et al. v. Variable Annuity Life Insurance Co., U.S., (1995); Case No. 93-1612 (Decided January 18, 1995)(hereinafter "NationsBank") which addressed one of the main issues relevant to this matter. I have carefully reviewed this decision and conclude that the
Court has on a very limited basis determined that judicial deference shall be granted to the Office of Comptroller of the Currency (OCC) in determining that, annuity sales are "incidental" to "the business of banking" under the National Bank Act, 12 U.S.C. s. 24, and that annuities are not insurance within the meaning of s. 92 (12 U.S.C. s. 92). The Court was silent as to how banks acting as brokers will be subject to state regulatory laws relating to the sale of annuities.
In part the Court held:
Specifically, the Comptroller considered the sales at issue "incidental" to "the business of banking" under the National Bank Act, Rev.
Stat. s. 5136, as amended, 12 U.S.C. s. 24 Seventh (1988 ed. and Supp. V). The Comptroller further concluded that annuities are not "insurance" within the meaning of s. 92; that provision, by expressly authorizing banks in towns of no more than 5,000 people to sell insurance, arguably implies that banks in larger towns may not sell insurance. The United States District Court for the Southern District of Texas upheld the Comptroller's conclusions as a permissible reading of the National Bank Act, but the United States Court of Appeals for the
Fifth Circuit reversed. We are satisfied that the Comptroller's construction of the Act is reasonable and therefore warrants judicial deference. (NationsBank at p.1)
Accordingly, the effect of the Supreme Court Opinion was the affirmation of the OCC authority to authorize national banks to sell annuities pursuant to the National Bank Act.
The Court went on to say:
The parties disagree about whether s. 92, by negative implication, precludes national banks located in places more populous than
5,000 from selling insurance. We do not reach this question because we accept the Comptroller's view that, for the purpose at hand, annuities
are properly classified as investments, not "insurance". (emphasis added)
Wherefore, the Court recognized that the classification of "annuities" as "investments" was specifically limited to the Comptroller's determination that national banks are authorized to sell annuities under 12 U.S.C. s. 24 Seventh of the National Bank Act as part of their authority to purchase and sell financial investment instruments.
The Court's opinion does not impact on the states' ability to regulate annuities as "insurance" under state law. Indeed the Court stated:
Treatment of annuities under state law, however, is contextual. States generally classify annuities as insurance when defining
powers of insurance companies and state insurance regulators. (NationsBank at p. 9)
Thus, the Court recognized the continued authority of states to regulate annuities as "insurance" in the context of state insurance laws, despite the Court's determination that annuities were not "insurance" in the context of 12
s. 92.
The states' right to regulate insurance, including annuities, when in conflict with federal law was recently affirmed in Barnett Bank of Marion County
N.A. v. Gallagher, 43 F.3d 631(11th Cir. 1995); Case No. 93-3508 (Decided January 30,1995). There the Circuit Court of Appeals was asked to decide if the district court "erred in concluding that FLA. Stat. ch. 626.988 regulates insurance, and in concluding that 12 U.S.C. s. 92 ('section 92') does not relate to insurance." The Court affirmed the district court judgment. The Court stated:
This Court concludes that section 92 neither 'specifically relates to the business of insurance,' 15 U.S.C. s. 1012(b), nor 'specifically requires,' Fabe, 1/ U.S.
at , 113 S.Ct at 2211, that apparently conflicting state laws be preempted.
Accordingly, under McCarran-Ferguson, FLA. Stat. ch. 626.988 may proscribe national-bank subsidiaries from conducting insurance activities within Florida
The Court thereafter held "that the district court correctly interpreted both the federal and state statutes at issue in this case."
Turning then to state law, Section 626.988(8), F.S., specifically provides:
(8) In the event that a national bank is authorized other than as authorized by 12
U.S.C. s. 92 to sell one or more types of annuities in Florida pursuant to federal law, then Florida chartered banks, savings and loan associations and savings banks, and federally chartered savings and loan associations and savings banks shall be authorized to sell the same type of annuities notwithstanding the provisions of this section; provided, however, that any such sales by any bank, savings bank, or savings and loan association shall be made in compliance with all other applicable requirements of the Florida Insurance Code and that such sales are made through a licensed resident agent. Nothing in this subsection is intended to grant national banks, federal savings and loan associations, or federal
savings banks any power or authority in addition to those granted under federal law nor to
provide that federal law supersedes this section. Nothing herein shall be construed to limit the Florida Comptroller's authority pursuant to chapters 655, 658, and 665. Prior to any
financial institution employing or contracting with a licensed resident agent to sell annuities, the financial institution shall notify the Department of Insurance and shall obtain approval
to sell annuities from the Department of Banking and Finance.... (emphasis added)
Relying on NationsBank as authorizing national banks to sell one or more types of annuities in Florida pursuant to federal law, the issue of whether there was a prohibited association of JMC with Barnett Banks with respect to the sale of annuities is rendered moot for purposes of this Final Order. However, for future reference and clarification of the prohibitions in s. 626.988, F.S., which concerns the sale of non-annuity insurance products, specified Conclusions of Law of the Hearing Officer are rejected and modified and discussed herein.
This is particularly important in this case due to the fact that pursuant to the JMC/Barnett Program as set forth below, the program specifically provided for the solicitation and sale of life insurance as well as annuities.
INTRODUCTION
This case is an example of the necessity for an Unfair Insurance Trade Practices Act (Part X, Chapter 626). Although the U.S. Supreme Court has determined that banks are permitted to sell annuities under federal banking law, the facts of this case demonstrate the attendant dangers and deceptions in the sale of annuities including sales which occur on the premises of a financial institution. This Final Order is based on the Findings of Fact of the Hearing Officer and the proper construction of the provisions of the Florida Insurance Code which the Department of Insurance is charged with enforcing.
The Respondents have been charged in the Order to Show Cause with violating numerous provisions of the Florida Insurance Code by participating in an insurance marketing program wherein James Mitchell & Company (JMC) has established a business association with Barnett Banks, Inc., a financial institution located in the State of Florida. The program is described as the Tax Advantage Account and is advertised on the premises of Barnett Bank Branch Offices. The customer's initial contact is with a Barnett Bank teller or other employee. If the customer meets certain criteria and expresses interest in the Tax Advantage Account, the teller or customer service representative refers the customer to a Tax Advantage Account Specialist, which in reality is a JMC insurance agent. The JMC agent then meets the customer, by appointment, on the premises of the Barnett Bank branch where the customer does his banking business. During the course of the meeting, the Tax Advantage Account Specialist explains to the customer the Tax Advantage Account, which involves the Barnett Bank Trust Company, N.A. acting as the trustee for the account. The JMC insurance agent does not disclose to the customer that he is an insurance agent selling an annuity.
The Tax Advantage Account program was initially started in August of 1990 and currently has approximately 40,000 participants and over 1 billion dollars invested.
UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE ACTS
The Hearing Officer in the Recommended Order found that James K. Mitchell, individually, and James Mitchell & Company violated the provisions of s.
626.9541(1)(b), F.S., which reads as follows:
626.9541 Unfair methods of competition and unfair or deceptive acts or practices defined.-
UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE ACTS - The following are defined as unfair methods of competition and unfair or deceptive
acts or practices:
False information and advertising generally.- Knowingly making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public:
In a newspaper, magazine, or other publication,
In the form of a notice, circular, pamphlet, letter, or poster,
Over any radio or television station, or
In any other way,
an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading.
FINDINGS OF FACT
Based on the Hearing Officer's Findings of Fact, I find that the following specific facts fully support the Hearing Officer's conclusion that the Respondents have violated s. 626.9541(1)(b), F.S.:
2. In August 1990, James Mitchell & Co., a corporation doing business in Florida under the fictitious name of Emerald Preferred Services, referred to in the agreement as agent and trustor, entered into a services agreement with Barnett Banks, Inc. and Barnett Banks Trust Company, N.A. as trustee. There was a companion trust agreement in which Emerald Preferred Services was trustor and Barnett Bank Trust Company, N.A. was trustee of a trust for the benefit of individuals referred to as participants. Those individuals would become participants by executing a participation agreement. The respective agreements involved the sale of insurance products in Barnett Branch Banks located in Florida.
6. Individual insurance agents licensed in Florida, together with divisional vice presidents, regional vice presidents and regional marketing directors work for
James Mitchell & Co. and its subsidiaries in carrying out the obligations that Emerald Preferred Services, later JMC Preferred Services, had committed to in the services agreement and trust agreement with Barnett Banks, Inc. and Barnett Banks Trust Company, N.A.
11. Under the business arrangement between the Mitchell company and the Barnett entities the insurance agents are referred to as Tax Advantage Account Specialists, not as insurance agents.
13. James K. Mitchell is chairman and CEO of James Mitchell & Co. He executed the original services agreement and trust agreement in behalf of James Mitchell & Co. and executed subsequent changes to those agreements as the principal officer for James Mitchell & Co.
32. Under the terms of the services agreement James Mitchell & Co. is obligated to prepare and implement the program to market insurance products as previously described, for the benefit of potential participants. James Mitchell & Co. is responsible for supervising and training its personnel as well as Barnett Banks, Inc. personnel.
In operation, the program works on the basis that Barnett Bank branch employees, including tellers and customer service representatives, refer customers to the James Mitchell & Co. insurance agents for purposes of having the insurance agents sell the products. The referrals come about as customers have questions that they present to bank employees concerning investments or through suggestions made by the bank employees based upon some knowledge about the bank customers financial situations, if it appears that the customers might be potential participants in the program. To qualify as a potential participant, the services agreement contemplates, and in practice the Barnett Bank branch personnel are aware, that the potential participant is an individual with at least $5,000.00 to invest. On average the individual participants have invested
$23,000.00.
Consistent with the services agreement, in discussing the program which involves the purchase of insurance products, the Barnett Bank branch employee describes the program as the Tax Advantage Account and describes the James Mitchell & Co. insurance agent as the Tax Advantage Account Specialist.
Customer appointments are scheduled by the Barnett Bank branch employee making a phone call to one of the five James Mitchell & Co. regional service centers where arrangements are made for the insurance agent to
meet the prospective customer. Ordinarily the appointments are scheduled for the branch bank at which the Barnett Bank customer does business.
An appointment card has been used at times which reflects the title "Tax Advantage Account Appointment" with the Barnett Bank logo and the word "Trustee" under the logo. The appointment card sets out the date, time, place, and telephone number for the appointment location and carries the signature of the Barnett Bank employee making the referral. In the appointment card text it is stated:
So that you may discover the considerable tax benefits associated with Barnett Bank's Tax Advantage Account, the following appointment has been set aside just
for you. Please present this card to the Tax Advantage Account representative.
The Tax Advantage Account representative referred to is the James Mitchell & Co. insurance agent.
In talking to the Barnett Bank customers, leading to the referral for appointment with a James Mitchell & Company insurance agent, Barnett Bank branch employees do not always make it clear that the James Mitchell & Co. insurance agent is not an employee of Barnett Bank, Inc. or its branch affiliate.
Barnett Bank brochures in the lobbies of Barnett Bank branch locations which have been used to describe the Tax Advantage Account, as established through the services agreement between James Mitchell & Company and the Barnett entities, prominently display the Barnett Bank logo and refer to the trustee with the word "Trustee." The text of the brochures has not always referred to the fact that life insurance products are being marketed. Such mention as has been made of James Mitchell & Company and its business name is in smaller print when referring to the fact that insurance products are distributed through James Mitchell & Co. under its business name. Moreover, given the basic design of the brochures it appears that the program is a Barnett Bank activity, notwithstanding the reference to the fact that the trustee does not engage in the offering or the sale of insurance products and that those products must be purchased through an entity licensed to offer such products. At times the brochures have been emerald green in color, symbolic of Barnett Bank.
The former use of the term Emerald in referring to the business name of James Mitchell & Co. and its arrangement with the Barnett entities, coincides with the green trademark color of Barnett Bank and the name of financial products offered by Barnett Banks, Inc. unassociated with James Mitchell & Co.
Separate annuity product brochures are provided by James Mitchell & Co. insurance agents. The brochures give the name of the underwriter/insurance company.
The Barnett Bank logo and reference to the word "Trustee" under that logo have been left out of the brochures for the most part. Barnett Bank is mentioned in the fact that products offered are not deposits and obligations of the bank and the products are not insured by the FDIC. The same caveats as set forth in the Barnett brochures. Moreover, in the James Mitchell brochures reference is made to the trustee in the Tax Advantage Account not engaging in the offer or sale of any insurance products to be held in the trust.
Reference is made to the fact that insurance products are distributed by James Mitchell & Co. in its business name. In these brochures reference is made to the nature of the annuity. These brochures are not located in the lobby.
The average age of a participant in the James Mitchell & Co. program with the Barnett entities is 60 to 61 years old.
In the course of appointments between James Mitchell & Co. insurance agents and the potential participants referred by Barnett Bank branch employees, the insurance agents often provide the prospective customers with business cards. Originally, the business card, in the upper left, in bold print, had the words "Tax Advantage Account" and to the upper right had the Barnett Bank logo with the word "Trustee" underneath the logo. Centered in the card would be the name of the person distributing the card described on the card as a Tax Advantage Account Specialist, with an address of the regional center from which the insurance products sold by the James Mitchell & Co. insurance agent would be serviced. The telephone number of that service center would also be found on the card. A horizontal line would be drawn at the bottom of the business card with the reference Emerald Insurance Services Corporation and Emerald Financial Corporation.
In 1992 and forward, the business card in the upper left named the person who was distributing the card and immediately underneath the name placed the reference to Tax Advantage Account Specialist, and to the right placed in bold print would be reference to the Tax Advantage Account. Below a horizontal line would be the address of the regional service center. Other information on the card would include reference to the fact that any securities that might be offered would be offered through JMC Financial Corp., member NASD and the fact that insurance services were offered by JMC Insurance Services Corp., with another reference to the name of the person whose business card was distributed, identified as Tax Advantage Account
Specialist, Registered Representative, licensed agent. Also on the new business card would be the comment "The Tax Advantage Account is a group trust account through which individuals may purchase selected products offering tax advantages." Neither in the prior business cards nor the more recent business cards are the customers specifically told that they are dealing with insurance agents.
Barnett Bank branch employees assign the James Mitchell insurance agent any available work space that is not taken up by other activities on the premises.
When the James Mitchell & Co. insurance agents meet prospective customers those meetings may take place at offices separated from the bank lobby, conference rooms which maintain privacy by glass dividers or doors, or at times at empty desks in the lobby not being used by Barnett Bank employees.
Typically, in a meeting with a prospective customer, the James Mitchell & Company insurance agent would refer to himself or herself as an employee of James Mitchell & Co., or in the past, before the name change, as an employee of Emerald. The insurance agents describe themselves as Tax Advantage Specialists. In the discussion the insurance agents would make reference to marketing investment products through the Tax Advantage Account. The prospective customer is told that the Tax Advantage Account is a trust account with the Barnett Trust Department. The prospective customer is also told that James Mitchell & Co. provides alternative investments for its customers.
Prior to December 1993, the locations at which the James Mitchell & Co. insurance agents performed their function within the bank premises did not contain any signage which would disclose the nature of the activity performed by the insurance agents. Since December 1993 there has been signage in bank branches where James Mitchell & Co. insurance agents perform their function. The signage stated:
There's One Word
For the Alternative Savings and Investment Experts We Provide.
PROFESSIONAL
Here's Proof:
Tax Advantage Account Specialist are employed by James Mitchell & Co.
Investment Officers are employed by Barnett Securities, Inc.
Business Development Officers are employed by Barnett Banks Trust Company, N.A.
PLEASE NOTE: Products offered through the Tax Advantage Account and Barnett Securities, Inc. as well as non-cash assets held in a Barnett
Banks Trust Company account are not FDIC insured, are not obligations of Barnett Bank are not guaranteed by the bank, and may involve some investment risk, including possible gain or loss of principal. In addition, dividends paid on some products may go up or down.
76. The signage or disclosure information which has been provided beginning December 1993 refers to the James Mitchell & Co. insurance agents as a Tax Advantage Account Specialist, not making it evident that these individuals are insurance agents.
Although the customers are granted access to the trust agreement, which describes the obligations of the trustee in this arrangement, and the customers are requested to sign an acknowledgment that the customer has read the trust agreement, typically the customers do not actually read the trust agreement. The James Mitchell & Co. employee is aware of that inattention to the details when it occurs.
The customer is not provided access to the services agreement during the course of the transaction to the extent that the trust agreement makes reference to the services agreement and the term set forth in the services agreement.
The James Mitchell insurance agent does not inform the prospective customer that Barnett Banks Trust Company, N.A. is receiving trust fees pursuant to the services agreement.
85. As part of the transaction, the customer typically provides a check in the amount necessary to fund the annuity (or in the past to pay for the life insurance premium), which is made payable to Barnett Bank Trust Company N.A. At times other funds transfers are utilized in paying for the product.
James Mitchell & Co. and the Barnett entities do not divulge to the customers the fact of, the amount of or method of payment of trust fees from James Mitchell & Company to Barnett Banks Trust Company, N.A.
The investment purposes which the customers have in mind in purchasing the insurance products to be held in trust are basically the same as direct purchases from insurance agents in settings unrelated to the type of business arrangement between James Mitchell & Co. and the Barnett Bank entities. (emphasis added
throughout) These facts indicate that the Respondents, James K. Mitchell, individually and James Mitchell & Company engaged in deceptive and misleading actions in the presentation of the Tax Advantage Account to the consuming public.
CONCLUSIONS OF LAW
The Hearing Officer in Conclusions of Law numbers 121, 124, 131 and 132 determined that the facts in this case constituted a violation of s.
626.9541(1)(b), F.S. These Conclusions of Law read as follows:
121. James Mitchell & Company is a "person" as defined in Section 626.9511(1), Florida Statutes, and is subject to the prohibitions set forth in Section 626.9541(1)(b), Florida Statutes. James Mitchell & Company has violated Section 626.9541(1)(b), Florida Statutes, in the manner alleged. Specifically, James Mitchell & Company has knowingly established its own written advertising, and benefited from Barnett advertising pursuant to the services agreement. James Mitchell & Company has made statements about, and benefited from statements by Barnett employees pursuant to the services agreement. The advertising and statements concerned insurance sales through the Tax Advantage Account by Mitchell Tax Advantage Account Specialists (insurance agents). By these arrangements James Mitchell & Company has placed before the consuming public information which is deceptive and misleading as to the fact that insurance products are being sold by insurance agents who work for James Mitchell & Company. James Mitchell & Company has committed these violations both by direct and indirect actions. Violations of Section 626.9541(1)(b), Florida Statutes, pertaining to the deceptive and misleading actions by James Mitchell & Company are found in the use of business cards which the James Mitchell & Company insurance agents provide to customers, appointment cards prepared by Barnett employees, and brochures disseminated by Barnett employees and Mitchell employees, which materials contribute to the deceptive and misleading nature of the Mitchell/Barnett program. The office layout in which the James Mitchell & Company insurance agents market the products on the premises of the Barnett branch banks contributes to the deceptive and misleading nature of the program. The personal and telephonic solicitations of customers by James Mitchell & Company insurance agents and through actions of Barnett Bank employees, contemplated by the services agreement, contribute to the deceptive and misleading nature of the program. Recent attempts at disclosure directed to potential customers through the provision of signage and other changes to the program have not sufficiently clarified the nature of the insurance program and corrected the aforementioned violations.
124. The Department of Insurance has proven that James Mitchell & Co. violated Section 626.9541(1)(b), Fla Statutes, as alleged in count VI, in that the f established that James Mitchell & Company was a
that its insurance agents knowingly were deceptive misleading in their failure to make clear that were insurance agents selling insurance products.
The facts do not reveal a violation of Section 626.112(8)(b)4.d, Florida Statutes. Based upon actions by James K. Mitchell as director and officer violations have been established concerning Sections 626.112(8)(b)4.i. and 6., Florida Statutes. James K. Mitchell's actions as director and officer in entering into the business arrangement with the Barnett entities and the subsequent conduct of business pursuant to that arrangement detailed in the fact finding, have resulted in deceptive acts and practices by James Mitchell & Company and its insurance agent employees and have led to the willful circumvention of the requirements and prohibitions of the Insurance Code by James Mitchell & Company and its insurance agent employees. Therefore, as a condition precedent to continuing business, James Mitchell & Company must obtain an insurance agency license from the Department of Insurance.
As alleged in Count IX, James K. Mitchell has violated Section 626.621(12), Florida Statutes, by knowingly aiding, assisting, procuring, advising, or abetting other persons to violate provisions of the Insurance Code in a manner previously described and is subject to the penalties set forth in Section 626.621, Florida Statutes.
These conclusions accurately represent the proper application of the facts as found by the Hearing Officer to the statutory prohibition of the deceptive and misleading sale of insurance products, including annuities, as set forth in s. 626.9541 (1)(b), F.S.
One of the recommendations in the Hearing Officer's Recommended Order is: that a final order be entered which orders James
Mitchell & Company and James K. Mitchell, in his capacity as officer and director of James Mitchell & Company, to cease and desist the prohibited practices that have been described in the Recommended Order.
This recommendation relates primarily to Conclusion of Law number 121 of the Recommended Order. The Hearing Officer has indicated need for specific guidance and instruction in the cease and desist portion of the Final Order to assist JMC and James Mitchell in preventing any future violations of s.
626.9541(1)(b), F.S., by stating:
"Recent attempts at disclosure directed to potential customers through the provision of signage and other changes to the program
have not sufficiently clarified the nature of
the insurance program and corrected the aforementioned violations."
(Conclusion of Law number 121)
The fundamental issue which must be addressed in the cease and desist provisions is characterized by the Hearing Officer as follows:
"By these arrangements, James Mitchell & Company has placed before the consuming public information
which is deceptive and misleading as to the fact that insurance products are being sold by insurance agents who worked for James Mitchell & Company." (Conclusion of Law number 121)
Thus, even in light of the decision in NationsBank, supra, which allows banks to sell annuities, there is a need for assurance of a clear explanation of the relative roles related to the responsibilities of James Mitchell & Company and Barnett Bank in the marketing of annuity products.
Section 626.784(1), F.S., defines the purpose of a life insurance agent license as follows:
(1) The purpose of a license issued under this code to a life agent is to authorize and
enable the licensee actively and in good faith to engage in the insurance business as such an agent with respect to the general public and to facilitate the public supervision of such activities in the public interest, and not for the purpose of enabling the licensee to
receive an unlawful rebate of premium in the form of commission or other compensation as an agent or enabling the licensee to receive commissions or other compensations based upon insurance solicited or procured by or through him upon his own interests or upon those of other persons with whom he is closely associated in capacities other than as insurance agent.
The Legislature has specifically indicated that the licensing of life agents is "to facilitate the public supervision of such activities in the public interest." Therefore, activities or practices with regard to the sale of life insurance, including annuities, which serve to obscure or distract the consumer from realizing that a life insurance agent is selling a life insurance product is against the public interest.
The focus herein is not on the holding in NationsBank, which allows the sale of "annuities" by banks, but on the characterization of the sale of annuities as an insurance product under state law. As previously discussed, NationsBank was limited to the construction of federal banking laws by the Comptroller of the Currency in reaching the conclusion that banks were
authorized to sell "annuities". Under Florida law there is no question that annuities are insurance for regulatory purposes. Section 624.602(1), F.S., reads:
"Life insurance" is insurance of human lives.
The transaction of life insurance includes
also the granting of annuity contracts, including, but not limited to, fixed or variable annuity contracts; the granting of endowment benefits, additional benefits in event of death or dismemberment by accident or accidental means, additional benefits in event of the insured's disability; and optional modes of settlement of proceeds of life insurance. Life insurance does not include workers' compensation coverages. (emphasis added)
And, as previously discussed, the requirements of s. 626.988(8), F.S., further reinforce the obligation of licensed agents to sell the annuities in compliance with the Florida Insurance Code, i.e. s. 626.9541(1)(b), F.S.
Moreover, in this particular JMC/Barnett Bank program, it has been demonstrated on the record that the program was motivated by an attempt to avoid the anti-affiliation statute (s. 626.988(2), F.S.) and market insurance products through a financial institution via the utilization of tellers and customer service representatives of Barnett Bank as "prospectors" for insurance. The program was designed to disguise the role of JMC insurance agents by deliberately blurring the identity of the JMC agents by the referral process from Barnett Bank employees and the use of the term "Tax Advantage Account Specialist" when describing JMC agents.
The nature of the deception was illuminated by the testimony of Mr. Ross Hanson, General Counsel for JMC, wherein the following exchange was made:
By Mr. Silverman:
Q. Let's take the process back a little bit relative to the Barnett staffer who is making the referral. Did you believe that proper disclosure took place if the Barnett staffer did not make clear that the JMC agent was
not a Barnett Bank employee?
A. The way look at it is that it is not the Barnett staffer's obligation to make any disclosure concerning what the status of
the person that they are going to be meeting with is.
Q. Even if the customer wouldn't sit down with that agent if he knew who that agent was?
A. I think it's up to the agent to identify himself or herself, at which point in time the customer could make a decision whether they want to continue that interview or not
(T. 3104; emphasis added).
This is instructive in this cause because the Hearing Officer specifically found the deception was grounded in the failure of JMC to identify its employees as insurance agents.
The innate problem which occurs when an insurance agent conducts insurance agent activities on the premises of an ongoing non-insurance business must be addressed herein. In the present case, the premises is a Barnett Bank branch. When consumers go to a Barnett Bank branch for the purpose of using the banking services offered by Barnett, there is no reason for the consumer to automatically perceive that insurance sales activities may be also taking place on the premises by independent insurance agents who are not Barnett employees. Quite to the contrary, a consumer would logically believe that any services offered on the premises of Barnett would be services by Barnett. Thus, to avoid unfair trade practice violations, JMC and Barnett must both conduct themselves in a manner which avoids misleading or deceiving the consumer as to the difference between the business operations of Barnett and the sale of insurance products by JMC agents. Further, both JMC and Barnett should be held to a strict standard, because the presumption should be that behavior which does not affirmatively and prominently disclose that insurance is being sold by an insurance agent is very likely intended to hide the true nature of those activities.
II.
UNLAWFUL ASSOCIATION OF JAMES MITCHELL & COMPANY AGENTS
AND BARNETT BANKS, INC.
In the Order to Show Cause the Department of Insurance charged the Respondents with maintaining an unlawful "association" with Barnett Banks, Inc., including Barnett Bank's Trust Company, N.A. in violation of s. 626.988, F.S.
At the time the Order to Show Cause was issued, the right of national banks to sell annuities had not been clearly established. As the result of the NationsBank decision previously discussed, national banks are now permitted to sell annuities, therefore triggering the provisions of s. 626.988(8), F.S. Although the record did not establish that Barnett Bank was specifically proceeding in accordance with this subsection it is evident that the JMC/Barnett Program may now proceed as a contract between JMC and Barnett Bank to sell annuities, pursuant to s. 626.988(8), F.S.
The Hearing Officer in Finding of Fact number 95 discussed the applicability of s. 626.988(8), F.S. Finding of Fact number 95 reads as follows:
Neither has Barnett Bank established the factual predicate to sell one or more types of annuities in Florida in its own right pursuant to Section 626.988(8), Florida Statutes. The facts as presented in this case do not describe the independent attempt for Barnett Bank to sell
one or more types of annuities in Florida through licensed resident insurance agents directly affiliated with Barnett. Instead, the Barnett Bank entities have engaged in a business arrangement whereby the resident insurance agents are James Mitchell & Co. employees who sell insurance on the bank
premises under terms established by the services agreement. This approach does not contemplate an employment or contractual arrangement between these resident insurance
agents and Barnett after notifying the Department of Insurance that Barnett intends to sell one or more types of annuities in Florida. Therefore, the permission which Barnett Banks, Inc. has received from the Florida Department of Banking and
Finance to proceed under Section 626.988(8), Florida Statutes, is to no avail.
Invariably during the course of this litigation, Respondents have maintained that there was not an "association" between JMC and Barnett Banks, Inc., but on the other hand that s. 626.988(8), F.S., permitted JMC to sell annuities through Barnett Bank. These are clearly two inconsistent positions. The Hearing Officer's analysis and conclusions at the time were legally correct insofar as he did not have the counsel of the U.S. Supreme Court, which now allows national banks to sell annuities.
The "unlawful association" issue with respect to the sale of annuities through Barnett Banks is now moot in light of NationsBank and considering that the arrangement between JMC and Barnett Bank herein (JMC/Barnett program) has been authorized by the Comptroller of the State of Florida. 2/
The Respondents reliance on s. 626.988(8), F.S., as authorizing the subject program is much more compelling in the aftermath of NationsBank. Concurrently, the Respondents argument that there is no association between JMC and Barnett Bank must fall, since s. 626.988(8), F.S., contemplates either an employment or contractual relationship for the sale of annuities. Accordingly, it is determined that JMC was "associated" with Barnett Banks, since this issue is conclusively admitted via reliance upon s. 626.988(8), F.S.
However, I further recognize that the JMC/Barnett Bank program allowed for the sale of life insurance products. See Hearing Officer's Finding of Fact number 24. Although the prohibition on the sale of annuities is no longer a "live controversy," the possibility of the Respondents engaging in the unlawful sale of life insurance through an association with Barnett Banks may occur. For that reason, it is necessary that the Hearing Officer's Conclusions of Law's numbers 117, 118, 119, 122 and 125, be modified because they improperly held that James Mitchell & Company could not violate s. 626.988, F.S. These conclusions of law are rejected and the Conclusions of Law contained herein are made.
The Hearing Officer made numerous factual findings from the record fully describing the relationship between James Mitchell & Company insurance agents and Barnett Banks, Inc. The following Findings of Fact demonstrate the "association" between James Mitchell & Company and Barnett Banks, Inc:
Barnett Bank's Trust Company, N.A. is a subsidiary of Barnett Banks, Inc.
In addition, James Mitchell & Co. operates the subsidiaries JMC Financial Corporation and JMC Insurance Services Corporation which are engaged in the business venture with the Barnett entities.
Absent certain contingencies which have not occurred, James Mitchell Company agreed with Barnett Banks, Inc. to forego entering into any agreement with any commercial bank, savings and loan association, credit union or brokerage firm in Florida or Georgia for purposes of creating a similar business arrangement to that contemplated by the services agreement. In turn, neither Barnett Banks Trust Company, N.A., nor Barnett Banks, Inc. nor any Barnett affiliates shall, within Florida, during the term of the services agreement, directly or indirectly, offer for sale to their customers or prospective customers, fixed or variable insurance or annuity products, which are competitive with any of the insurance products contemplated for sale of James Mitchell & Co. pursuant to the services agreement.
The services agreement between James Mitchell & Co. and the Barnett entities calls for the sale of various insurance Products referred to in the services agreement as: (1) The Tax Advantage Growth Annuity,
The Tax Advantage Income Annuity, (3) The Tax Advantage Flexible Annuity, (4) the Tax Advantage Annuity-Immediate, (5) The Tax Advantage single Premium Life and (6) The Tax Advantage Flexible Life Policy. Pursuant to the agreements, fixed, immediate, and variable annuities have been sold. Single premium life insurance policies have also been sold. Single Premium life insurance policies have also been sold. With the exception of the single premium life insurance policies, the products continue to be sold. The reasons that James Mitchell & Co. discontinued the sale of single pay life insurance in the program was based upon the decrease in interest rates which made the policies less competitive in the market, together with changes in the federal income tax laws. The sales are made by Mitchell insurance agents licensed in Florida, and take place in the several branch banks operated by Barnett Banks in Florida. Other operations between the principals have transpired in Georgia but those arrangements are not relevant to this case.
19. The James Mitchell Insurance agents sell insurance products in approximately 600 Barnett branches in Florida.
In addition, employees of the Barnett Bank branches where James Mitchell insurance agents sell insurance have been paid referral fees of a minimum of
$5.00 for each customer appointment that the Barnett Bank branch employees arranged between a bank customer and the James Mitchell insurance agent which
appointment was kept. The money to pay the referral fee came from James Mitchell in payment to Barnett Banks, Inc., who in turn paid the Barnett Bank branch employee. This practice of paying Barnett Bank branch employees referral fees has been discontinued.
Notwithstanding the discontinuation of referral fees, the services agreement contemplates that Barnett Banks, Inc. shall furnish James Mitchell insurance agents referrals that eventuate in 20 kept appointments per week with individuals who are determined by James Mitchell insurance agents to be qualified potential participants. In reality, a somewhat lesser number of appointments are kept with the individual James Mitchell insurance agents on a weekly basis. The James Mitchell insurance agents average 12 to 13 kept appointments per week. In order to process this volume of appointments and to carry out other obligations which James Mitchell & Co. has under the terms of the services agreement, the James Mitchell insurance agent is required to spend the majority of his or her time in the Barnett Bank branches as opposed to time spent in the business day at the James Mitchell regional processing centers or in other locales. Approximately one-third of the employment time of James Mitchell insurance agents is involved with the training of Barnett Banks branch staff about their role in the program and in maintaining a good working relationship between insurance agents and Barnett Banks branch staff. The training of Barnett Bank personnel is in accordance with the services agreement.
The services agreement contemplates that and James Mitchell insurance agents and managers attend meetings conducted by Barnett branch personnel, to include attendance at Barnett Bank regional branch manager meetings, all in the interest of advancing the program between James Mitchell & Co. and the Barnett entities.
Under the terms of the services agreement James Mitchell & Co. advertises the insurance products which its insurance agents sell. Barnett Banks, Inc. advertises the trust operated by Barnett Banks Trust company, N.A. The advertising done by James Mitchell and Barnett Banks, Inc. of their respective functions in the program is through media and methods that James Mitchell and Barnett Banks, Inc. mutually determine to be appropriate, after consultation regarding propriety, legality and advisability of the advertising. Under the terms of the services agreement Barnett Banks, Inc. shall be consulted with respect to the propriety and legality of all promotional materials and has the right to determine the form and content of all materials which relate to the trust, Barnett Bank's Trust Company, N.A., Barnett Banks, Inc., trust services and to Barnett Banks, Inc. customers. On the other hand, to the extent that materials relate to the insurance
products sold or the offering and sales of those products, the form and content of the advertising for insurance products sold shall be determined solely by James Mitchell & Co. James Mitchell & Co. may not use the Barnett Bank Inc. name, logo, or identification in promotional material without gaining Barnett Banks, Inc.'s consent.
Under the terms of the services agreement James Mitchell & Co. is obligated to prepare and implement the program to market insurance products as previously described, for the benefit of potential participants. James Mitchell & Co. is responsible for supervising and training its personnel as well as Barnett Banks, Inc. personnel.
James Mitchell & Co. is responsible for providing record keeping services, which includes maintenance records with respect to the participation agreement and participant instructions, fund transfers to the trust, product selections, beneficiary designations or changes, provision of reports regarding the status of
assets of the trust, transferring trust assets or funds and performing other necessary acts related to the orderly maintenance of the records of trust assets and activities of the trust, Barnett Bank's Trust Company, N.A., Barnett Banks, Inc. and the participants .
Connected to these activities James Mitchell & Co. shall specifically provide appropriate training to its personnel and employees of Barnett Banks Trust Company,
N.A. and Barnett Banks, Inc..
36. James Mitchell & Co. is responsible, pursuant to the services agreement, to provide initial and ongoing training to Barnett Bank, Inc. personnel who have contact with the public and who supervise the Barnett Banks, Inc. personnel, specifically, in a manner which in the judgment of James Mitchell & Co. and Barnett Banks, Inc. will insure compliance with the applicable law. The training is expected to familiarize Barnett Banks, Inc. personnel with appropriate procedures for directing customers to the employees of James Mitchell & Co. for purposes of obtaining trust related services, having in mind the need for compliance with governmental regulations applicable to the trust, to Barnett Banks Trust Company, N.A. and to Barnett Banks, Inc., in aid of fulfilling Barnett Banks, Inc.'s obligations under the services agreement.
Pursuant to the services agreement, before designating sales personnel (insurance agents) who are assigned exclusively to activities on behalf of the trust, James Mitchell & Co. is obligated to discuss with Barnett Banks, Inc. the appropriateness of such personnel in light of qualifications for the function to be performed by the insurance agents and James Mitchell & Co. shall designate only personnel with the
requisite qualifications. Barnett Banks, Inc., also has the right to reguest the replacement of any of those sales personnel (insurance agents) should the conduct of the sales personnel working with James Mitchell & Co. as insurance agents adversely impact the objectives of the services agreement.
James Mitchell & Company prospective insurance agent employees are subjected to a final intervie an officer in a Barnett Bank branch.
In practice, when hiring an insurance agent James Mitchell & Co. has considered the point of view of Barnett Banks Inc. related to the proper geographical placement of an employee who may not fit in well in certain locations because of cultural concerns.
Pursuant to the services agreement, James Mitchell & Co. shall provide Barnett Banks, Inc. monthly reports on the progress of the marketing plan. Barnett Banks, Inc. has the right to review the implementation of the marketing plan and to audit results, data, and working papers.
Under the services agreement, consistent with law and regulations, Barnett Banks, Inc. and its branch affiliates are expected to cooperate with James Mitchell & Co. in the implementation of the marketing program and it is expected that bank employees will support the day-to-day function of the plan, without participating in the marketing of the product. Barnett Banks, Inc.'s management is expected to use its best efforts to assure active participation by Barnett Banks Inc.'s employees in the implementation of the plan, through use of a variety of existing and internal media. Barnett Banks, Inc.'s management is expected to emphasize that a Barnett Banks employee's participation in the implementation is as important to Barnett Banks, Inc. as the employee's participation in other Barnett Banks, Inc.'s programs.
As alluded to before, pursuant to the services agreement Barnett Banks, Inc. shall provide James Mitchell & Co. referrals of potential participants as contemplated by the business arrangement. Barnett Banks, Inc. is expected to sponsor and to me known to potential participants the availability of seminars relating to the trust, which may take place on the premises of Barnett Bank Trust Company, N.A. James Mitchell & Co. may request, and Barnett Banks, Inc. shall to the extent possible, make its premises available for seminars and meetings between James Mitchell & Co. personnel and potential participants. At the seminars Barnett Banks, Inc. participation is limited to providing information with respect to
Barnett Banks Trust Company, N.A.,the trust and related trust services. Product information in those seminars is provided by James Mitchell & Co.
Pursuant to the services agreement, Barnett Banks Inc. on the basis of prudence, can assert control over the insurance products offered by James Mitchell & Co. as well as the insurers who offer those products.
In operation, the program works on the basis that Barnett Bank branch employees including tellers and customer service representatives refer customers to the James Mitchell & Co. insurance agents for purposes of having the insurance agents sell the products. The referrals come about as customers have questions that they present to bank employees concerning investments or through suggestions made by the bank employees based upon some knowledge about the bank customers financial situations, it if appears that the customers might be potential participants in the program. To qualify as a potential participant the services agreement contemplates, and in practice the Barnett Bank branch personnel are aware, that the potential participant is an individual with at least $5000.00 to invest. On average the individual participants have invested
$23,000.00.
In addition to the personal contact with the bank customers in the bank proper, Barnett Bank, Inc. uses its telemarketing unit in promoting the program, wherein qualified potential participants who are Barnett Bank customers would be referred to James Mitchell & Co. insurance agents.
Customer appointments are scheduled by the Barnett Bank branch employee making a phone call to one of the five James Mitchell & Co. regional service centers where arrangements are made for the insurance agent to meet the prospective customer. Ordinarily the appointments are scheduled for the branch bank at which the Barnett Bank customer does business.
An appointment card has been used at times which reflects the title "Tax Advantage Account Appointment" with the Barnett Bank logo and the word "Trustee" under the logo. The appointment card sets out the date, time, place, and telephone number for the appointment location and carries the signature of the Barnett Bank employee making the referral. In the appointment card text it is stated:
So that you may discover the considerable
tax benefits associated with Barnett Bank's Tax Advantage Account, the following appointment has been set aside just for you. Please present this card to the Tax Advantage Account representative.
The Tax Advantage Account representative referred to is the James Mitchell & Co. insurance agent.
Barnett Bank brochures in the lobbies of Barnett Bank branch locations which have been used to describe the Tax Advantage Account as established through the services agreement between James Mitchell & Company and the Barnett entities, prominently display the Barnett Bank logo and refer to the trustee with the word "Trustee." The text of the brochures has not always referred to the fact that life insurance products are being marketed. Such mention as has been made of James Mitchell & Company and its business name is in smaller print when referring to the fact that insurance products are distributed through James Mitchell & Co. under its business name. Moreover, given the basic design of the brochures it appears that the program is a Barnett Bank activity, notwithstanding the reference to the fact that the trustee does not engage in the offering or the sale of insurance products and that those products must be purchased through an entity licensed to offer such products. At times the brochures have been emerald green in color, symbolic of Barnett Bank.
The former use of the term Emerald in referring to the business name of James Mitchell & Co. and its arrangement with the Barnett Bank entities, coincides with the green trademark color of Barnett Bank and the name of financial products offered by Barnett Banks, Inc. unassociated with James Mitchell & Co.
In the course of appointments between James Mitchell & Co. insurance agents and the potential participants referred by Barnett Bank branch employees, the insurance agents often provide the prospective customers with business cards. Originally, the business card, in the upper left, in bold print, had the words "Tax Advantage Account" and to the upper right had the Barnett Bank logo with the word "Trustee" underneath the logo. Centered in the card would be the name of the person distributing the card described on the card as a Tax Advantage Account Specialist, with an address of the regional center from which the insurance products sold by the James Mitchell & Co. insurance agent would be serviced. The telephone number of that service center would also be found on the card. A horizontal line would be drawn at the bottom of the business card with the reference Emerald Insurance Services Corporation and Emerald Financial Corporation.
In 1992 and forward, the business card in the upper left named the person who was distributing the card and immediately underneath the name placed the reference to Tax Advantage Account Specialist, and to the right placed in bold print would be reference to
the Tax Advantage Account. Below a horizontal line would be the address of the regional service center. Other information on the card would include reference to the fact that any securities that might be offered would be offered through JMC Financial Corp., member NASD and the fact that insurance services were offered by JMC Insurance Services Corp., with another reference to the name of the person whose business card was distributed, identified as Tax Advantage Account Specialist, Registered Representative, licensed agent. Also on the new business card would be the comment "The Tax Advantage Account is a group trust account through which individuals may purchase selected products offering tax advantages." Neither in the prior business cards nor the more recent business cards are the customers specifically told that they are dealing with insurance agents.
Each James Mitchell & Co. insurance agent visits approximately eight Barnett Bank branches for several hours per week at each branch.
Barnett Bank branch employees assign the James Mitchell insurance agent any available work space that is not taken up by other activities on the premises.
When the James Mitchell & Co. insurance agents meet prospective customers those meetings may take place at offices separated from the bank lobby, conference rooms which maintain privacy by glass dividers or doors, or at times at empty desks in the lobby not being used by Barnett Bank employees.
The vast majority of customers who purchase insurance products from James Mitchell & Co. insurance agents operating in the Barnett Bank branch are Barnett Bank customers.
Barnett Bank personnel critique the performance of the James Mitchell & Co. insurance agents in the manner in which the insurance agents carry out the program with Barnett Bank customers. (emphasis added throughout)
Additionally, James K. Mitchell is the originator and entrepreneur of this entire business venture. James K. Mitchell, individually and as chairman and CEO of James Mitchell & Company, initially presented the concept to Barnett Bank, explaining that they could make "a lot of fee income through their trust department" (T. 3230). He executed the original service agreement and trust agreement on behalf of James Mitchell & Company, and executed subsequent changes to these agreements as the principal officer for James Mitchell & Company.
These agreements specified in detail the various responsibilities of each party and were clearly intended to establish an association. In fact, it might be said that the agreements were designed in such a way as to be sure to circumvent
the anti-affiliation statutes. This hypothesis is bolstered by testimony of James K. Mitchell that a trust and the accompanying agreements are unnecessary in those states that do not have an anti-affiliation statute on their books (T. 3166-7).
Further, according to Mr. Mitchell's testimony at hearing, it was back in the 60's when he started work on developing what could be referred to as his philosophy:
an approach in marketing products to where we would take away from the people in the field what we felt was the most predominant reason for failure, that was prospecting. If you could put those employees . . . into an environment where the refertilization process would be automatic, and you would take away the responsibility for [prospecting], that would increase the ratio of success (T. 3155:16-25).
It was this philosophy that James Mitchell developed into the arrangement he instituted with Barnett Bank, wherein the crucial function of prospecting, was taken away from the licensed sales agents, so it could be performed by the Barnett Bank tellers.
These facts are compelling and demonstrate an intertanglement of responsibilities and benefits between Barnett Bank and JMC. The services agreement with Barnett Banks, Inc. inexplicably establishes an association for the purposes of generating the sale of annuities by JMC and trust fees on behalf of Barnett Banks, Inc. Additionally, the Respondents reliance on s. 626.988(8),
to allow it to sell annuities on behalf of Barnett Bank conclusively establishes an association through a contractual relationship with Barnett Banks.
The following summary supports this conclusion:
JMC agents trained Barnett employees.
Barnett employees referred bank customers to JMC agents.
Appointments were set up by Barnett employees on the banks' premises.
Barnett employees were expected to support the day-to- day function of the plan.
Barnett employees engaged in personal and telephonic solicitation of bank customers on behalf of JMC.
JMC agents were referred to as Tax Advantage Account Specialists and the Tax Advantage Account was a product of Barnett Bank.
Appointment cards contained the Barnett Bank logo, and the appointment was with a JMC agent.
Prospective employees of JMC were subjected to a final interview by an officer of Barnett.
Barnett could have asserted control over the insurance products offered as well as the insurers who offer the products.
Barnett would be consulted with respect to all promotional material.
The Respondent's own characterization of the program is also instructive, wherein James K. Mitchell testified:
BY MR. SILVERMAN:
Q. Is it fair to say that the tax advantage account program utilizes a team approach in its marketing?
A. It is dependent upon a high degree of cooperation (T. 3274).
Likewise from the perspective of Mr. Thomas P. Johnson, Jr., the chief retail banking executive for the Barnett Banks, Inc. holding company, who testified regarding a videotape created by Barnett for use by Barnett employees wherein the tape was quoted as saying:
A. Through a partnership arrangement, Barnett
is now making available a very special service called the "tax advantage account".
Solid teamwork between Barnett and Emerald Preferred Services will make this account the most successful of its kind.
From a factual basis is clear that there is an "association" between James Mitchell & Company, an insurance agency, and Barnett Banks, Inc., a financial institution.
CONCLUSIONS OF LAW
With reference to the alleged violations of s. 626.988, F.S., the Hearing Officer has improperly concluded in Conclusions of Law numbers 117, 118, 119, 122, and 125, that James Mitchell & Company could not violate this section.
These Conclusions of Law are rejected and the following additional Conclusions of Law are made.
Section 626.988, F.S., is contained within Chapter 626, Part X, F.S., entitled "Unfair Insurance Trade Practices". The relevant portions necessary to determine the violations in this case are as follows:
626.988 Financial institutions; agents and solicitors prohibited from employment; exceptions.--
For the purpose of this section, the following definitions shall apply:
"Financial institution" means any bank,
bank holding company, savings and loan association, savings and loan association holding company, or savings and loan association service corporation
or any subsidiary, affiliate, or foundation
of any of the foregoing. This definition shall not, however, include any financial institution which has been granted an exemption by the board of Governors of the Federal Reserve System pursuant to s. 4(d) of the federal Bank Holding Company Act of 1956, as amended, or any financial institution which neither owns more than 10
percent of the capital stock, nor exercises effective control, of a bank, savings and loan association, or entity licensed under chapter
494 and licensed or authorized to transact business in this state. Specifically excluded from this definition is any bank which is not a subsidiary or affiliate of a bank holding company and is located in a city having a population of
less than 5,000 according to the last preceding census.
"Insurance agency activities" means 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.
Also important for the proper reading of the prohibition of unlawful insurance activities by financial institutions addressed in s. 626.988, F.S., is
s. 626.094, F.S., which defines an "insurance agency" and reads as follows:
626.904 "Insurance agency" defined.--An "insurance agency" is a business location at which an individual, firm, partnership, corporation, association, or other entity, except for an employee of the individual, firm, partnership, corporation, association, or other entity, and other than an insurer as defined by s. 624.03 or an adjuster as defined by s. 626.101, engages in any activity or employs individuals to engage in any activity which by law may be performed only by a licensed insurance agent or solicitor. (emphasis added)
Insurance agencies may not operate lawfully except through licensed agents or solicitors. The statutory scheme in Florida does not mandate the licensure of an insurance agency except in certain situations. See ss. 626.112 and 626.172, F.S. Therefore in most cases an insurance agency does not hold a license that can be revoked. The Legislature was aware of this when it drafted
626.988, F.S. Thus, the specific limitation in s. 626.988(2), F.S., was directed to agents and solicitors.
However, the legislative intent of s. 626.988, F.S., must be gleaned from reading the statute as a whole to uphold the purpose of the law to prohibit the unlawful association of financial institutions with insurance agents. This intent can be clearly determined by the references in s. 626.988, F.S.,itself.
Subsection 626.988(1)(b) defines "insurance agency activities", meaning 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 or credit insurance.
Subsection 626.988(1)(c) likewise defines a "financial institution agency as a 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.
It is therefore evident that the Legislature recognized that "insurance agencies" are prohibited from being unlawfully associated with financial institutions. There is no question in this case that James Mitchell & Company is an "insurance agency" engaging in "insurance agency activities". All of the transactions were performed by licensed insurance agents. Without James Mitchell & Company there would be no sales of the insurance policies.
Also, the Hearing Officer apparently overlooked an agreement between the parties on the record, wherein as a concession to the Respondents the Department agreed to address the problems related to s. 626.988, F.S., through James Mitchell & Company management as opposed to the individual agents of JMC, essentially placing JMC in the shoes of the individual agents, who are clearly subject to the prohibitions in s. 626.988, F.S. (T. 3218-19).
Further, an insurance agency is merely the entity whereby insurance agents join to pursue their business interests. See s. 626.094, F.S. An insurance agency could not function without licensed agents. Hearing Officer Clark recognized this fact in her conclusions of law in the rule challenge proceeding Great Northern Insured Annuity Corp., et al. v. Department of Insurance, DOAH Case No. 92-4332R, Final Order dated July 30, 1993. In that Final Order, Hearing Officer Clark concluded that s. 626.988, F.S., was applicable to insurance agencies. At Conclusions of Law number 53 and number 54 of that Order she states:
The scope necessarily and reasonably encompasses the regulation of agents, solicitors, insurance companies, and insurance agencies in order for the agency to effectively implement the purposes of the enabling legislation. Section 626.988, F.S., specifically mentions 'agents' and 'solicitors'. However, section 626.988 regulates the relationship between financial institutions and the agents and solicitors. This prohibited relationship encompasses more than solicitors and agents, because it focuses on financial institutions' entry into insurance activities. As stated in Glendale, the legislature was guarding against the dangers of financial institutions becoming involved in the business of insurance: the prevention of coercion, unfair trade practices, and undue concentration of resources.
Limiting the scope to agents and solicitors ignores the nature and definition of insurance agencies; if insurance agents are regulated by the rule, the agencies will be regulated as well. Section 626.094, Florida Statutes, defines an insurance agency as a 'business location at which an individual, firm, partnership, corporation, association, or other
entity. . . engages in any activity which by law may be performed only by a licensed agent or solicitor.'
Similarly, insurance companies operate through agents and solicitors, so they too are affected by statutory regulation of the agents and solicitors. Although section 626.988 may be one of the principal statutes implemented, it is only part of the scheme of statutes prohibiting coercion, unfair trade practices, and undue concentration of resources potentially caused by the financial institutions' entry into insurance activities. Section 626.9521 prohibits 'any person from engaging in deceptive practices. Therefore, section 626.9521 and other provisions provide a broad base for the regulation of all the entities listed in the rules.
Following Hearing Officer Clark's reasoning as recited above and understanding that to permit agents to circumvent the intent of the law (to prohibit financial interaction between insurance agents and banks) by permitting the activity if pursued under the cloak of an agency would be to make a mockery of the statute. Therefore, since the primary association was crafted through agreements between two entities, Barnett Bank and JMC, it is only appropriate to hold the entity accountable for the violation.
There is also additional authority in Part X, Chapter 626, F.S., which authorizes cease and desist orders for unfair trade practices and the unlawful transaction of insurance, which may be asserted with reference to any "person" who is involved in the business of insurance. The specific statutory references are as follows:
Section 626.9571 reads, F.S., in part:
Whenever the department has reason to believe that any person has engaged, or is engaging, in this state in any unfair method of competition or any unfair or deceptive act or practice as defined in s. 626.9541 or
s. 626.9551 or is engaging in the business of insurance without being properly licensed as required by this code and that a proceeding by it in respect thereto would be to the interest of the public, it shall conduct or cause to have conducted a hearing in accordance with chapter 120. (emphasis added) Section 626.9511, F.S., defines person as:
(1) "Person" means any individual, corporation, association, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, or business trust or any entity involved in the business of insurance.
Section 626.9521(1), F.S., reads:
(1) No person shall engage in this state in any trade practice which is defined in this part as, or determined pursuant to s. 626.951 or s. 626.9561 to be, an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance.
Section 626.9581, F.S., also provides for the issuance of a cease and desist order and reads in part:
After the hearing provided in s. 626.9571, the department shall enter a final order in accordance with
s. 120.59. If it is determined that the person charged has engaged in an unfair or deceptive act or practice or the unlawful transaction of insurance, the department shall also issue an order requiring the violator to cease and desist from engaging in such method of competition, act, or practice or the unlawful transaction of insurance.
All of the statutory provisions, when read as a whole, demonstrate that the legislative scheme for the regulation of insurance agents and agencies would permit the Department to hold JMC accountable for violations of s. 626.988, F.S., and the Hearing Officer's Conclusion to the contrary is rejected.
In Conclusion of Law number 106, the Hearing Officer concluded that the department had "not proven that there was prior notice to James K. Mitchell and that following that notice James K. Mitchell violated the prior policies and guidelines." However, in Conclusion of Law number 105 the Hearing Officer concluded that the prior policies and guidelines were not applicable to this case. More importantly, the Respondents were not charged with violating "policies and guidelines" but of directly violating s. 626.988, F.S., by establishing an unlawful "association" with a financial institution. The purpose of the previous policies and guidelines was to show the types of activities which had been prohibited in the past by the Department in its enforcement of s. 626.988, F.S.
There is nothing in this record which demonstrates the Respondents were not aware of what activities would be prohibited under s. 626.988, F.S. The Hearing Officer specifically recognized in Finding of Fact number 94 that in 1985 and 1990, prior to commencing the arrangement between James Mitchell & Co. and the Barnett Bank entities, JMC conferred with the Department of Insurance concerning the marketing of insurance products where a financial institution might be involved as a trustee. Although the arrangements were incomplete and did not correspond to the business arrangement ultimately reached, the Hearing Officer went on to state:
"The Department of Insurance in its discussions with James Mitchell & Co. in 1985 and 1990 did not grant permission to James Mitchell & Co. and its prospective partners to proceed with their business arrangements without placing themselves at risk that they might Promote violations of statutory provisions that
preclude certain affiliations between insurance agents operating out of certain insurance agencies and financial institutions." (emphasis added)
This finding is fully supported by documentary evidence (P. Ex.'s 124 and 125) wherein the general arrangement was concluded to be improper. The transcript also contains testimony of discussions that occurred between the Department of Insurance and James Mitchell and his counsel Norse Blazzard (T. 17; 184-185; 194-203; 1101-1105; 1119; and P. Ex's. 102, 105, 107, 108, 109, and 126).
Specifically, the Respondents were afforded an opportunity to request a Declaratory Statement (P. Ex. 109), but JMC never petitioned for a Declaratory Statement (T. 2744). The record supports the Hearing Officer's finding that JMC had been notified of problems in the program when in September 1990, (before beginning the program) John Kummer, Deputy Insurance Commissioner, personally gave notice to JMC of the policies and guidelines of the Department regarding the sale of annuities in financial institutions (T. 1103-1107). It is also telling that the Hearing Officer ruled that the Petitioners' proposed findings of fact number 93-102 were subordinate to facts found. These proposed findings of fact related to the multiple meetings and discussions between the parties.
The failure to specifically reject these findings further supports the conclusion that the Hearing Officer recognized that some form of prior notice had in fact occurred. It is likewise clear from the record that the Respondents were not charged with violating a specific set of guidelines or policies. They were charged with violating s. 626.988, F.S., by establishing an unlawful association with a financial institution to sell insurance. Although the record reflects some form of prior notice of the Department's interpretation of s.
626.988, F.S., and policies and guidelines being established, the Respondent had not been formally charged with a violation of these policies and guidelines.
The Hearing Officer's analysis is thorough and will not be disturbed. It is noted that this conclusion does not address, nor does it hinder the Department's ability to charge and find a violation of s. 626.988, F.S.
As a matter of law, the Respondents are on notice of what is prohibited under s. 626.988, F.S. In Glendale Federal Savings and Loan Association v. Department of Insurance, 587 So.2d 534 (Fla. 1st DCA 1991) rev. denied, 599 So.2d 656 (Fla. 1992), the Court specifically found that s. 626.988, F.S., was not unconstitutionally vague and complies with due process and equal protection. The Court went on to say:
Most of the language questioned can be interpreted according to common understanding and reason and several terms, such as "financial institution", "insurance agency activities," and "financial institution agency" are expressly defined in the statute. The court correctly found that the statute affords fair notice to the parties that they are affected and what is prohibited, and also affords sufficient guidance to the agency charged with enforcing it (emphasis added) 534 So.2d at 587.
The term "association" has been recognized by other courts as having a common meaning. In United States v. Yonan, 800 F.2d 164 (7th Cir. 1986) cert. den., 479 US 1055 (1987) the Court concluded:
In the absence of a statutory definition of "association" the cases have adopted a common sense reading of the term that focuses on the business of the enterprise and the relationship of the defendant to that business.
Also in Old Colony Insurance Co. v. Jeffery's Mill & Warehouse, Inc., 146
F. Supp. 277 (N.D. Cal. 1956) the Court discussed the meaning of the term "associate" as follows in quoting from Wier v. United States:
... In ordinary nomenclature it [associate] signifies, to connect closely or join with others in common purpose, activity, or responsibility, or partake or share in common design. It implies participation of the each of the individuals, so united in achievement of or common purpose. In its general and ordinary sense it is said to signify confederacy or union for a particular purpose, good or ill, without any uniform discrimination as to precise meaning. 146 F. Supp at 279.
Based on the facts described herein and the application to the law, it is determined that the Respondents have established an unlawful "association", prohibited by s. 626.988, F.S.. However, in this case the prohibition is limited to the sale of life insurance, insofar as NationsBank allows for the sale of annuities by a financial institution.
RULINGS ON EXCEPTIONS FILED BY RESPONDENTS
Respondents have taken a shotgun approach in filing their exceptions in an attempt to retry the case, rather than making an effort to identify errors and take exception to the Findings of Fact and Conclusions of Law issued in the Recommended Order.
The exceptions filed are not clearly numbered and in many respects duplicate and reargue the same issues. This Final Order responds to each exception in the same general format as presented by the Respondents.
I.
These Exceptions summarize the major issues which the Respondents maintain were dispositive errors committed by the Hearing Officer. The summary seems to be for the convenience of the reader, and as such does not call for a specific ruling and discussion insofar as each point is more specifically described in the remainder of the exceptions. For reasons set forth herein the summary is rejected.
II.
Respondents except to the alleged failure of the Hearing Officer to consider s. 626.99(2)(b)1., F.S., in determining that JMC failed to specifically tell customers that they were dealing with insurance agents, and therefore engaged in deceptive practices as prohibited by s. 626.9541(1)(b), F.S. The Order to Show Cause does not charge the Respondents with a violation of s.
626.99, F.S., because it does not apply to the sale of annuities as noted by the Respondents. See s. 626.99(2)(b)1., F.S. Section 626.99, F.S., is a detailed statute requiring numerous disclosures which are specifically applicable to the sale of certain life insurance products. The fact that annuities, a form of life insurance, are exempted from the detailed disclosure requirements of s.
626.99, F.S., does not mean the Respondents are excused from compliance with s. 626.9541(1)(b), F.S., which independently requires that sales programs or presentations not be untrue, deceptive or misleading.
The Hearing Officer concluded that the marketing scheme used by JMC was deceptive and misleading with respect to the true nature of the transaction, i.e., sale of an insurance contract. The Hearing Officer's Findings of Fact referenced in the discussion under subheading 1, dealing with the Unfair Trade Practice Act herein support the finding of deception. The overall presentation of the program as described by the Hearing Officer in Conclusion of Law number
121 of the Recommended Order clearly establishes the violation of s. 626.9541(1)(b) F.S. Therefore, the Respondents may not use the exception of s. 626.99(2)(b)1., F.S., to excuse a violation of s. 626.9541(1)(b), F.S. Statutes should be read in pari materia so as to give each its full meaning. B.C.F. v. State 569 So.2d 1364 (FLA. 1st DCA 1990). Also, the interpretation of a statute by an agency charged with its administration is entitled to great weight and will not be overturned unless it is clearly erroneous. Sarasota County School District v. Sarasota Classified/Teachers Association, 614 So.2d 1143 (Fla. 2d DCA 1993). The failure to make clear the true nature of the insurance transaction was part of the overall misleading nature of the marketing program that resulted in the ultimate finding of deceptive and misleading information being placed before the public.
The duty to disclose clearly arises out of the requirement in s.
626.9541(1)(b), F.S., that the advertisement, announcement, or statement not be untrue, deceptive or misleading. The duty further arose out of JMC's decision to market the annuities in association with Barnett Bank as the "prospector".
Recognizing that s. 626.99, F.S., does not apply to the sale of annuities does not make a consumer "fair game" for the unregulated solicitation of annuities. The reverse implication asserted by the Respondents, that since disclosure is required in the sale of certain forms of life insurance it is not required in the sale of annuities, does not mean that nondisclosure is permissible in the sale of other forms of insurance if nondisclosure would be deceptive and misleading. Section 626.99, F.S., is a comprehensive regulation of the very specific requirements related to the sale of certain life insurance policies. Many of the same requirements would be necessary to fairly and accurately describe other types of insurance products so as to avoid the deceptive and misleading presentation of the product to the consumer.
Respondents' failure to clearly describe their role in the insurance transaction which takes place in a financial institution is clearly deceptive and misleading. Furthermore, Respondents do not convincingly dispute the fact that they were indeed "life insurance agents selling an insurance product".
Respondents' argument that s. 626.99, F.S., controls the terms of s.
626.9541(1)(b), F.S., is contrary to its previous argument. Respondents have already stated that s. 626.99, F.S., does not apply to the sale of annuities. Therefore s. 626.9541(1)(b), F.S., is clearly the applicable general statute regulating the sale of the annuities in this matter. Respondents' final conclusion that "telling the customer that one is a life insurance agent selling an insurance product would probably confuse and mislead the customer not help the customer" (Resp. exceptions page 9, paragraph 4), emphasizes the Respondents' lack of regard for selling an insurance product with full disclosure. Accordingly this exception is rejected.
Respondents maintain that the Hearing Officer ignored the Comptroller's formal approval given to JMC's annuity program. This assertion is not supported by the record. The Hearing Officer was fully aware of the approval Barnett Bank had obtained to sell annuities by directly affiliated insurance agents when he stated:
Neither has Barnett Bank established the factual predicate to sell one or more types of annuities in Florida in its own right pursuant to Section 626.988(8), Florida Statutes. The facts as presented in this case do not describe the independent attempt for Barnett Bank to sell one or more types of annuities in Florida through licensed resident insurance agents directly affiliated with Barnett. Instead, the Barnett Bank entities have engaged in a business arrangement whereby the resident insurance agents are James Mitchell & Co. employees who sell insurance on the bank premises under terms established by the services agreement. This approach does not contemplate an employment or contractual arrangement between these resident insurance agents and Barnett after notifying the Department of Insurance that Barnett intends to sell one or more types of annuities in Florida.
Therefore, the permission which Barnett Banks, Inc. has received from the Florida Department of Banking and Finance to proceed under Section 626.988(8), Florida Statutes, is to no avail.
See Finding of Fact number 95. The Hearing Officer found as a matter of fact that the purported approval issued by the Department of Banking and Finance was factually distinguishable from the specific facts of this case and therefore did not authorize the deceptive and misleading business practices involved herein.
The Hearing Officer was aware of s. 626.988(8), F.S., which in relevant part reads:
Prior to any financial institution employing or contracting with a licensed resident agent to sell annuities, the financial institution shall notify the Department of Insurance and shall obtain approval to sell annuities from the Department of Banking and Finance... (emphasis added)
The business arrangement in this proceeding did not involve a financial institution employing or contracting with a licensed resident agent. Rather it involved the solicitation of annuities through a trust and servicing agreement with JMC, an insurance agency. The insurance agents were employees of JMC and
not of the financial institution. Further, the Respondents failed to establish on the record that the Department of Insurance was notified by Barnett Bank or JMC, in accordance with the statutory requirement, prior to selling annuities. Clearly, Barnett Bank is not selling annuities in its own right, and is not a party to this proceeding. The Hearing Officer in Conclusion of Law number 147 stated:
"Yet, the arrangement between James Mitchell & Company and the Barnett entities is one in which James Mitchell & Company is the principal involved with the sale of annuities through Mitchell agents, not Barnett employees. . . this case was not brought for the purpose of establishing any right which Barnett Banks, Inc. has to proceed pursuant to Section 626.988(8), and has not established those rights.
It is also inappropriate for the Respondents to attempt to justify their activities after the fact, when the program began in November, 1990 (Finding of Fact number 7) and the approval by the Florida Comptroller was dated June 8,1993 (Resp. Ex. 1090). However, in light of NationsBank, supra, the issue of Barnett Banks, Inc. selling annuities through its arrangement with JMC has been deemed authorized under federal banking law.
IV.
Respondents claim that the Hearing Officer relied on the wrong order in a rule challenge proceeding in concluding that there was no collateral estoppel effect in this proceeding. The Respondents fail to identify the issue or issues which were determined in the rule challenge proceeding which would preclude consideration herein of whether the marketing program used by the Respondents violated ss. 626.988 or 626.9541, F.S. The issues which were the subject of the Final Order and Summary Final Order in Great Northern Annuity Corp., et al. v. Florida Department of Insurance, DOAH Case No. 92- 4332, et al., were strictly limited to the validity of proposed rules which were to implement the prohibited activities of a financial institution's association with insurance agents in the sale of insurance. Hearing Officer Clark specifically stated:
This leaves intact the authority of the Department of Insurance to regulate the annuity products included in the definition of "life insurance" in section 624.602(1), F.S., and to regulate the agents who sell the products...
Great Northern Annuities Corp., et al. v. Florida Department of Insurance, DOAH Case No. 92-4332, et al. (filed December 4, 1992).
The Summary Final Order does not determine the efficacy of "JMC's program" but concluded that s. 626.988(8), F.S., would allow certain relationships otherwise prohibited by s. 626.988(2), F.S.
The facts of the particular arrangement (JMC Program) were not material to Hearing Officer Clark's finding that the proposed rule would conflict with perceived federal authority which allowed financial institutions to sell annuities. Therefore, the Respondents' reliance on the Summary Final Order to collaterally estop the Department's actions in this matter is both legally and factually incorrect. Accordingly, this exception is rejected.
Respondents assert that in rejecting JMC's collateral estoppel argument the Hearing Officer relied on the wrong order from the rule challenge proceedings. The Respondents have failed to demonstrate that the Hearing Officer did not consider the proper order in determining that there was no collateral estoppel in this cause. The following excerpt from the Recommended Order is instructive and refutes the Respondents' allegation:
Conclusion of Law 148... which discussed in summary fashion the right of Barnett Banks, Inc. and its subsidiaries under Section 626.988(8), Florida Statutes, does not control the outcome in the present case (emphasis added).
Neither order would have collaterally estopped the Department in this case because of:
the diversity of issues and parties involved; and
the legal standards applied in determining the validity of proposed rules, are not the subject of this proceeding (see Conclusion of Law number 102). Collateral estoppel requires "that the issue in the second action that is sought to be estopped from relitigation be identical to necessary and material issues resolved in the first suit." Department of Transportation v. Gary, 513 So.2d 1338 (Fla. 1st DCA, 1987).
Respondents assert that the December 2, 1992 Summary Final Order estopped the Department from proceeding in this cause. Hearing Officer Adams, in Conclusions of Law number 148, stated as follows:
The decision by the Hearing Officer in Great Northern Insured Annuity Corporation. et al. Petitioners v. Department of Insurance, Respondent, DOAH Case No. 92- R, concerning the challenge to proposed rules
4-223.001 - .011, which discussed in summary fashion the right of Barnett Banks, Inc. and its subsidiaries under Section 626.988(8), Florida Statutes, does not control the outcome of the present litigation. The doctrine of collateral estoppel discussed in the decisions Trucking Employees of North Jersey v. Romano,
457 So.2d 1337 (Fla. 1st DCA 1992) does not control the outcome in the present case. In this proceeding the Department of Insurance is not estopped from Litigating issues pertaining to the business arrangement between the Respondents and the Barnett entities.
The limited purpose of the previous rule challenge proceeding pursuant to s. 120.54(4), F.S., was to determine the validity of certain proposed rules. This determination does not impact on the Department's ability to adopt other rules or enforce the statutes which by law it is required to uphold. This case is a separate proceeding seeking a cease and desist order against the Respondents to prohibit the violation of ss. 626.988 and 626.9541, F.S., and other statutes, as well as seeking the revocation of the insurance agent license held by James K. Mitchell. The proposed rules which were the subject of the Summary Final Order are not implicated herein, and therefore those proceedings are not binding in this case. Accordingly this exception is rejected.
Respondents maintain that the Department is estopped due to its failure to appeal the Summary Final Order. Since the Hearing Officer concluded the Summary Final Order did not estop the Department's actions in this case, the failure to appeal said order is irrelevant and does not preclude the Department's future responsibility to enforce the provisions of the Florida Insurance Code. Accordingly this exception is rejected.
The Respondents maintain that s. 626.988(8), F.S., controls or limits the application of s. 626.9541, F.S., to the Respondents' activities. This construction is not correct.
The two statutes address different issues. Section 626.9541(1)(b), F.S., addresses the advertising and sale of insurance products, whereas s. 626.988, F.S., deals with prohibited relationships between insurance agents and financial institutions. They operate independently of each other and both should be given full force and effect. The Respondents' argument regarding the effect of s.
626.988(8), F.S., is rejected for the reasons previously discussed herein.
The Respondents fail to identify the manner in which s. 626.988(8), F.S., governs the solicitation and sale of annuities, aside from allowing a financial institution in certain limited instances to sell annuities which are otherwise prohibited in s. 626.988(2), F.S. Nothing in s. 626.988, F.S., indicates an intent to exempt the solicitation and sale of annuities from the otherwise applicable provisions of the Insurance Code which govern the "insurance agents" and agencies which sell insurance. Indeed s. 626.988(8), F.S., reads in part:
... provided, however, that any such sales by any bank, savings bank, or savings and loan association shall be made in compliance with all other applicable requirements of the Florida Insurance Code and that such sales are made through a licensed resident agent. (emphasis added)
Therefore, the two statutes (ss. 626.988 and 626.9541, F.S.) are not inconsistent and essentially address different aspects of the specified trade practices which they govern, i.e., financial institutions which are permitted to sell annuities still must sell the annuities in compliance with s.
626.9541(1)(b), F.S. Accordingly, this exception is rejected.
As previously discussed in subheading IV. A. of these exceptions, Hearing Officer Clark's Summary Final Order did not approve the JMC/Barnett Bank Program, but recognized the Department's authority to regulate the sale of annuities. For this and reasons previously discussed this exception is rejected.
1. Respondents assert that the Hearing Officer erred in concluding in Conclusion of Law number 121 that "JMC has placed before the public information which is deceptive and misleading as to the fact that insurance products are being sold by insurance agents who work for JMC". This exception is directed to conclusions contained in paragraphs 121 and 124. Conclusion of Law number 124 states that:
James Mitchell was aware that its insurance agents knowingly were deceptive and misleading in their failure to make clear that they were insurance agents selling insurance products.
The following findings by the Hearing Officer support the conclusions of law in paragraphs 121 and 124.
11. Under the business arrangement between the Mitchell company and the Barnett entities, the insurance agents are referred to as Tax Advantage Account Specialists, not insurance agents.
57. Consistent with the services agreement, in discussing the program which involves the purchase of insurance products, the Barnett Bank branch employee describes the program as the Tax Advantage Account and describes the James Mitchell & Co. insurance agent as the Tax Advantage Account Specialist.
61. In talking to the Barnett Bank customers, leading to the referral for appointment with a James Mitchell & Company insurance agent, Barnett Bank branch employees do not always make it clear that the James Mitchell & Co. insurance agent is not an employee of Barnett Bank, Inc. or its branch affiliate.
64. The former use of the name Emerald in referring to the business name of James Mitchell & Co. and its arrangement with the Barnett entities, coincides with the green trademark color of Barnett and the name of financial products offered by Barnett Banks, Inc. unassociated with James Mitchell & Co.
73. Typically, in a meeting with a prospective customer, the James Mitchell & Company insurance agent would refer to himself or herself as an employee of James Mitchell & Co., or in the past, before the name change, as an employee of Emerald. The insurance agents describe themselves as Tax Advantage Specialists.
The Respondents' efforts to highlight snapshots of testimony to contradict the findings of fact of the Hearing Officer as referenced in this subheading are unpersuasive and do not refute the Hearing Officer's Conclusion of Law number
121 that finds failure to disclose one's status as an "insurance agent" selling an insurance product is misleading and deceptive.
Section 120.57(1)(b)10., F.S., reads in part:
The agency may not reject or modify the findings of fact, including findings of fact that form the basis for an agency statement, unless the agency first determines from a review of the complete record, and states with particularity in the order, that the findings of fact were not based upon competent substantial evidence or that the proceedings on which the findings were based did not comply with essential requirements of law.
This standard does not allow the agency to reweigh the evidence or reject findings of fact if they are based on competent substantial evidence.
Furthermore, the administrative Hearing Officer's function is to consider all the evidence presented, resolve conflicts, judge credibility of witnesses, draw permissible inferences from the evidence, and reach ultimate findings of fact based on competent, substantial evidence. Heifetz v. Department of Business Regulation, 475 So.2d 1277 (FLA. 1st DCA 1985).
The record is replete with competent substantial evidence supporting the findings of the Hearing Officer. Petitioner's Exhibits 114 and 119 are comprehensive surveys of the Department's investigation which clearly show that the relationship of the JMC agent and Barnett Bank was not always clearly disclosed. Mr. Hanson, General Counsel for JMC, acknowledged that while the Respondents were doing business as "Emerald Financial Services" the customer was not necessarily informed that he was dealing with an insurance agent (T. 3102). Petitioner's exhibits 4,110 and 111 further support the Hearing Officer's Finding of Fact number 61 which reads as follows:
In talking to the Barnett Bank customers, leading to the referral for appointment with a James Mitchell & Company insurance agent, Barnett Bank branch employees do not always make it clear that the James Mitchell & Co. insurance agent is not an employee of Barnett Bank, Inc. or its branch affiliate.
Finding of Fact number 57 also supports Finding of Fact number 61 wherein the Hearing Officer finds:
Consistent with the services agreement, in discussing the program which involves the purchase of insurance products, The Barnett Bank branch employee describes the program as the Tax Advantage Account and describes the James Mitchell & Company insurance agent as the Tax Advantage Account Specialist.
Finally, Respondents, rather than attacking specific findings of fact which supported the Hearing Officer's conclusion that the Respondents engaged in deceptive and misleading practices, are attempting to reargue their case by highlighting selected bits of testimony to support their position. This type of presentation was more appropriate before the Hearing Officer.
On page 22 of the exceptions the Respondents take exception to Finding of Fact number 87 by stating that a consumer cannot be misled because he can always get his money back and further stating that "To be truly deceived the customer must suffer some type of loss or harm".
The Respondents cite Collignon v. Larson, 145 So.2d 246 (Fla. 1st DCA 1962) with misplaced reliance because:
Consumer harm was not an element of finding guilt, but merely an item to be considered to determine whether the consumer was misled; and
The alleged misrepresentation was not made as an inducement and was made after the decision to purchase had been made.
The evidence contained in the record refutes the Respondents' conclusions that there was no consumer harm in the form of customer complaints. Complaints from customers indicated they were not told there was a penalty or forfeiture of interest for early withdrawal and were misled regarding the ability to withdraw funds without penalty or forfeiture. See P. Ex's. 18 and 156. This is noted not to supplement facts determined by the Hearing Officer but to recognize that there is record evidence contrary to the Respondents' contention that there was no consumer harm. In any event, the legal argument is not persuasive, and accordingly this exception is rejected.
The Hearing Officer in Finding of Fact number 61 determined that:
In talking to the Barnett Bank customers, leading to the referral for appointment with a James Mitchell & Company insurance agent, Barnett Bank branch employees do not always make it clear that the James Mitchell & Co. insurance agent is not an employee of Barnett Bank, Inc. or its branch affiliate.
Petitioners Exhibit 119 is replete with responses by Barnett Bank employees referring to the JMC agent as "our tax expert", "our rep", or "Tax Advantage Specialist". This exhibit is further substantiated by the depositions of the investigators who gathered the information.
Respondents further claim that "it is the licensed agent's responsibility to indicate to the consumer who he is". This is a correct statement of the law; however, the agent is an active participant in the overall marketing plan, and JMC clearly was aware that the Barnett Bank employees were making referrals to JMC agents by referring to them as "Tax Advantage Account Specialists".
Furthermore, the obligation of JMC to make appropriate disclosure of insurance agent status arises from JMC's election to use Barnett Bank employees in obtaining leads for the purpose of selling an insurance product. Also, Mr.
Mitchell himself concluded that he did not expect the term "Tax Advantage Account" to inform a Barnett customer that they were dealing with an insurance agent employed by JMC (T. 3287). He also acknowledged that the term "Tax Advantage Specialist" was for marketing considerations (T. 3287-8). It is relevant that Barnett Bank employees were not clear as to the employment relationship, because this contributed to the overall deceptive nature of the arrangement. Accordingly, this exception is rejected.
For the reasons set forth in subparagraph 1, herein the Hearing Officer's findings of fact cannot be disturbed if there is competent substantial evidence on the record to support the findings. See AT&T Communication v. Marks, 515 So.2d 741 (FLA. 1987). The Hearing Officer in Conclusion of Law number 121 considered the facts of this case, and as a matter of law found that the Respondents had placed before the consuming public information which is deceptive and misleading. Conclusion of Law number 121 reads:
James Mitchell & Company is a "person" as defined in Section 626.9511(1), Florida Statutes, and is subject to the prohibitions set forth in Section 626.9541(1)(b), Florida Statutes. James Mitchell & Company has violated Section 626.9541(1)(b), Florida Statutes, in the manner alleged. Specifically, James Mitchell & Company has knowingly established its own written advertising, and benefited from Barnett advertising pursuant to the services agreement. James
Mitchell & Company has made statements about, and benefited from statements by Barnett employees pursuant to the services agreement. The advertising and statements concerned insurance sales through the Tax Advantage Account by Mitchell Tax Advantage Account Specialists (insurance agents). By these arrangements James Mitchell & Company has placed before the consuming public information which is deceptive and misleading as to the fact that insurance products are being sold by insurance agents who work for James Mitchell & Company. James Mitchell & Company has committed these violations both by direct and indirect actions. Violations of Sections 626.9541(1)(b), Florida Statutes, pertaining to the deceptive and misleading actions by James Mitchell & Company are found in the use of business cards which the James Mitchell & Company insurance agents provide to customers, appointment cards prepared by Barnett employees, and brochures disseminated by Barnett employees and Mitchell employees, which materials contribute to the deceptive and misleading nature of the Mitchell/Barnett program. The office layout in which the James Mitchell & Company insurance agents market the products on the premises of the Barnett branch banks contributes to the deceptive and misleading nature of the program. The personal and telephonic solicitations of customers by James Mitchell & Company insurance agents and through actions of Barnett Bank employees, contemplated by the services agreement, contribute to the deceptive and misleading nature of the program. Recent attempts at disclosure directed to potential customers through the provision of signage and other changes to the program have not sufficiently clarified the nature of the insurance program and corrected the aforementioned violations.
A review of the record indicates that there is competent substantial evidence to support the Hearing Officer's Findings of Fact which supported Conclusion of Law number 121. A representative sampling of record evidence is referenced below.
Office Layout.
The Findings of Fact by the Hearing Officer are as follows:
Barnett Bank branch employees assign the James Mitchell insurance agent any available work space that is not taken up by other activities on the premises.
When the James Mitchell & Co. insurance agents meet prospective customers those meetings may take place at offices separated from the bank lobby, conference rooms which maintain privacy by glass dividers or doors, or at times at empty desks in the lobby not being used by Barnett Bank employees.
These Findings of Fact are supported by the record as follows: Ninety-five percent of the meetings between JMC agents with potential clients are in Barnett branches at a vacant desk or office, and JMC agents at times met at empty desks in the lobby not used by the Barnett Bank employees (T. 406; 3287).
Although the office layout is not directly an advertisement, announcement or statement as stated by the Respondents, it is the manner in which the totality of the solicitation was made which contributes to the deceptive and misleading nature of the presentation. Clearly the deception is placed before the public "in any other way" (See s. 626.9541(1)(b)4., F.S.) by failing to clearly disclose to a banking customer that the person seated at a desk or office in a financial institution is in fact an insurance agent.
The Respondents are attempting to establish facts neither determined by the Hearing Officer nor supported in the record. The citations recited by the Respondents do not support their conclusion that "the DOI for some 19 years has allowed licensed agents to sell annuities on the premises of banks". The Hearing Officer found the purported precedents to be not sufficiently similar to the case at bar. Finding of Fact number 96 in part reads:
... There are significant factual differences in the present case and prior precedents. Accordingly, the prior precedents are not useful in examining the propriety of the conduct by Respondents or in examining the agency's performance for consistency in carrying out its regulatory duties set forth in the order to show cause.
Business Cards.
The Hearing Officer's Findings of Fact are as follows:
In the course of appointments between James Mitchell & Company, insurance agents and the potential participants referred by Barnett Bank branch employees, the insurance agents often provide the prospective customers with business cards. Originally, the business card, in the upper left, in bold print, had the words "Tax Advantage Account" and to the upper right had the Barnett Bank logo with the word "Trustee" underneath the logo. Centered in the card would be the name of the person distributing the card described on the card as a Tax Advantage Account Specialist, with an address of the regional center from which the insurance products sold by the James Mitchell & Co. insurance agent would be serviced. The telephone number of that service center would also be found on the card. A horizontal line would be drawn at the bottom of the business card with the reference Emerald Insurance Services Corporation and Emerald Financial Corporation.
In 1992 and forward, the business card in the upper left named the person who was distributing the card and immediately underneath the name placed the reference to Tax Advantage Account Specialist, and to the right placed in bold print would be reference to the Tax Advantage Account. Below a horizontal line
would be the address of the regional service center. Other information on the card would include reference to the fact that any securities that might be offered would be offered through JMC Financial Corp., member NASD and the fact that insurance services were offered by JMC Insurance Services Corp., with another reference to the name of the person whose business card was distributed, identified as Tax Advantage Account Specialist, Registered Representative, licensed agent. Also on the new business card would be the comment "The Tax Advantage Account is a group trust account through which individuals may purchase selected products offering tax advantages." Neither in the prior business cards nor the more recent business cards are the customers specifically told that they are dealing with insurance agents.
The Hearing Officer concluded that neither the business cards used prior to 1992 nor the revised cards used after 1992 specifically informed the consumer that they were dealing with insurance agents. It should be noted that the later business cards are two-sided, and the argument that some indication of "insurance agent" status is disclosed is not compelling because the reference is in small print on the reverse side of the card. The front of the card merely refers to "Tax Advantage Account" and no reference to JMC (T. 450, 2673; P. Ex.'s 4, 110, 111). Finally, the Respondents' discussion regarding the purpose of the Barnett logo on the business cards, which was to avoid consumer confusion, supports the public policy of prohibiting the association of insurance agents and financial institutions. In this case the consumer was clearly mislead as to the separate and distinct roles of the financial institution and of the licensed insurance agents of JMC. This confusion was exacerbated by the failure of the JMC agents to identify themselves as insurance agents, but instead as "Tax Advantage Account Specialists".
Appointment Cards.
The Hearing Officer in Finding of Fact number 60 described the appointment cards as follows:
An appointment card has been used at times which reflects the title "Tax Advantage Account Appointment" with the Barnett Bank Logo and the word "Trustee" under the logo. The appointment card sets out the date, time, place, and telephone number for the appointment location and carries the signature of the Barnett Bank employee making the referral. In the appointment card text it is stated:
So that you may discover the considerable tax benefits associated with Barnett Bank's Tax Advantage Account, the following appointment has been set aside just for you. Please present this card to the Tax Advantage Account representative.
The Tax Advantage Account representative referred to is the James Mitchell & Co. insurance agent.
Although use of the appointment cards may have been discontinued, the fact remains that they were used and were a part of the allegations in the Order to Show Cause. This finding is supported by Petitioners Ex. "3" and at T. 449.
Tax Advantage Account Brochure.
The Hearing Officer in Findings of Fact number number 63 found:
Barnett Bank brochures in the lobbies of Barnett Bank branch locations which have been used to describe the Tax Advantage Account, as established through the services agreement between James Mitchell & Company and the Barnett entities, prominently display the Barnett Bank logo and refer to the trustee with the word "Trustee." The text of the brochures has not always referred to the fact that life insurance products are being marketed. Such mention as has been made of James Mitchell & Company and its business name is in smaller print when referring to the fact that insurance products are distributed through James Mitchell & Co. under its business name. Moreover, given the basic design of the brochures it appears that the program is a Barnett Bank activity, notwithstanding the reference to the fact that the trustee does not engage in the offering or the sale of insurance products and that those products must be purchased through an entity licensed to offer such products. At times the brochures have been emerald green in color, symbolic of Barnett Bank.
These findings are supported by Petitioner's Exhibit 13a. The role of the brochure is important because it is generally the initial information available to the consumer (i.e., it is located in the Barnett Bank branch lobbies). The predominant feature of the brochure emphasizes the role of Barnett Bank and leads to the conclusion that the program is a Barnett Bank activity. This sets the stage for the deception, which is reinforced by the failure of the JMC agents to make clear that they are insurance agents selling insurance products. It further minimizes the role which JMC has in the program which is essentially designed for the promotion of an insurance product sale. See also T. 447; 2672- 3.
The Hearing Officer's Conclusion of Law number 121 recognized that the brochure contributed to the overall misleading and deceptive nature of the marketing program.
Annuity Brochures Distributed by JMC.
The Hearing Officer in Finding of Fact number 65 states:
Separate annuity product brochures are provided by James Mitchell & Co. insurance agents. The brochures give the name of the underwriter/insurance company.
The Barnett Bank logo and reference to the word "Trustee" under that logo have been left out of the brochures for the most part. Barnett Bank is mentioned in the fact that products offered are not deposits and obligations of the bank and the products are not
insured by the FDIC. The same caveats as set forth in the Barnett brochures. Moreover, in the James Mitchell brochures reference is made to the trustee in the Tax Advantage Account not engaging in the offer or sale of any insurance products to be held in the trust.
Reference is made to the fact that insurance products are distributed by James Mitchell & Co. in its business name. In these brochures reference is made to the nature of the annuity.
These brochures are not located in the lobby. The annuity brochures did contain information in addition to the description of the product being promoted. The additional information consisted of caveats which were similar to those contained in the Barnett Bank brochures. The confusion between the Barnett Bank brochures and JMC brochures was obvious when Thomas Johnson, the chief retail banking officer for Barnett Bank, identified a JMC brochure as a brochure of Barnett (P. Ex. 13C; T. 2673).
Barnett Employee "Actions".
Respondents do not dispute the Hearing Officer's factual findings, but dispute Conclusion of Law number 121 regarding Barnett employees' actions. The Findings of Fact by the Hearing Officer are as follows:
11. Under the business arrangement between the Mitchell company and the Barnett entities the insurance agents are referred to as Tax Advantage Account Specialists, not as insurance agents.
In operation, the program works on the basis that Barnett Bank branch employees, including tellers and customer service representatives, refer customers to the James Mitchell & Co. insurance agents for purposes of having the insurance agents sell the products. The referrals come about as customers have questions that they present to bank employees concerning investments or through suggestions made by the bank employees based upon some knowledge about the bank customers financial situations, if it appears that the customers might be potential participants in the program. To qualify as a potential participant, the services agreement contemplates, and in practice the Barnett Bank branch personnel are aware, that the potential participant is an individual with at least $5,000.00 to invest. On average the individual participants have invested
$23,000.00.
Consistent with the services agreement, in discussing the program which involves the purchase of insurance products, the Barnett Bank branch employee describes the program as the Tax Advantage Account and describes the James Mitchell & Co. insurance agent as the Tax Advantage Account Specialist.
In addition to the personal contract with the bank customers in the bank proper, Barnett Bank, Inc. uses its telemarketing unit in promoting the program, wherein qualified potential participants who are Barnett Bank customers would be referred to James Mitchell & Co. insurance agents.
61. In talking to the Barnett Bank customers, leading to the referral for appointment with a James Mitchell & Company insurance agent, Barnett Bank branch employees do not always make it clear that the James Mitchell & Co. insurance agent is not an employee of Barnett Bank Inc. or its branch affiliate.
These acts (findings of fact) support the Hearing Officer's conclusion that deception has occurred through the failure to disclose JMC employees as insurance agents and that the consumer is mislead to believe that he is purchasing a Barnett Bank product, when in fact the purpose of the program is to sell an insurance product.
This scenario contributes to and furthers the deception due to the direct involvement of Barnett employees in the entire program.
In person and Telephonic Solicitations.
These activities were a part of Barnett Bank employee actions, which were a part of the whole program. The specific facts related to these activities are set forth in subparagraph f. The role of the referrals is crucial to the entire program (T. 3273-4).
The Hearing Officer recognized in Conclusion of Law number 121 that these activities contributed to the deceptive and misleading nature of the program.
For the reasons set forth above these exceptions are rejected.
The Respondent alleges that a finding of specific consumer harm is necessary in order to find a violation of s. 626.9541(1)(b), F.S. A careful review of this section shows that consumer harm is not a required element of a violation. The violation is complete upon a showing that an advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance which is untrue, deceptive, or misleading is placed before the public. Accordingly this exception is rejected.
Reliance on Collignon v. Larson, 145 So.2d 246 (Fla. 1st DCA 1962) is likewise misplaced. This case held that evidence of consumer harm may be considered in determining whether a statement is untrue, deceptive or misleading. As previously stated, the facts of Collignon are not relevant to the JMC/Barnett marketing program. The Department is not required to ignore a violation of s. 626.9541(1)(b), F.S., until harm occurs. The purpose of the unfair trade practices act is remedial in nature to prevent harm in the first place. The public interest requires that statutes governing insurance contracts should be liberally construed to protect the public. See Praetorians v. Fisher, 89 So.2d 329 (Fla 1956).
The Florida Unfair Insurance Trade Practices Act was fashioned after the Model NAIC Act on the same subject. The Model NAIC Act was patterned after the Federal Trade Commission Act. (FTCA). See State Unfair Practices and Claim
Law: The NAIC Model, 7 J.Ins. Reg. 64 (Sept. 1988). Cases interpreting the FTCA explicitly hold that proof of actual injury is unnecessary to support a cease and desist order. Spiegal, Inc. v. F.T.C., 494 F.2d 59 (7th Cir. 1974), Cert. denied, 419 U.S. 896 (1974). Likewise, reliance on Palmer v. Santa Fe Healthcare Systems, Inc., 582 So.2d 1234 (Fla. 1st DCA 1991), is misplaced because the case at bar is not dealing with a common law deceptive act, but a statutory prohibition that does not specifically require reliance or consumer harm.
Accordingly, the claim that proof of "consumer harm" is necessary to support a violation is rejected.
Respondents maintain that the Department has failed to meet the requirements of Anheuser-Busch v. Department of Business Regulation, 393 So.2d 1177 (Fla. 1st DCA 1981). Anheuser-Busch dealt with the purported non-rule policy of the Department of Business Regulation to enforce a policy that "bar spending" for vacationing collegians violated the "Tied House Evil" law. This is factually distinguishable from the case at bar because the Department is not attempting to enforce non-rule policy, but to directly enforce a statutory prohibition against deceptive and misleading statements related to the business of insurance. It is informative that the Respondents did not challenge the Department's attempt to enforce s. 626.9541, F.S., in James Mitchell & Co. et al. v. Department of Insurance DOAH Case No. 94-0150RU (Final Order dated August 30, 1994). The only issue raised therein was the Department's alleged effort to enforce non-rule policy related to enforcement of s. 626.988(2), F.S. By necessity, a determination of whether a person has placed an untrue, deceptive or misleading advertisement, announcement or statement before the public, is fact specific. It is only necessary to weigh the facts presented as a whole and to come to the conclusion that the statute has been violated. No specific rule or regulation is needed in order to find that conduct is an unfair or deceptive act or practice in the conduct of any trade or commerce. Dept. of Legal Affairs
v. Father and Son Moving and Storage Inc., 643 So.2d 22 (Fla. 4th DCA 1994). In this case, extensive factual evidence exists in the record to fully support each of the factual findings of the Hearing Officer. He weighed all of the evidence and concluded that the activities of the Respondents resulted in a deceptive and misleading marketing program that did not truthfully represent to the public that the Tax Advantage Account was indeed an insurance marketing program being sold by insurance agents who were not employed by Barnett Bank. It is apparent that there is competent substantial evidence in the record, as previously described herein, to prove that s. 626.9541(1)(b), F.S., was violated in this case. Accordingly, this exception is rejected.
This exception is not directed at a specific conclusion of law or finding of fact by the Hearing Officer, but is more in the nature of argument or disagreement with the contention that insurance products must be marketed in a manner wherein the consumer knows he or she is purchasing an insurance product from a person who is an insurance agent. The record as indicated above supports the contention that great effort was made to mask the role of JMC agents by referring to them as Tax Advantage Account Specialists for the Tax Advantage Account administered through Barnett Bank. The factual statements alleged by the Respondents are not supported by the record and are not relevant to the issues raised in this matter.
Respondents maintain that Conclusions of Law number 121 and number 131 are erroneously inconsistent. Conclusion of Law number 131 reads:
The facts do not reveal a violation of Section 626.112(8)(b)4.d., Florida Statutes. Based upon actions by James K. Mitchell as director and officer violations have been established concerning Section 626.112(8)(b)4.i. and 6., Florida Statutes. James K. Mitchell's actions as director and officer in entering into the business arrangement with the Barnett entities and the subsequent conduct of business pursuant to that arrangement detailed in the fact finding, have resulted in deceptive acts and practices by James Mitchell & Company and its insurance agent employees and have led to the willful circumvention of the requirements and prohibitions of the Insurance Code by James Mitchell & Company and its insurance agent employees. Therefore, as a condition precedent to continuing business, James Mitchell & Company must obtain an insurance agency license from the Department of Insurance.
The conclusion in number 131 that s. 626.112(8)(b)4.d., F.S., was not violated is consistent with the Conclusion of Law number 121, which determined that the manner in which the insurance product was sold was deceptive and misleading.
Section 626.112(8)(b)4.d., F.S., requires that the deception or misrepresentation be directed to the "insurance policy or contract". Herein the deception involved concerned the transaction as a whole and did not concern the actual terms or conditions of the annuity. This distinction is apparent because in the second sentence of Conclusion of Law number 131, the Hearing Officer confirms that the facts did show that James K. Mitchell, as director and officer of JMC, and JMC's insurance agent employees violated ss. 626.11 2(8)(b)4.i. and 6., F.S. These sections prohibit unfair or deceptive acts or practices under Part X, and the willful circumvention of the prohibitions of the Insurance Code, i.e., s. 626.9541 (1 )(b), F.S. Accordingly, the exception is rejected.
Respondents maintain that the Hearing Officer's conclusion regarding violations of the unfair trade practices act is erroneous and not supported by the evidence. For the reasons set forth herein, there is ample competent substantial evidence on the record to support the Hearing Officer's conclusion that JMC committed a violation of s. 626.9541(1)(b), F.S., as charged in Count III, by knowingly establishing its own advertising, by benefiting from Barnett advertising pursuant to the services agreement, and by making statements about and by benefiting from statements by Barnett employees pursuant to the services agreement. The advertising and statements concerned insurance sales through the Tax Advantage Account by JMC Tax Advantage Account Specialists (operating as undisclosed insurance agents).
In Count VI, the Hearing Officer concluded that JMC was aware that its insurance agents knowingly were deceptive and misleading by failing to make clear that they were insurance agents selling insurance products.
Finally, the Respondent's representation that JMC's customers were not deceived is not supported by the record. Indeed, the only determination by the Hearing Officer on this point is that the Department failed to affirmatively prove that individual consumer complaints were true. However, it was not necessary to prove consumer harm to establish a violation of s. 626.9541(1)(b), F.S., because consumer harm is not a required element of this offense. There
was record evidence of 101 complaints which alleged failure to identify certain aspects of the program or the agent; that customers did not know they had purchased an annuity from an insurance company; that the product was referred to as the Barnett Tax Advantage Account, making it appear to be a Barnett Bank account rather than an insurance product; and that customers were confused as to who the JMC agents actually worked for, thinking it was Barnett Bank. (See Pet. Ex.'s 18 and 156; T 3105-3127.)
Accordingly, this exception is rejected.
VI.
Respondents maintain that the Hearing Officer applied an improper burden of proof with respect to the violations found to have been committed by JMC. The Hearing Officer indeed did use the heightened burden of proof in determining the violations committed by James K. Mitchell for which he was personally responsible and in his capacity as an officer and director of JMC. The unfair and deceptive practices of James K. Mitchell personally are the same practices which were attributable to JMC. Therefore, as a practical matter, the heightened standard applicable to license disciplinary proceedings has in fact been applied to the cease and desist order directed to JMC.
The Respondents' argument that the higher burden of proof is applicable to the Department's efforts to issue a cease and desist order against JMC is without merit. Respondents rely on two final orders issued by a different state agency (Department of Banking and Finance). No authority was cited which supports the contention that final orders from one state agency are controlling precedent before a different state agency. It is not known whether those cases were appealed and confirmed as legally correct. The two administrative orders entailed cease and desist orders to stop doing business completely in Florida.
Herein, the cease and desist order is directed to JMC to stop engaging in a deceptive and misleading insurance marketing program. It is only because s. 626.112, F.S., requires JMC to be licensed as an "insurance agency", that JMC cannot continue to engage in insurance agency activities, not because of the substantive violations determined in this proceeding.
The purpose of the cease and desist order in this case is not to punish, but to protect the public from unfair trade practices. No fines have been imposed at this time. If the cease and desist order is subsequently violated, then fines and penalties may be appropriate. See ss. 626.9581 and 626.9601,
Therefore, the cease and desist order is not punitive in nature and the Respondents' rationale is inapplicable.
Finally, the Respondents' claim that the cease and desist order denies them the right to continue to do business is not legally correct. The cease and desist order prohibits JMC from engaging in the prohibited activities, i.e., violation of s. 626.9541(1)(b), F.S. The second part of the cease and desist order regarding agency licensure is the result of the violation of s.
626.9541(1)(b), F.S., by James K. Mitchell as an officer and director of JMC, which was proven by clear and convincing evidence.
This requirement is imposed as a matter of law, just as an individual is prohibited from acting as an insurance agent unless properly licensed. In Florida, an insurance agency is not required to be licensed, unless one of its principals has been found guilty of specified violations. That is what happened in this case. The violation by James K. Mitchell was proven by clear and convincing evidence.
The other cases referenced by the Respondents were all "license disciplinary" proceedings which the Hearing Officer acknowledged in Conclusions of Law number 98-100 applied to actions against James K. Mitchell's nonresident agent's license, but not to the proceedings for a cease and desist order to enforce the prohibitions of s. 626.9541(1)(b), F.S. Accordingly, this exception is rejected.
VII.
Respondents reassert that the burden of proof must be clear and convincing. This exception was discussed above and is rejected as indicated.
Respondents maintain that the recommended penalties are not supported by the evidence. There was only one penalty involved in this matter. That is the recommended revocation of James K. Mitchell's license as a nonresident insurance agent. Clearly the Hearing Officer was in the best position to weigh the evidence and to consider the demeanor of the witnesses, including James K. Mitchell. He was aware that this marketing program, involving the deceptive and misleading practices of the Respondents, grew to 40,000 participants in 1993 (Finding of Fact number 17). Also, in Conclusions of Law number 131 and number
132 the Hearing Officer found that the violations were willful and made knowingly and therefore justified the recommended sanction.
Section 120.57(1)(b)10, F.S., states in part:
The agency may accept the recommended penalty in a recommended order, but may not reduce or increase it without a review of the complete record and without stating with particularity its reasons therefor in the order, by citing to the record in justifying the action.
The recommendation of a Hearing Officer is entitled to substantial deference. The Legislature has also granted broad discretionary authority to the agency as to the penalty to be imposed. Village Zoo, Inc. v. Department of Business Regulation, Division of Alcoholic Beverages and Tobacco, 462 So.2d 839 (Fla. 4th DCA 1985)(even though the Court felt the penalty was severe, it was compelled to uphold the agencies imposition of penalties). As long as the penalty is within the permissible range of statutory law, District Courts of Appeal have limited authority to review the penalty. Florida Real Estate Com'n
v. Webb, 367 So.2d 201 (Fla. 1978)("the appellate court has no authority to review the penalty unless agency findings are in part reversed"); See also Decola v. Castor, 519 So.2d 709 (Fla. 2d DCA 1988); Village Zoo, Inc., supra.
Respondents' efforts to revisit the consumer harm issue are rejected for the reasons previously indicated. The Hearing Officer found that deception occurred. The potential for future harm is the purpose of prohibiting unfair and deceptive practices. By prohibiting the placement of untrue, deceptive or misleading representations before the public, the potential harm is prevented. Waiting for "consumer harm" would abrogate the purpose of the Unfair Trade Practices Act, which is to prevent the consumer harm from occurring. The Hearing Officer was correct in recommending the revocation of James K. Mitchell's license. The Hearing Officer found in Conclusion of Law number 134 that James K. Mitchell was in violation s. 626.611(7), F.S., which reads in part:
... the Department shall deny an application for, suspend, revoke or refuse to renew or continue the license or appointment... of any agent... if it finds... the following applicable grounds exist:
(7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance. (emphasis added)
This section requires the mandatory suspension or revocation of the license. Also, in this case the Hearing Officer has determined that the violations were committed knowingly and willfully. (See Conclusions of Law number 131 and 132)
Finally, the Respondents maintain that an order to cease and desist is inappropriate and that a "modest administrative fine" should be assessed against JMC. This approach would not foster the purposes of the unfair trade practices act which is to prohibit deceptive and misleading practices. The only proper remedy is an order to cease and desist the illegal acts. If, after the order is issued, JMC continues to engage in the prohibited activities, then additional sanctions would be justified pursuant to s. 626.9601, F.S., and other appropriate statutes. Accordingly, this exception is rejected.
The Respondents assert that the Department has failed to maintain a subject matter index. The Hearing Officer concluded in Conclusion of Law number
109 that the Department has met the requirements of s. 120.53(2), F.S., and provided reasonable access to its precedents as they might influence the outcome of this case. This conclusion is supported by competent substantial evidence in the record. Conflicts in the evidence were properly weighed by the Hearing Officer which resulted in his conclusion that the indexing requirement was met. Record evidence indicates:
From 1979 through 1983 FALR had indexed all final orders received from the Department (T. 2270);
From 1984 through 1992 FALR would publish and index all final orders after formal hearings, responses to petitions for declaratory statements, or any other final orders that appeared to have continuing legal significance (T.
2275-2276);
The Department sent copies of all its orders to FALR from 1980 to June 1992, the date of the termination of the designation of FALR (T. 3433-34);
The Department's current in-house indexing system has been approved by the Department of State as required by statute (T. 3406-8); and
The Department maintains an index of all orders from 1975 to the present (T. 3414-15).
Therefore, Gessler v. Dept. of Business and Professional Regulation, 627 So.2d 501 (Fla. 4th DCA 1993) does not prevent the Department from taking action in this case. Accordingly this exception is rejected.
Respondents maintain that the penalty provisions of the Insurance Code constitute an invalid delegation of legislative authority. The Court in Dyer v. Department of Insurance, 585 So.2d 1009 (Fla. 1st DCA 1991) reviewed the various penalties provided for in the Insurance Code and determined that the Department could not both suspend or revoke an insurance agents license and fine the agent
for the same violation under s. 626.9541, F.S. This is not the situation in the case at bar. The Department clearly set forth the statutory sections which it was attempting to enforce and the specified remedies that it was seeking, i.e., the revocation of James K. Mitchell's license and a cease and desist order directed to JMC to prohibit unlawful activities. Also, invalid delegation of legislative authority is a constitutional issue not properly raised. There were numerous past orders which the Respondents discovered and brought to the attention of the Hearing Officer. He reviewed them and rejected them as factually distinguishable and not compelling to authorize the improper acts established on this record (Conclusion of Law number 96). Accordingly, this exception is rejected.
Respondents have also excepted to specified conclusions of law as follows:
Conclusion of Law number 131
This Conclusion of Law reads as follows:
The facts do not reveal a violation of Section 626.112(8)(b)4.d, Florida Statutes. Based upon actions by James K. Mitchell as director and officer violations have been established concerning Sections 626.112(8)(b)4.i. and 6., Florida Statutes. James K. Mitchell's actions as director and officer in entering into the business arrangement with the Barnett entities and the subsequent conduct of business pursuant to that arrangement detailed in the fact finding, have resulted in deceptive acts and practices by James Mitchell & Company and its insurance agent employees and have led to the willful circumvention of the requirements and prohibitions of the Insurance Code by James Mitchell & Company and its insurance agent employees. Therefore, as a condition precedent to continuing business, James Mitchell & Company must obtain an insurance agency license from the Department of Insurance.
This exception constitutes general disagreement with the Hearing Officer's findings of fact, without referencing portions of the record which supports the disagreement. However, there is competent substantial evidence in the record to support the Hearing Officer's determination of the violations and the willful nature of the violations. In Conclusion of Law number 121 the Hearing Officer specifically stated that:
"James Mitchell & Company has knowingly established its own written advertising, and benefited from Barnett advertising pursuant to the services agreement."
Conclusion of Law number 124 states:
The Department of Insurance has proven that James Mitchell & Co. violated Section 626.9541(1)(b), Florida Statutes, as alleged in Count VI, in that the facts established that James Mitchell & Company was aware that its insurance agents knowingly were
deceptive and misleading in their
failure to make clear that they were insurance agents selling insurance products.
Mr. Hanson, General Counsel for JMC, testifying on behalf of the Respondents, highlighted the deceptive nature of the arrangement by the following colloquy:
By Mr. Silverman:
Q. Let's take the process back a little bit relative to the Barnett staffer who is making the referral. Did you believe that proper disclosure took place if the Barnett staffer did not make clear that the JMC agent was not a Barnett Bank employee?
A. The way I look at it is that it is not the Barnett staffer's obligation to make any disclosure concerning what the status of the person that they are going to be meeting with is.
Q. Even if the customer wouldn't sit down with that agent if he knew who that agent was?
A. I think it's up to the agent to identify himself or herself, at which point in time the customer could make a decision whether they want to continue that interview or not (T. 3104; emphasis added).
This is contrary to the primary defense raised by the Respondents that they were under no obligation to tell the customer that the JMC agents were insurance agents. Furthermore, the detailed responses previously set forth herein belie the Respondents' assertion that no violation of s. 626.9541(1)(b), F.S., has occurred or that it was not willful
Entitlement to an insurance agency license under s. 626.172, F.S, is not at issue in this proceeding, only the requirement of when a license is required, which was caused by James K. Mitchell's violation of ss. 626.9541(1)(b) and 626.112(8)(b)4.i. and 6. F.S. The statute designates which activities trigger the requirement that an "insurance agency" obtain a license. Once the application is filed, it is reviewed in accordance with the provisions of s.
626.172, F.S. To the extent that JMC has engaged in insurance agency activities (See P.Ex.'s 2, 9b and 10), it would clearly be required to obtain an insurance agency license. These facts establish that JMC is engaging in insurance agency activities itself and through it subsidiaries.
Finding of Fact number 2 reads:
In August, 1990, James Mitchell & Co., a corporation doing business in Florida under the fictitious name of Emerald Preferred Services, referred to in the agreement as agent and trustor, entered into a services agreement with Barnett Banks, Inc. and Barnett Banks Trust Company, N.A. as trustee. There was a companion trust agreement in which Emerald Preferred Services was trustor and Barnett Bank Trust Company, N.A. was trustee of a trust for the benefit of individuals
referred to as participants. Those individuals would become participants by executing a participation agreement. The respective agreements involved the sale of insurance products in Barnett Branch Banks located in Florida.
Finding of Fact number 6 reads:
Individual insurance agents licensed in Florida, together with divisional vice presidents, regional vice presidents and regional marketing directors work for James Mitchell & Co. and its subsidiaries in carrying out the obligations that Emerald Preferred Services, later JMC Preferred Services, had committed to in the services agreement and trust agreement with Barnett Banks, Inc. and Barnett Banks Trust Company, N.A.
Finding of Fact number 25 reads:
James Mitchell & Co. is paid commissions from the insurers issuing the annuities and in the past based upon the issuance of life insurance policies from the insurers.
Therefore JMC meets the statutory definition of "insurance agency" defined in s. 626.094, F.S. Accordingly, this exception is rejected.
Conclusion of Law number 132
This Conclusion of Law reads:
As alleged in Count IX, James K. Mitchell has violated Section 626.621(12), Florida Statutes, by knowingly aiding, assisting, procuring, advising, or abetting other persons to violate provisions of the Insurance Code in a manner previously described and is subject to the penalties set forth in Section 626.621, F.S.
As previously discussed in great detail herein, the cited factors listed by the Respondents do not impact on the Hearing Officer's finding that there was a knowing and willful violation of s. 626.9541(1)(b), F.S. The Hearing Officer also specifically rejected the Respondents' allegations regarding the effect of
626.988(8), F.S., and the requirement that consumer harm must be demonstrated before a violation occurs. Indeed, the fact that there were 40,000 participants and over one billion dollars invested (Resp. Exceptions - pg. 95; T. 3231), demonstrates the magnitude of the violations. This shows that a large segment of the consuming public has been exposed to this unfair trade practice involving the failure to make clear that JMC agents were insurance agents selling insurance products. (Finding of Fact number 124)
Finally, the Department's penalty guidelines (Rule Chapter 4-231 F.A.C.) provide justification for the revocation of James K. Mitchell's license. Rule
4-231.160(1), F.A.C. includes the following mitigating/aggravating factors to be considered in imposing discipline:
Willfulness of the conduct.
In this case, the Hearing Officer found the conduct willful.
Conclusion of Law number 131:
The facts do not reveal a violation of Section 626.112(8)(b)4.d, Florida Statutes. Based upon actions by James K. Mitchell as director and officer violations have been established concerning Sections 626.112(8)(b)4.i. and 6., Florida Statutes. James K. Mitchell's actions as director and officer in entering into the business arrangement with the Barnett entities and the subsequent conduct of business pursuant to that arrangement detailed in the fact finding, have resulted in deceptive acts and practices by James Mitchell & Company and its insurance agent employees and have led to the willful circumvention of the requirements and prohibitions of the Insurance Code by James Mitchell & Company and its insurance agent employees. Therefore, as a condition precedent to continuing business, James Mitchell & Company must obtain an insurance agency license from the Department of Insurance. (emphasis added)
Degree of potential injury to victim.
The magnitude of this program is tremendous, i.e., 40,000 individuals, $1 billion in investments (T. 3231).
Finding of Fact number 17 states:
In a recent reporting period, the end of 1993, it was revealed that within the time that the agreement has been in existence James Mitchell insurance agents have sold insurance products to 40,000 participants in the program with the Barnett entities.
Age or capacity of victim.
Finding of Fact number 66:
The average age of a participant in the James Mitchell & Co. program with the Barnett entities is 60 to 61 years old.
Motivation of agent.
The motivation of the program was to obtain leads from Bank employees so the insurance agent could sell an insurance policy.
Finding of Fact number 54 states:
Pursuant to the services agreement, Barnett Bank is prohibited form disseminating information or making representations describing insurance products. Its employees are prohibited from soliciting or assisting in the preparation of applications for insurance products or providing advice with respect to the
products. If inquiry is made, Barnett Bank, Inc.'s employees shall limit their activity to referring potential participants and existing participants to James Mitchell & Co. to obtain information and assistance from licensed employees (insurance agents) of James Mitchell & Co. Barnett
Banks, Inc.'s employees are limited to making available to participants and potential participants generic materials concerning the trustee, the trust and related trust services.
Finding of Fact number 56 states:
In operation, the program works on the basis that Barnett Bank branch employees, including tellers and customer service representatives, refer customers to the James Mitchell & Co. insurance agents for purposes of having the insurance agents sell the products. The referrals come about as customers have questions that they present to bank employees concerning investments or through suggestions made by the bank employees based upon some knowledge about the bank customers' financial situations, if it appears that the customers might be potential participants in the program. To qualify as a potential participant, the services agreement contemplates, and in practice the Barnett Bank branch personnel are aware, that the potential participant is an individual with at least $5,000.00 to invest. On average the individual participants have invested
$23,000.00.
Financial gain or loss to agent.
The financial gain to JMC was overwhelming, as demonstrated on the record where JMC earned approximately $49 million in commissions in 1993. (T. 3233- 34)
Finding of Fact number 22 states:
The James Mitchell Company goal for production by an individual insurance agent employed by the company is 4 million dollars in customer contributions per year.
Finding of Fact number 25 states:
James Mitchell & Co. is paid commissions from the insurers issuing the annuities and in the past based upon the issuance of life insurance policies from the insurers.
Finding of Fact number 56 states:
In operation, the program works on the basis that Barnett Bank branch employees, including tellers and customer service representatives, refer customers to the James Mitchell & Co. insurance agents for purposes of having the insurance agents sell the products. The
referrals come about as customers have questions that they present to bank employees based upon some knowledge about the bank customers' financial situations, it appears that the customers might be potential participants in the program. To qualify as a potential participant, the services agreement contemplates, and in practice the Barnett Bank branch personnel are aware, that the potential participant is an individual with at least $5,000.00 to invest. On average the individual participants have invested
$23,000.00.
Previous disciplinary order or prior warning by the Department.
JMC's program was rejected in 1985 and again in 1990, and on neither occasion was JMC granted permission to proceed with their business arrangement.
Finding of Fact number 94 states:
In 1985 and 1990, prior to commencing the arrangement between James Mitchell & Co. and the Barnett Bank entities, James Mitchell & Co. had conferred with the Department of Insurance concerning marketing insurance products where financial institutions might be involved, together with a trust. The details of those prospective arrangements as presented to the Department of Insurance in 1985 and 1990 were incomplete and did not correspond to the business arrangement reached between James Mitchell & Co. and the Barnett Bank entities through the services agreement and trust agreement. The Department of Insurance in its discussions with James Mitchell & Co. in 1985 and 1990 did not grant permission to James Mitchell & Co. and its prospective partners to proceed with their business arrangements without placing themselves at risk that they might promote violations of statutory provisions that preclude certain affiliations between insurance agents operating out of certain insurance agencies and financial institutions. This refers to Section 626.988(2), Florida Statutes. The Department has never granted permission to James Mitchell & Co. and the Barnett Bank entities which countenances the business arrangement that has been described in these findings of fact. (emphasis added)
Vicarious or personal responsibility.
Mr. Mitchell personally executed the original services agreement and trust and subsequent changes to those agreements.
Finding of Fact number 13 states:
James K. Mitchell is chairman and CEO of James Mitchell & Co. He executed the original services agreement and trust agreement in behalf of James Mitchell & Co. and executed subsequent changes to those agreements as the principal officer for James Mitchell & Co.
Accordingly, these aggravating factors fully justify the imposed sanction recommended by the Hearing Officer, and this exception is rejected.
Conclusion of Law number 134
This Conclusion of Law reads:
For reasons previously described, James K. Mitchell has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance, as alleged in Count IX, has violated Section 626.611(7), Florida Statutes, and is subject to the discipline in Section 626.611, Florida Statutes.
This conclusion further supports the Hearing Officer's recommendation that the license of James K. Mitchell should be revoked. Section 626.611(7), F.S., mandates the suspension or revocation of the license. The justification of the recommended penalty and the application of the clear and convincing burden of proof by the Hearing Officer has been previously discussed herein.
Accordingly, this exception is rejected.
VIII.
The Respondents submit that several Declaratory Statements issued in past years were relevant and determinative of the Respondents' ability to lawfully operate the marketing program. However, the Hearing Officer properly determined that "factual differences" in those cases did not entitle the Respondents to the relief requested. The Respondents' exception fails to demonstrate the factual similarities alleged, with the exception of a brief discussion of the Idle Assets case. Inconsistent application of precedents was not proven by the Respondents, as acknowledged by the Hearing Officer in Finding of Fact number 96 and Conclusion of Law number 108.
A brief review of the Idle Assets case shows that:
No insurance agents solicited bank customers on bank premises.
The policy which funded the trust was already in existence.
The Department found that administrators of banks were improperly acting as agents.
The Department found violations of the advertising provisions of Rules
4-35.06 and 4-35.12, F.A.C. The overall conclusion of the Declaratory Statement was that there were violations of provisions of the Insurance Code and the Department's rules. Furthermore, the program initiated by Idle Assets was terminated after entry of the Department's Order (T. 1201-3, 1213, 1243).
Therefore, the Hearing Officer was correct in concluding that the other cases presented by the Respondents, including Idle Assets, were factually distinguishable.
Respondent's exception to Conclusion of Law number 108 maintains that the cases cited by the Hearing Officer support the Respondents' position. Those cases involved the reversal of agency action due to inconsistent results without a reasonable explanation. However, in this case the Hearing Officer stated,
"Such comparison does not establish inconsistent agency practices, and fails to establish a successful defense to accusations set forth in the Order to Show Cause." Also, the Respondents have failed to specifically describe the factual similarities between the previous cases and the present case. Accordingly, this exception is rejected.
Exception to Preliminary Matters Rejection of Certain JMC Exhibits.
Rejection of exhibits 1422 and 1423 by the Hearing Officer is to be given due deference and may not be reversed absent a showing of abuse of discretion. Hyster Co. v. Stephens, 560 So.2d 1334 rev denied, 574 So.2d 141 (Fla. 1st DCA 1990). The Respondents did not demonstrate that the proper foundation for admission of these records was made. The exhibits merely constitute copies of legislative staff reports and legislative drafts. Furthermore, consideration of legislative intent by extrinsic evidence is not necessary where legislative intent can be gleaned from the act itself. City of Miami Beach v. Galbut, 626 So.2d 192 (Fla. 1993); Forsythe v. Longboat Key Beach Erosion Control District, 604 So.2d 452 (Fla. 1992). In Glendale Federal Savings and Loan Association v. Department of Insurance, 587 So.2d 534 (Fla. 1st DCA 1991), the Court found that
s. 626.988(2), F.S., was not unconstitutionally vague, and that most of the language questioned can be interpreted according to common understanding and reason. The statute affords fair notice to the parties that they are affected by the statute, and of what activities are prohibited. The statute also affords sufficient guidance to the agency charged with enforcing it. Glendale at 537. Also, in United States v. Yonan, 800 F.2d 164 (7th Cir. 1986) cert. den., 479
1055 (1987), the court stated:
In the absence of a statutory definition of 'association' the cases have adopted a common sense reading of the term that focuses on the business of the enterprise and the relationship of the defendant to that business.
Accordingly, this exception is rejected.
Respondents reassert that the program involves a valid trust. The Department contends that the Tax Advantage Account trust is invalid. The Hearing Officer did not make this finding of fact. The legality of the trust is not an issue in this case unless it can be shown that it is operating for an illegal purpose. William v. Collier, 158 So.815 (Fla. 1935). The record herein does not establish an illegal purpose per se. However, the legality of the trust does not foreclose a determination that there is a violation of s. 626.988, F.S. Accordingly, this exception is rejected.
Respondents maintain that s. 626.988(2), F.S., is vague. Respondents' disagreement as to whether JMC was "associated with" Barnett Bank is likewise discussed in detail in subheading II of this Order. The Court in Glendale, held that s. 626.988, F.S., was not improperly vague and affords sufficient guidance to parties to know what types of activities are prohibited. By necessity, the entire factual scenario must be considered before a conclusion can be made as to whether there is an unlawful "association." Likewise, the Department's previous guidance to the Respondents in 1985 and 1990 rebutting their earlier efforts to engage in these activities belies the argument that they did not have notice of what is prohibited. Therefore, this exception is rejected.
1. As previously indicated, the Respondents' efforts to limit the scope of the terms "association" or "associated with" through inapplicable rules of statutory construction is rejected. To limit the construction of the terms "association" or "associated with" to mean "owned, controlled, employed or retained" would fail to give meaning to the more general term of "association". It is assumed that the Legislature knew the plain and ordinary meaning of words when it chose to include them in statute. Sheffield v. Davis, 562 So.2d 384 (Fla. 1st DCA 1990). The construction asserted by the Respondents would render the terms "association" and "associated with" superfluous. The Hearing Officer determined that subsection 626.988(8), F.S., was not properly triggered and is inapplicable to the arrangement which was presented in this case. However, as the result of the NationsBank decision, the Respondents' contention that they may participate in the sale of annuities with Barnett Bank has been upheld, thereby establishing the lawful "association" of JMC with Barnett Banks, Inc. for the purpose of selling annuities. Accordingly, this exception is rejected.
2. All words used in a statute should be construed to give meaning to all parts of the statute. They should not be construed as mere surplusage as maintained by the Respondents. The obvious intent of the statute was to prohibit a broad range of relationships between insurance agents and agencies so as to avoid the "evils" of coercion, unfair trade practices and undue concentration of resources (Glendale at 537)(emphasis added). This is particularly telling in this case because the Hearing Officer found that the Respondents did in fact engage in unfair trade practices. The broader terms "association" and "associated with" were necessary to prevent the circumvention of the prohibitions as attempted by the Respondents in this case. Therefore, the Respondents' attempt to limit the definition of "association" or "associated with" is rejected, as well as this exception.
Striking JMC's Trial Memorandum
The trial memorandum submitted by the Respondents was objected to by the Department. It was not submitted as evidence but as a convenience to the Hearing Officer for reference during the hearing. The Hearing Officer rejected it for that purpose. The impropriety of the trial memorandum was argued by counsel for the Department (See T. 70). The Respondents did not offer authority for the submission of the trial memorandum. The two volume trial memorandum of
63 tabbed sections consisting mostly of copies of cases, final orders and regulations more closely resembles a trial notebook.
The Hearing Officer later in his discussion stated the following:
When we're through with the case, I am not opposed to having the trial notebook kept with the record, but as far as I'm concerned, it can be returned because, again, it was just a matter of convenience so that the other party and the Hearing Officer could follow the presentation. I do not perceive the trial notebook as being proof, se, or a series of exhibits or things of that nature. (T. 71)
The Hearing Officer's statements must be considered as a whole. The Respondent's generalized statement of prejudice is not demonstrated on the record. In fact, the Hearing Officer could have easily rejected the trial memorandum as improper under the rules. Accordingly, this exception is rejected.
Exceptions To Findings Of Fact
When exceptions merely reiterate proposed findings of fact repeatedly presented at hearing, and when the Hearing Officer clearly and specifically addressed the various aspects of the proponent's position in the recommended order, the agency is not obligated to deal with the proposed exception. Britt
Department of Professional Regulation, 492 So.2d 443 (Fla. 1st DCA 1986). For the most part, the Respondents have attempted to reargue the facts which were proposed at hearing; however, in the abundance of caution each exception has been individually addressed.
Number 2
Respondents except to this finding as erroneous and unsupported by the evidence. It is not disputed that the trust agreement and services agreement were related transactions dependent upon one another. The Tax Advantage Account was referred to as a partnership by Barnett (T. 2695; P. Ex. 50). Solid teamwork is necessary to make the arrangement successful (T. 2696; P. Ex. 50). The insurance products would become the trust assets (T. 2185). The Hearing Officer was summarizing his perception of the relationship of the trust and the services agreement. Therefore this exception is rejected.
Number 6
Respondents except to this finding on the basis that the Hearing Officer rejected their proposed finding. The Hearing Officer's finding of fact accurately represents the relationship of the divisional vice presidents, regional vice presidents and regional marketing directors. The finding does not address whether they were licensed or not, but this is immaterial since in Finding of Fact number 10 the Hearing Officer found that, "The sales are made by Mitchell insurance agents licensed in Florida...." The licensure of the regional personnel is subordinate to the findings of the Hearing Officer.
Therefore, this exception is rejected.
Number 10
Respondents object to the term "insurance products" when used in the Recommended Order to refer to annuity products Respondent sells claiming the term is erroneous and unsupported by the record. Whether the "annuities" are "traditional" insurance products is immaterial. JMC itself admitted that it sold "annuities" through licensed insurance agents.
Furthermore, s. 624.602(1), F.S., reads:
"Life insurance" is insurance of human lives. The transaction of life insurance includes also the granting of annuity contracts, including, but not limited to, fixed or variable annuity contracts; the granting of endowment benefits, additional benefits in event of death or dismemberment by accident or accidental means, additional benefits in event of the insured's disability; and optional modes of settlement of proceeds of life insurance. Life insurance does not include workers' compensation coverages. (emphasis added)
The NationsBank decision, as discussed earlier, did declare that for the purpose of s. 92 of the National Bank Act, an annuity is not insurance.
However, this decision did not opine that state regulatory laws regarding annuities were preempted by this decision nor declared invalid. At present and in particular at the time of the events in question in this cause, Florida law defined annuities as insurance. Therefore, the Hearing Officer's classification of an annuity as an insurance product will not be disturbed. Accordingly, this exception is rejected.
Number 21, 22, 24, 27
Respondents assert that these findings are erroneous and irrelevant to the resolution of this cause. This exception fails to explain why these findings are erroneous or irrelevant. Accordingly, this exception is rejected.
Number 24
Respondents maintain the finding is erroneous and unsupported by the evidence. Mr. Shropshire specifically related testimony received at an evidentiary hearing in which a representative of JMC indicated that they would very likely be offering life insurance in this Florida program if they could find a suitable carrier (T. 221-22; 3244). Also, the testimony of Mr. Steven Settles, Barnett Bank Director of investment products, confirmed the nature of the contract, with Barnett as the trustee and the James Mitchell people selling the insurance products (T. 1689). Accordingly, this exception rejected.
Number 26
Respondents maintain the Hearing Officer erred in relying on certain evidence. There is competent, substantial evidence in the record to support the findings of the Hearing Officer. The Respondents are merely rearguing the conclusions drawn from the evidence. The findings of fact taken as a whole fairly represent the relationship between the trust fees and the commissions received on annuities sold and, in the past, for life insurance sold (T. 404, 3212, 3232-3; P. Ex 36). Accordingly, this exception is rejected.
Number 27
The Respondents object to this finding as erroneous and not supported by the evidence, and to the Hearing Officer's rejection of their proposed finding of fact. The Respondents are attempting to reargue the evidence. There is no mistake that this marketing program was a tool to market insurance products through the Tax Advantage Account established by Barnett Bank (T. 3326; P. Ex 50).
The customer's initial investment paid to the Barnett Bank trust is sent by Barnett to the insurance company as premium for the annuity (Finding of Fact number 85; T. 243). The primary focus of the program is the initial sale of an insurance product and the generation of attendant trust fees and income which is directed to Barnett Bank Trust Co. The amount of fees earned is directly related to JMC's success in selling the insurance products. The more products sold the greater the assets (annuities) that are in the trust, which assets are subject to annual trust fees (T. 991). Accordingly, this exception is rejected.
Number 30
Respondents are attempting to reargue the weight of the evidence. Clearly, the written, legally binding contract entered into between the parties constitutes competent, substantial evidence of the relationship (P. Ex.2). The services agreement gave rise to overt actions and sales practices, which resulted in the unfair trade practice violations. The Hearing Officer acknowledged that in practice, JMC agents average 12-13 kept appointments (Finding of Fact number 29). Accordingly, this exception is rejected.
Number 38 - 40
Respondents maintain the Hearing Officer failed to recognize that JMC agents were also security brokers. The overall weight of the evidence demonstrated that the Tax Advantage Account was overwhelmingly funded by annuities. Over 99 percent of the trust corpus can be attributed to annuity proceeds (T. 3244). Therefore, the Respondents' attempt to argue that this program was not dominated by insurance agent activities is without merit. The Hearing Officer, in other findings of fact, acknowledged that the program also allowed for the sale of variable annuities (Finding of Fact number 10).
However, even if an individual is licensed to sell securities and insurance, he is still a licensed insurance agent selling an insurance product, and is subject to regulation under the Florida Insurance Code and its rules.
Next the Respondents object to the findings regarding control over the insurance agents by Barnett Bank. It is the duty of the Hearing Officer to weigh and draw conclusions with respect to the divergent testimony on this issue. He clearly rejected the interpretation of the evidence proposed by the Respondents. The terms of the services agreement and the fact that 10-15 percent of JMC's insurance agents are rejected because Barnett Bank did not approve them constitutes competent, substantial evidence supporting the Hearing Officer's findings (T. 415). Also, there was testimony that all JMC agents undergo a final interview with a Barnett officer (T. 1007, 1603, 3274). Mr.
Mitchell's testimony was inconsistent with earlier statements that Barnett Bank has the right of approval over JMC agents (P. Ex. 87). Accordingly, this exception is rejected.
Number 41
Respondents maintain this finding is erroneous and unsupported by the evidence. The Hearing Officer recognized that the trust was established in connection with the service agreement, which transferred the vast majority of the duties under the trust to the Respondents. His finding acknowledges the transfer of liability under the services agreement and trust itself (P. Ex's 1 & 2). Therefore this finding reflects the fact that the trustee's responsibilities are contingent on instructions from the Respondents.
Accordingly, this exception is rejected.
Number 42 & 45
Respondents object to the stated composition of the trust assets as referenced in Finding of Fact number 42. This exception was addressed previously in the response to exception 27 and is rejected for the same reasons. Also, there is testimony in the record that there are only two products sold under the program: variable and fixed annuities (T. 285-6). JMC has never sold
mutual funds pursuant to the Barnett program (T. 220). Also, the exception to Finding of Fact number 45 is not expounded upon. Accordingly, these exceptions are rejected.
Number 46
Respondents maintain that the trustee's liability as described in Finding of Fact number 46 is erroneously misleading and unsupported by the evidence.
This finding is supported by the evidence (P. Ex. 1). Accordingly, this exception is rejected.
Number 48
Respondents except to the Hearing Officer's characterization of Barnett Bank Trust, Inc. liability. The trust agreement and services agreement clearly shifts liability for the maintenance of records to JMC and allows the trustee to rely on these records (P. Ex's 1 & 2; T. 267). Accordingly, this exception is rejected.
Number 49
Respondents object to the reference to "individual trusts" as used in Finding of Fact number 49. The trust agreement specifically provides that JMC is responsible for filing tax returns for the trust and paying taxes, if any (P. Ex 1). Technically speaking there are not "individual trusts" but a group trust with individual participants who contribute funds to an "individual account" within the trust (P. Ex's 1 & 2). Perhaps the Hearing Officer could have more artfully described this finding, but in any event this finding fairly represents the requirement that JMC is responsible for filing tax returns for the Trust.
The significance of this technical finding is not discussed by the Respondents. Accordingly, this exception is noted, but rejected as not materially affecting the decision in this case.
Number 52 and 53
Respondents object to the term "expected" used by the Hearing Officer.
Expectations can be gleaned from the overall weight of the evidence by drawing inferences from the evidence. Obviously, written goals can reasonably lead to what is expected, although not achieved. The Respondents fail to describe which expectations, relevant to this case, were not proven on the record.
Accordingly, this exception is rejected.
Number 55
Respondents object to the statement that Barnett can assert control over the insurance products offered by JMC, as well as the insurers who offer the products. Respondents recognized the assertion of control over the insurer and the insurance products which arise out of Barnett Banks fiduciary duties. Mr. Mitchell testified that he believed that the contract allowed Barnett to reject a provider or product (T. 3271). Therefore this finding is fully supported by the evidence (P. Ex. 1; T. 3271). Accordingly, this exception is rejected.
Number 60 and Number 61
Respondents object to the Hearing Officer's failure to note that the appointment cards were no longer used in the Summer of 1992 and there were virtually no customer complaints. The Hearing Officer stated that the
appointment cards were used "at times". This recognizes that they were not always used. The fact that they were discontinued does not obviate the finding that deception occurred. Whether there were consumer complaints was not material to whether the appointment cards were misleading on their face.
JMC, a corporation doing business in Florida under the fictitious name of Emerald Preferred Services, entered into a services agreement and a trust agreement (Finding of Fact number 2). JMC operates subsidiaries known as JMC Financial Corporation and JMC Insurance Services Corporation (Finding of Fact number 4). Clearly JMC and its subsidiaries are one and the same, doing business through its subsidiaries. Indeed, the service agreement was entered into by James Mitchell & Company while doing business under the fictitious name Emerald Preferred Services (P. Ex. 2). Also see Petitioner's Exhibits 9(b) and 10 wherein JMC is a party to employment contracts and a sales agreement with an insurance company.
This exception is rejected for the reasons set forth above. Number 62
Respondents object to the finding that some Barnett staff quoted rates of return. The Hearing Officer was in the best position to weigh the evidence. He noted "at times" Barnett Bank staff have indicated that annuity products have different rates of return up to 7.4 percent. The fact that one witness stated that materials which were admitted to have been provided to Barnett were never used does not foreclose the possibility that they indeed were used, and the record evidence from three site visits suggested that rates were quoted (P. Ex. 114). Also, Mr. Hanson when testifying admitted that he prohibited Barnett Bank staff from indicating that the annuities within the tax advantage account would pay up to 7.4 percent because the comment was too "product specific" (T. 3099- 3100). The fair implication is that the practice was stopped once it was discovered. Accordingly, this exception is rejected.
Number 63
Respondents object to the Hearing Officer's rejection of the proposed finding that Barnett was acting as a trustee in the Tax Advantage Account brochure. The Hearing Officer was summarizing the basic factual effect of the Tax Advantage Account brochure, which admittedly was displayed by Barnett Bank in its lobbies. Clearly the cover of the folded pamphlet did not contain any reference to JMC. In fact, larger type was used in the brochure for purposes of highlighting the features of the program (P. Ex. 13A). Also, the Hearing Officer's conclusion is supported by review of the 1992 brochure (P. Ex. 13). The brochure referenced by JMC is dated 1994 (JMC Ex. 1409). The changed size of the lettering does not necessarily dissipate the overall misleading nature of the brochure. Accordingly, this exception is rejected.
Number 64
Respondents object to the Hearing Officer's reference to the term "Emerald" and its relationship to Barnett Bank products. The reference to Emerald by the Hearing Officer was apparently a general reference to the different business names used by JMC, which used the Emerald name. The significance of the Emerald name and the color of the brochure was the tie-in of the green trademark color of Barnett Bank, further contributing to the deceptive and misleading nature of the insurance program that was presented to the public.
Mr. Shropshire testified regarding the use of the name "Emerald". MR. SHROPSHIRE:
The name Emerald was chosen or adopted by JMC when it entered into this arrangement with Barnett -- and JMC had not previously been using Emerald -- Barnett was investment adviser to a series of mutual funds by the name of Emerald or that did business under the name Emerald. And as explained to us, to myself in the investigation, there was some thought by JMC that it would be advantageous -- or some people thought it would be advantageous for them to have this further identity with Barnett, its Emerald funds that was adviser of (T. 237).
The fact that other items used by JMC were colored purple had no impact on the Hearing Officer's conclusion regarding the Tax Advantage Account brochure, which was still green in color in 1994. Accordingly, this exception is rejected.
Number 65
Respondents object generally to the Hearing Officer's representation of statements in the annuity product brochures. Respondents do not point out what specific facts are incorrect or unsupported. Although the specific facts found by the Hearing Officer are not disputed, the Respondents object because of the manner in which the facts are described. The fact that bank required disclosures were placed in an insurance solicitation brochure adds to the confusion which necessarily occurs when an insurance product is solicited in connection with a program associated with a financial institution. Petitioner's Ex's 13 C-F are the product-specific brochures which support the Hearing Officer's findings. The Respondents except to the last sentence of this Finding of Fact as erroneously vague. However, this sentence is a very straightforward finding of fact. Accordingly, this exception is rejected.
Number 68
This exception is rejected for the same reasons as set forth above. Number 71
Respondents object to the finding that JMC uses any available workspace.
This finding of fact is supported by competent substantial evidence in the record. Ms. Wittenstein, a JMC representative, testified that the branch determines where she meets with the customer, and that at times she has met customers at a desk of a bank customer service representative. This occurred when her normal desk was in use (T. 1620). This dovetails with Findings of Fact number 72, which acknowledged the general procedure. Accordingly, this exception is rejected.
Number 74
Respondents object to the finding that there were no signs in place prior to December 1993. The Hearing Officer has acknowledged a fact in evidence.
Theoretically, signs that would provide full disclosure of the fact that JMC agents were insurance agents selling insurance may have sufficiently clarified
the nature of the insurance program and corrected the violations of s. 626.9541(1)(b), F. S. The signage referenced by the Hearing Officer did not mention "insurance" or "agent" anywhere, which was an issue in determining whether the program was deceptive and misleading. However, the Hearing Officer found the signs to have been insufficient. The signs were characterized as a recent attempt at disclosure (Conclusion of Law number 121). It is immaterial whether a specific policy or law required the placement of a sign. Accordingly, this exception is rejected.
Number 76
Respondents do not object to the fact, but to whether they were required to disclose status as an insurance agent. This was previously discussed in subheading of the exceptions, and for those reasons, this exception is rejected.
Number 78
The Respondent does not specifically object to the correctness of the finding, but that it does not go far enough in describing the customer profile form. The apparent purpose of this finding is to summarize the entire transaction as it is concluded by the issuance of an annuity (Findings of Fact number 78-86). This scenario emphasizes that nowhere along the way is the customer specifically advised that he is dealing with an insurance agent. Also, a review of the Respondent's proposed finding number 12 (Respondents Proposed Recommended Order) does not mention that the customer profile has a detailed description of the product sold or the name of the issuing company. The forms are also mixed with references to the Barnett Bank responsibilities and to the trust and service agreement. Accordingly, this exception is rejected.
Number 81
Respondents claim the finding that the customer typically does not read the trust agreement is irrelevant and erroneous. Whether the customer typically reads the trust agreement is relevant insofar as the JMC agent asks the customer to sign a statement that the customer has read the agreement and is aware of the relationship of Barnett and JMC. The apparent effort to disclose the terms of the program rings hollow when the customer does not typically read the document. Testimony by Ms. Wittenstein, Regional Marketing Director for JMC, indicated the trust agreement was not discussed and only reviewed upon request (T. 1580).
Furthermore, page 18 of the Life Insurance & Annuities Consumers Guide does not make the consumer responsible for reading the trust agreement. The guide states, "You are responsible for reading your policy and making sure you understand what it covers."
Clearly, the trust agreement is not an insurance policy or annuity.
Accordingly, this exception is rejected.
Number 82
Respondents object to the finding that the services agreement was not provided to the customer as irrelevant. This finding of fact acknowledges that only part of the arrangement is provided to the customer. The trust agreement is provided, and if read, would reference the services agreement. However, the services agreement is not made available to the customer. To the extent the Hearing Officer did not determine that this factual situation was not improper, the Respondent has failed to demonstrate error. The Hearing Officer made a
series of findings completely describing the entire transaction. The Respondent failed to specifically dispute the record basis for the finding. Accordingly, this exception is rejected.
Number 83, 86 & 90
The Respondents object to the series of findings related to the trust agreement and the failure to disclose fees paid to the trustee. The fact that the trust agreement is provided to the customer does not refute the Hearing Officer's findings that the customer was not informed that Barnett Bank's trust company was receiving trust fees. Ms. Wittenstein's testimony (T. 1580) indicated that the trust agreement was not necessarily discussed and, if it was, only when requested by the customer. The Respondents do not cite record evidence which indicates trust fees were disclosed to customers. The fact that typically the customer does not read the trust document supports the finding that no disclosure is made. The remainder of the exception reargues the evidence and relevancy thereof. The Hearing Officer's findings are supported by competent substantial evidence. Accordingly, this exception is rejected.
Number 87
Respondents object to the Hearing Officer's rejection of the proposed finding that the customer could get a full refund. This was rejected as irrelevant. As discussed in subheading V(5) of these exceptions, a violation of
s. 626.9541(1)(b), F. S., does not require consumer harm. Therefore, the fact that a customer could get a full refund does not control the finding of deception in this case. Accordingly, this exception is rejected.
Number 91
Respondents object to the rejection of its proposed finding that the trust provided protection and advantages by Barnett. The record supports the Hearing Officer's finding (T. 306, 1064, 1638). Mr. Hunnicutt, JMC Divisional Vice President, described the annuities as no different than those available directly from an insurance agent (T. 1669). Accordingly, this exception is rejected.
Number 93
Respondents state there is no record evidence to support the finding that Barnett personnel critiqued JMC agents. The record supports the Hearing Officer's finding (T. 1068; P. Ex. 2). Accordingly, this exception is rejected.
Number 94
Respondents object to the finding that the Department never approved its program. The Respondents are attempting to reargue the evidence in a snapshot fashion. The Hearing Officer was responsible for weighing "all" of the evidence. There is record documentation that indicates JMC was informed in 1986 that the program was in violation of s. 626.988, F. S. Discussions in 1990 were general and not specific to the program at issue (T. 1103, 1105,1114). The Hearing Officer rejected Respondents' assertion that their activities were approved by the Department. The record supports this conclusion (T. 192-3, 1101 - 1131, 3269; P. Ex.'s 102,107,108,109,123-6). Accordingly, this exception is rejected.
Number 95 & 96
Rejected for the same reasons as above.
Exceptions to Conclusions of Law
The Respondents have excepted to certain Conclusions of Law by stating "see above". However this leaves one to guess "where above". To the extent the exception was addressed "above" that response is incorporated in the response to the exception.
Number 99, 108 & 109
These exceptions are rejected for the reasons previously stated. Number 110
The Hearing Officer recognized Dyer v. Department of Insurance, 585 So.2d 1009 (Fla. 1st DCA 1991) in his review of this case. He found that the violations by James K. Mitchell were proven by clear and convincing evidence. Accordingly, this exception is rejected.
Number 121, 124, 131-144
Respondents cross-reference previous exceptions, which have been discussed and are rejected for the same reasons.
Number 138, 141, 142 & 143
The Hearing Officer correctly interpreted the provisions of ss. 624.310 and 626.9581, F. S. Conclusions of Law number 121, 131 and 132, when read in conjunction with Conclusions of Law number 137 and number 138, show that James
K. Mitchell was a licensee found to have violated a provision of the Insurance Code and therefore subject to a cease and desist order under both ss. 624.310 and 626.9581 F. S. The substantive provision he was found to have violated was
s. 626.9541(1)(b), F. S. For this and reasons previously discussed this exception is rejected.
Number 144
For the reasons previously discussed regarding the justification for the recommended penalty, the suggestion of a "modest" administrative fine is inappropriate due to the violation of s. 626.611(7), F. S., which mandates revocation or suspension of the license. Accordingly, this exception is rejected.
Number 147
This issue has been exhaustively discussed in previous responses and again is rejected for those reasons.
Number 148
The Respondents maintain that the Hearing Officer failed to give collateral estoppel effect to the Summary Final Order of Hearing Officer Clerk. As previously discussed, the prior decision did not prevent the Department from enforcing the provisions of s. 626.988, F. S. The Hearing Officer correctly determined that the JMC/Barnett program did not fall within the legal requirements of s. 626.988(8), F. S., which program did not involve Barnett Banks selling annuities directly. Additionally, the law at the time as set
forth in Variable Annuity Life Insurance Co. v. Clarke, 998 F.2d 1295 (5th Cir. 1993), VALIC determined that banks were not permitted to sell annuities under federal banking law. Since the rendition of the Hearing Officer's Recommended Order, the U.S. Supreme Court rendered NationsBank v. Variable Annuity Life Insurance Co. Case No. 93-1612 (January 18,1995) which reversed the Fifth Circuit Court of Appeals in VALIC. Thus, in light of the Supreme Court's decision, it is apparent that the contractual relationship between JMC and Barnett Banks, Inc., permits the sale of annuities as provided in s. 626.988(8),
F. S. The limitations on this authorization are set forth in the discussion in subheading II of the Final order regarding unlawful association under s. 626.988, F. S. To the extent this Final Order does not prohibit the sale of annuities under the JMC/Barnett program due to s. 626.988, F. S., this exception has been noted and addressed herein.
The federal preemption issue has also been rejected in Florida. The Court in Barnett Banks of Marion County v. Gallagher, 839 F. Supp. 835 (M.D. Fla.
1993) aff'd 43 F.2d 631 (11th Cir. 1995), rendered Jan. 30, 1995, determined that s. 625.988, F. S., was a state law regulating the business of insurance, and therefore was saved from preemption by the McCarran Ferguson Act. In Florida, the issue of whether annuities are insurance is not in dispute.
Section 624.602(1), F. S., specifically defines life insurance as including annuities. The limited holding in NationsBank, supra, does not impact on the states' ability to regulate annuities as an insurance product.
Response To The Exceptions To The Appendix
Technically speaking the Appendix is not a part of the Recommended Order. It is attached as a part of the requirement of the Hearing Officer to address the proposed finding of facts submitted by the parties. Subordinate cumulative, immaterial or unnecessary proposed facts may properly be rejected by a simple statement that they are immaterial or irrelevant. Schomer v. Department of Professional Regulation, 417 So.2d 1089 (Fla. 3rd DCA 1982).
The Hearing Officer in this case had the responsibility to review 32 volumes of transcript and 2 boxes of exhibits in making his findings of fact. The Respondents have excepted to the findings of fact of the Hearing Officer, which have been specifically addressed above. The failure to find or accept certain proposed findings of fact were discussed in each specific response.
Suffice it to say that the specified disagreement with the Hearing Officer's determination that the proposed fact was rejected focuses on many of the same issues found adversely to the Respondents in its objections to the Findings of Fact in the Recommended Order itself.
A full review of each exception to the rulings in the Appendix is directly related to issues which have been specifically addressed previously in this Final Order. Disagreement as to the relevancy of facts not found are specifically rejected due to the failure of the Respondents to clearly demonstrate prejudice (other than the Hearing Officer's refusal to give prevailing weight to the Respondent's evidence). The specified findings of fact have been carefully scrutinized and found to have been based on competent substantial evidence. The Hearing Officer further ruled on each of the Respondents' proposed findings as required.
However, in an abundance of caution each of the exceptions to the appendix is briefly discussed.
JMC PRO Paragraphs 4-6
The term "subordinate" has a common dictionary meaning. The Hearing Officer's duty is to review the evidence as a whole and determine the facts necessary to determine the ultimate legal issues. The evidence which the Hearing Officer felt was credible was incorporated into the several findings of fact which set forth the manner in which the JMC program was presented to the customer. The finding regarding interest rates was discussed in exception number 62.
JMC PRO Paragraphs 7
Respondents object to the mischaracterization of the Hearing Officer's reference to its proposed finding as legal argument. The exception does not indicate "a material error" in procedure, or that there was prejudice.
JMC PRO Paragraphs 8
Respondents object to the Hearing Officer's determination that sentence 4 was not necessary to resolve the dispute. Insofar as the Hearing Officer found that the overall nature of the program resulted in deceptive and misleading practices, the motivation of the particular agents to close or not close sales is immaterial. Relevancy requires the fact to prove something material to the case.
JMC PRO Paragraphs 9
This objection was previously discussed in exceptions number 38-40. JMC PRO Paragraphs 10 & 11
This exception acknowledges the legal argument of the proposed finding.
Also, the finding goes to the perceived weight of the evidence (summary of investigative reports). This determination is clearly within the province of the Hearing Officer.
JMC PRO Paragraphs 12 - 14
The issue of Barnett's responsibility in the absence of JMC was not material to this case, primarily because, pursuant to the services agreement, JMC did perform the majority of services for the trustee. Therefore, this was irrelevant to the facts of this case.
JMC PRO Paragraphs 15
The number of duties of the trustee, Barnett Bank, was not relevant to whether there was deception by JMC employees in their activities as insurance agents or to the overall presentation of the solicitation to customers of Barnett Banks.
JMC PRO Paragraphs 16
To the extent the unrelated trustee responsibilities did not impact on the Hearing Officer's determination of deception in the program, the Respondents have not shown that there was a material error.
JMC PRO Paragraphs 25 - 39
This issue was thoroughly discussed in the responses to the exceptions, with particularity in exception number 96.
JMC PRO Paragraphs 40
The response to this exception was discussed in subheadings VII C and VIII of Respondent's exceptions and exception number 96. The Respondent's position that the subject matter index was not properly maintained was not supported by the record.
JMC PRO Paragraphs 41
The proposed finding addresses legal conclusions of whether there was an unlawful sharing of commissions and whether this was violative of s. 626.988, F.
S. To the extent the Hearing Officer did not find an unlawful sharing of commissions, the Respondents have not shown prejudice or error.
JMC PRO Paragraphs 43-46
The Respondents' proposed findings discuss the legal issues related to trusts and how they function and responsibilities related thereto. The marketing of the program was the main focus of the violation found by the Hearing Officer, not the technical legal details of the trust. Accordingly he rejected the proposed findings as legal argument.
JMC PRO Paragraphs 47
This issue was discussed in the response to exception number 147. JMC PRO Paragraphs 48 - 50
A review of the proposed findings indicates specific legal argument regarding the charges in Count I and II, and the effect certain alleged facts had on the issue of whether there was deception by JMC created by its failure to disclose that the true nature of the transaction, that an insurance agent was selling an insurance product. This deception was furthered by the various factors cited by the Hearing Officer in Conclusion of Law number 121.
JMC PRO Paragraphs 51
The issue of complaints in other states or by the Office of the Comptroller does not seem relevant to this cause, and the Respondents have not explained the relevance here.
JMC PRO Paragraphs 52
The proposed findings appear to discuss certain factual aspects of the Tax Advantage Account brochure. The Hearing Officer made factual findings relevant to the brochure, and apparently rejected the legal conclusion that it was an invitation to inquire. The fact that there was no mention of insurance products further contributed to the deceptive nature of the program as a whole.
JMC PRO Paragraphs 53
Paragraph 53 is a very general statement of what the evidence tended to show, which was rejected by the Hearing Officer.
JMC PRO Paragraphs 55
The Hearing Officer is acknowledging that the weight of the evidence did not support the Respondent's proposed findings. Determining the weight of particular types of evidence is the proper function of the Hearing Officer.
JMC PRO Paragraphs 58 - 59
These two proposed findings are conclusory statements of whether the evidence has demonstrated a violation of certain statutes and were properly rejected.
Accordingly, the Hearing Officer has not committed a material error in procedure in his review of the Respondents proposed findings. Therefore the Respondents' exceptions to the "Appendix" are hereby rejected.
Exceptions To Denial
Of Admission Of Various Exhibits
Examiners in administrative hearings are not required to comply with the strict rules of evidence and have wide discretion in admission of evidence proposed by either party. Odessky v. Six L's Packing Company, 213 So.2d 732 (Fla 1st DCA 1968). The admission of evidence is a matter within the sound judicial discretion of the trial judge, whose decision in that regard must be viewed in the context of the entire trial. The standard in reviewing such rulings is whether there has been an abuse of discretion. Hyster Company v. Stephens, 560 So.2d 1334 (Fla. 1st DCA 1990).
Exhibits 341 and 342
The Respondents did not allege that a proper foundation was laid for the admission of these exhibits, which are copies of documents that were not authenticated. The Respondents' exception lacks record citation necessary to assist in responding to this exception.
Exhibit 377
The Hearing Officer determined that Rule Chapter 4-223 was not applicable to this proceeding; therefore, this document was not relevant.
Exhibits 485, 1306, 1418, & 1419
The Respondents did not demonstrate that proper predicates were established for the admission of these documents or that they were relevant to the issues in this case.
Exhibits 907 & 915
The Respondents did not allege that a proper predicate was made for these exhibits. The Hearing Officer specifically found the American Pioneer case to be factually distinguishable and therefore unpersuasive in this case.
Exhibits 1291 & 1364
Again, there was no allegation that a proper predicate was made for these exhibits or that they were properly authenticated. Also, there was other record evidence which supported the Hearing Officer's finding that the indexing requirement had been met.
Exhibits 1319
It is not alleged that the proper predicate was made or that the exhibit was properly authenticated. Also, the issue of whether there was a grandfathering of Barnett Bank under s. 626.988, F. S., did not arise in this case. Indeed, JMC claims that it is not associated with Barnett Bank. Exhibits 1395, 1399, 1400A, 1401 & 1402
These exhibits relate to federal banking issues which the Hearing Officer found were inapplicable. Again, there is no allegation that a proper predicate was made or that the documents were authenticated. Further, Respondents failed to demonstrate the relevancy of these exhibits.
Exhibits 1150 and 1153
The Respondents failed to allege that a proper predicate was made or that the documents were authenticated. The relevance to this case was not established.
Accordingly, each of the exceptions to the Hearing Officer's rulings denying admission of these exhibits is rejected.
Comment On Striking Of DOI Customer Witnesses
Respondent has improperly commented on a favorable ruling of the Hearing Officer. This is not in the nature of an exception and this comment by counsel is not supported in the record. The Hearing Officer's ruling to strike the customer witnesses is not disturbed. The comments of counsel should be stricken from the record
JMC's Constitutional Claims
Finally, the Respondents have raised numerous constitutional challenges in the exceptions. Generally, administrative agencies are without authority to resolve constitutional issues. Myers v. Hawkins, 362 So.2d 926 (Fla. 1978).
The determination of the constitutionality of statutes is reserved to the courts of this State. Administrative agencies may not exercise a purely judicial function, such as determining the constitutionality of a statute. See Constitution of the State of Florida Article V, Section 1.
Accordingly, these claims are rejected as improperly raised in exceptions to a Recommended Order.
RULINGS ON THE PETITIONER'S EXCEPTIONS
The Department excepts to the Hearing Officer's Conclusion of Law number 106, which held that the Department did not prove prior notice of prior policies and guidelines. The Hearing Officer, beginning at Conclusion of Law number 102 and concluding at Conclusion of Law number 106, discusses the applicability to this case of the Department rule chapter 4-223, F.A.C., and the policies and guidelines, unpromulgated as rules which predate the adopted rule. Although the record reflects some form of prior notice of the Department's interpretation of s. 626.988, F. S., and policies and guidelines being established, the Respondent had not been formally charged with a violation of these polices and guidelines. The Hearing Officer's analysis is thorough and will not be disturbed. This exception is rejected.
Petitioner excepts to Conclusion of Law number 115, and argues that the Hearing Officer incorrectly concluded that s. 626.794, F. S., was inapplicable to Respondent, JMC, because it was not an insurance agent. The Department's legal analysis is well taken. However, in light of the NationsBank decision, which now authorizes financial institutions to broker annuities pursuant to s. 626.988(8), F. S., and the Hearing Officer's absence of a finding of fact that James Mitchell & Company had indeed transferred commissions it received from the sale of specific insurance products sold through the JMC/Barnett Bank Program, I decline to reverse the Hearing Officer's determination that James Mitchell & Company has not violated s. 626.794, F. S., in this cause.
Petitioner takes exception to Conclusion of Law number 117. The Department's analysis of the relationship of ss. 626.988, 626.9511 and 626.9571,
F. S., in exception number 2 of their Exceptions to Recommended Order, as a part of Part X, Chapter 626, F. S., correctly states the breadth of the Department's authority to regulate insurance agents and agencies and to prohibit the circumvention and "indirect" violation of the Unfair Trade Practices Act set forth in Part X, of which s. 626.988, F. S., is clearly a part. This conclusion of law is specifically discussed in subheading II addressing Unlawful Association. This exception is accepted.
Petitioner's exception to Conclusion of Law number 118 is accepted for the reasons set forth in Subheading II of this Order.
Petitioner's exception to Conclusion of Law number 119 is accepted for the reasons set forth in Subheading II of this Order.
Petitioner's exception to Conclusion of Law number 122 is accepted for the reasons set forth in Subheading II of this Order.
Petitioner takes exception to Conclusion of Law number 123, The Hearing Officer, in Finding of Fact number 16, specifically stated: "When James Mitchell & Company began operations in its five regional processing centers it had not designated a primary agent for each location." This clearly indicates that JMC was in violation of s. 626.592, F. S. However, the Hearing Officer read and interpreted the bulletin that was issued by the Department as providing a window of opportunity for those who were in violation of the statute to comply without penalty, otherwise providing amnesty to violators. Therefore, to now charge and find the regulated individual/entity with a violation would be counter to the previous actions of the Department. This being the situation, Petitioner's exception must be rejected.
Petitioner's except to Conclusion of Law number 125. This Conclusion of Law addresses Count VII. Count VII charges a violation of s. 626.621(12), F. S., (aiding and abetting) in the violation of s. 626.051, F. S., and thereby a violation of s. 626.988, F. S. Although the Department's legal argument has merit, given the factual findings determined herein by the Hearing Officer, including a lack of finding of solicitation and no charges made against the purported violator, Barnett Bank employees, this exception is rejected.
Petitioner's exception to Conclusion of Law number 126 is rejected. Conclusion of Law number 126 is a statement of the law rather than a statement of specifics applying the facts to the law. This exception is unnecessary and is therefore rejected.
Petitioner's except to Conclusion of Law number 129. Petitioner's exception is rejected for reasons set forth in number 8 above.
Upon consideration of the record and the exceptions filed by the parties, and being fully advised in the premises, it is ORDERED that:
The Hearing Officer's Findings of Fact are adopted in full.
The Hearing Officer's Conclusions of Law numbers 117 118, 119, 122 and
125 are rejected, and all other Conclusions of Law are adopted.
The Hearing Officer's recommendation to find James Mitchell & Company in violation of Counts III, VI and VIII and to find James K. Mitchell in violation of Count IX is accepted and said violations are found.
The Hearing Officer's recommendation to dismiss Counts I, V, VII and X as to James Mitchell & Company and Counts VII and X as to James K. Mitchell is accepted and said counts are dismissed.
The Hearing Officer's recommendation to dismiss Counts II and IV as to James Mitchell & Company is rejected and the additional conclusions of law determining violations of these Counts are adopted.
The Hearing Officer's recommendation:
to revoke the nonresident life insurance agent's license of James K. Mitchell;
to order James Mitchell & Company and James K. Mitchell in his capacity as officer and director of James Mitchell & Company to cease and desist the prohibited practices that have been described; and
to require James Mitchell & Company as an insurance agency operating in Florida to obtain an insurance agency license before it continues to do business in Florida; is hereby accepted.
James K. Mitchell and James Mitchell & Company shall CEASE AND DESIST engaging in the sale of life insurance in a financial institution.
James K. Mitchell and James Mitchell & Company shall CEASE AND DESIST engaging in the misleading and deceptive acts in the sale of annuities as set forth in the Recommended Order and this Final Order. Specifically, James K. Mitchell and James Mitchell & Company shall not engage in the following Unfair and Deceptive Practices with regard to the sale of annuities:
Advertisements by James Mitchell & Company and its agents. An advertisement shall not suggest or infer through words, logos, coloration or in any other manner that the annuity being sold is a product of any company or entity other than the insurance company whose product is being sold. Nor shall it be identical or so similar as to cause confusion on the part of the annuity purchaser or prospective annuity purchaser regarding the separate identities, responsibilities, or activities of the insurer or agent and the financial institution. James K. Mitchell and James Mitchell & Company shall not use, accept or allow any advertisement of its services or products unless the advertisement clearly discloses that the customer is potentially purchasing an annuity sold by James Mitchell & Company, an insurance agency, and the annuity is issued by an insurance company. The advertisement must clearly disclose to the customer that the decision to purchase the annuity from James Mitchell & Company is not contingent upon the customer's relationship or dealings with Barnett or any nonlicensed individual or entity
The name of the product as "Tax Advantage Account": References to the "Tax Advantage Account" when used in conjunction with the sale of an annuity product in a financial institution is prohibited. The product or program name under which the annuity contract is marketed and sold shall not include the term "account". All annuity transactions which occur on the bank premises must indicate in clear, understandable and unequivocal language that the customer is purchasing an annuity from a designated insurance company.
Referring to James Mitchell & Company agents as "Tax Advantage Account Specialists": Referenced to James Mitchell & Company agents as "Tax Advantage Account Specialists" is strictly prohibited. Any references to James Mitchell & Company agents shall clearly disclose that they are insurance agents selling an annuity on behalf of an insurance company.
James Mitchell & Company insurance agents' business cards: Business cards used by James Mitchell & Company insurance agents shall not contain any color, logo or any other designation which fails to accurately portray the agent's relationship between himself and JMC or the agent's relationship between himself and Barnett, a financial institution.
Activities by nonlicensed persons: James Mitchell & Company and James
K. Mitchell shall not permit a person who is not properly licensed as an insurance agent to engage in the solicitation, negotiation or transaction of the sale of annuities.
Office Layout in which the James Mitchell & Company insurance agents market the products on the premises of the Barnett Banks: The James Mitchell & Company agent's name and status as an insurance agent shall be clearly displayed in the area in which the agent conducts its insurance agent services. Signage on the Barnett Bank premises shall clearly specify that JMC is an insurance agency.
The area in which the solicitations occur shall indicate that the activities are not connected to the traditional banking functions of the financial institution.
Violations of this Cease and Desist Order shall be subject to additional sanctions as provided in s. 626.9601, F. S.
The nonresident life insurance agent's licenses and eligibility for licensure held by James K. Mitchell are hereby revoked. Pursuant to s. 626.641(4), F. S., James K. Mitchell shall not engage in or attempt to profess to engage in any transaction or business for which a license or permit is
required under the Insurance Code or be employed in any manner by an insurance agent or agency doing business in Florida during his period of revocation.
Pursuant to s. 626.641(2), F. S., James K. Mitchell shall not have the right to apply for another license or appointment under this code within two years form the effective date of such revocation, and he shall not engage in the transaction of insurance until properly licensed.
Neither James Mitchell & Company nor any of its subsidiaries shall engage in any activity or employ individuals to engage in any activity which by law may be performed only by a licensed insurance agent in this state, until such time as it has obtained an insurance agency license in accordance with ss.
626.112 and 626.172 and Part I of Chapter 626, Florida Statutes.
Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to Section 120.68, F. S., 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 512 Larson Building, Tallahassee, Florida 32399-0307 and a copy of the same and filing fee with the appropriate District Court of Appeal within thirty (30) days of rendition of this Order.
DONE and ORDERED this 7th day of July, 1995.
BILL NELSON
Treasurer and Insurance Commissioner
ENDNOTES
1/ "State laws enacted for the purpose of regulating the business of insurance do not yield to conflicting federal statutes unless a federal statute specifically requires otherwise." United States Dept. of Treasury v. Fabe,
U , 113 S.Ct. 2202, 2211. (citing from Barnett at 1075.)
2/ The approval by the Department of Banking and Finance was dated June 8, 1993. The record indicates that the JMC/Barnett program was initiated in August of 1990. Furthermore, there was no record evidence that Bamett had properly notified the Department of Insurance that intended to sell annuities pursuant to
s. 626.988(8), F.S. Accordingly, the Hearing Officer's Finding of Fact was correct based on the status of the law at that time. Furthermore on a purely technical basis, Barnett has not established its right to sell annuities pursuant to s. 626.988(8), F.S. However, by merely notifying the Department of its intent, Barnett would then be permitted to sell annuities as provided therein.
COPIES FURNISHED TO: HONORABLE CHARLES C. ADAMS
Hearing Officer
Division of Administrative Hearings The Desoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
WILLIAM R. SCHERER, ESQUIRE
James F. Carroll, Esquire Kimberly Kissian, Esquire Albert L. Frevola, Jr., Esquire Conrad, Scherer, James & Jenne Eighth Floor
633 South Federal Highway
Fort Lauderdale, Florida 33301
BRUCE CULPEPPER, ESQUIRE
Pennington, Haben, Wilkinson, Culpepper Dunlap, Dunbar, Richmond & French, P.A.
306 North Monroe Street Tallahassee, Florida 32399-0333
DENNIS SILVERMAN, ESQUIRE ROBERT PRENTISS, ESQUIRE
Department of Insurance & Treasurer
612 Larson Building
Tallahassee, Florida 32399-0300
=================================================================
DISTRICT COURT OPINION
=================================================================
IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA
JAMES MITCHELL & CO., JMC NOT FINAL UNTIL TIME EXPIRES TO INSURANCE SERVICES, INC., FILE MOTION FOR REHEARING AND JAMES K. MITCHELL, AND JMC DISPOSITION THEREOF IF FILED. FINANCIAL CORPORATION.
vs.
CASE NO. 95-2571
Appellant, DOAH CASE NO. 93-2422
FLORIDA DEPARTMENT OF INSURANCE AND TREASURER,
Appellee.
/ Opinion filed August 30, 1996.
An appeal from Order of the Department of Insurance.
James F. Carroll of Eckert, Seamans, Cherin & Mellott, Ft. Lauderdale, for Appellants.
Dennis Silverman, Robert Prentiss and Karen Asher-Cohen of Florida Department of Insurance, Tallahassee, for Appellee.
ALLEN, J.
The appellants challenge a final order of the Department of Insurance (the department) by which the appellants were found to have violated provisions of the insurance code. We conclude that section 626.988(2), Florida Statutes, does not apply to insurance agencies, as opposed to individual agents, and therefore set aside that portion of the final order by which the department determined that the agency involved herein had violated this statutory provision. We also conclude that federal statutes and regulations do not preempt the department's regulatory authority pursuant to section 626.9541, Florida Statutes.
James K. Mitchell is a licensed insurance agent in Florida. The corporate entities which he founded, collectively referred to herein as JMC, entered into an agreement with Barnett Banks involving the sale of insurance products, including annuities, in Barnett Branch Banks located in Florida. Under this arrangement persons licensed as insurance agents and securities brokers and employed by JMC solicited Barnett customers to purchase the insurance products. Barnett acted as trustee and purchased the insurance products on the customers' behalf and held the insurance products in trust.
The department alleged various violations of chapters 624 and 626, Florida Statutes. It alleged that the appellants had formed an illegal association with Barnett Bank for the purpose of selling life insurance products in Florida, in violation of section 626.988(2). It also alleged that JMC had violated section 626.9541 by engaging in unfair or deceptive acts in the sale of life insurance products through Barnett Bank.
At a 120.57(1) hearing, the hearing officer found violations of section 626.9541 in that the appellants had engaged in unfair and deceptive acts, and that James K. Mitchell had aided in those practices in violation of sections 626.621(12) and 626.611(7), Florida Statutes. But the hearing officer concluded that section 626.988(2) did not apply to JMC as an agency, because that statute by its own terms was specifically aimed at agents and solicitors.
The department entered a final order adopting all the hearing officer's findings of fact and most of his conclusions of law. The department concluded that JMC violated section 626.9541(i)(b) based on findings of the hearing officer that JMC failed to adequately inform customers that they were not investing in a Barnett Bank account, but rather were buying an insurance product from insurance agents. With regard to violations of section 626.988(2), however, the department disagreed with the hearing officer's conclusion that the subsection could not apply to JMC as an agency.
Section 626.988(2), Florida Statutes, prohibits an "insurance agent or solicitor" licensed by the department from engaging in insurance activities through an association with a financial institution. The department erred in determining that the legislature intended to include agencies, in addition to agents and solicitors, within the prohibition of the subsection. This was an incorrect interpretation of the statute because the subsection does not refer to insurance agencies. The terms "agent" and "solicitor" are defined in Chapter 626, and the definitions do not include an insurance agency, which is defined separately.
The appellants contend that the federal laws and regulations which permit national banks to sell annuities preempt state laws which regulate third-party insurance agents who sell such annuities through a contract with a national bank. They specifically contend that such third-party agents may not be regulated pursuant to section 626.9541(1)(b), Florida Statutes. Because the state law here is directed to insurance agents, and not a national bank, and because the federal law otherwise fails to indicate a preemptive intent, we conclude that the state law is not preempted.
National banks derive their powers from the National Banking Act. 12
s 24 sets forth the corporate powers of national banking associations under eleven headings. The seventh heading provides in pertinent part:
Seventh. To exercise by its board of directors or duly authorized officers or agents, subject to law, [all such incidental powers as shall be necessary to carry on the business of banking]; by discounting and negotiating promissory notes, drafts of bills of exchange, and other evidence of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to
the provisions of title 62 of the Revised Statutes. The business of dealing in securities and stock by the association shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case from its own account, and the association shall not underwrite any issue of securities or stock
[Emphasis supplied.] Pursuant to this grant of incidental power, national banks may sell annuities, either as an agent or through a third-party agent, as part of their authority to purchase and sell financial investment instruments. See Nations Bank v. Variable Annuity Life Ins. Co., 115 S.Ct. 810 (1995).
Section 626.9541 delineates unfair methods of competition and deceptive acts or practices in the insurance industry. Subsection (1)(b), pertaining to false information and advertising generally, prohibits:
Knowingly making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public:
In a newspaper, magazine, or other publication,
In the form of a notice, circular, pamphlet, letter, or poster,
Over any radio or television station, or
In any other way,
an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading.
Section 24 expresses no explicit congressional intent to preempt state law.
Compare Jones v. Rath Packing Co., 430 U.S. 519, 525 & 530 -31, 97 S.Ct. 1305,
1309-1310 & 1312-13, 51 L.Ed.2d 604 (1977). And neither the structure and purpose nor nonspecific statutory language of section 24 reveals a preemptive intent. Compare Barnett Bank v. Nelson, 116 S. Ct. 1103 (1996). This statute has not created a scheme of federal regulation so pervasive as to lead one to conclude that Congress left no room for supplementation by the states. Compare Pennsylvania R.R. v. Public Serv. Comm., 250 U.S. 566, 40 S.Ct. 36, 64 L.Ed.
1142 (1919). Indeed, the sole federal regulation in this area comes from an inter-agency statement published by the Comptroller of the Currency that is not inconsistent with the state law at issue in this case.
Section 24 is not in irreconcilable conflict with section 626.9541(1)(b) such that compliance with both statutes is impossible. Section 24 empowers national banks to sell annuities, while section 626.9541(1)(b) ensures that such annuities are sold in a manner that is not unfair or deceptive. Clearly, the regulation of unfair and deceptive practices by the third-party agents in this case does not generally preclude the sale of annuities by Barnett Bank. Compare Barnett Bank v. Nelson, 116 S.Ct. at 1108.
Barnett Bank v. Nelson, 116 S.Ct. at 1103, does not hold that federal banking law has such broad preemptive effect that any conflicting provision of the Florida unfair trade practices laws must be preempted. Barnett Bank involved a different federal statute and state statute which were in direct conflict because the federal statute authorized national banks to sell insurance in towns with a population below 5000 while the state statute absolutely prohibited national banks from selling insurance. And the federal statute at issue there, 12 U.S.C.A. s 92, specifically cites to rules and regulations promulgated by the Comptroller of the Currency that will govern the sales, thereby indicating that Congress intended the Comptroller to regulate sales conducted pursuant to that statute. But Section 24 does not even refer to the sale of annuities, let alone which rules or regulations will govern such sales.
We acknowledge that national banks have broad powers under both the enumerated and incidental grants of the federal banking laws. But we will not presume that Congress intended for the State of Florida to abandon its regulation of insurance agents and agencies in the unfair and deceptive practices growing out of the sale of annuities at a national bank. We therefore conclude that under traditional preemption principles, federal law does not preclude state regulation of the appellants in connection with their sale of annuities at Barnett Banks.
Finally, even if the state law involved in this case would be required to yield under traditional preemption analysis, it would still survive under the reverse preemption doctrine of the McCarran-Ferguson Act. The McCarran-Ferguson Act reverses the normal rules of preemption by providing that state laws enacted "for the purpose of regulating the business of insurance" do not yield to conflicting federal statutes unless the federal statute itself "specifically relates to the business of insurance." See 15 U.S.C.A. s 1012(b). Section 626.9541(1)(b) clearly is a law enacted "for the purpose of regulating the business of insurance and section 24 does not "specifically relate to the business of insurance." Section 24, which contains no reference to insurance or insurance practices, provides national banks with incidental powers. The power to sell annuities is just one unenumerated incidental power. Thus, rather than an insurance-specific statute, section 24 describes banking in broad and general terms. It is therefore the type of federal legislation to which the McCarran- Ferguson reverse preemption rule applies.
That portion of the final order by which the department concluded that JMC violated section 626.998(2) is set aside. In all other respects, the final order is affirmed.
KAHN and DAVIS, JJ., CONCUR.
| Issue Date | Proceedings |
|---|---|
| Sep. 03, 1996 | First DCA Opinion dated 08/30/96 (RMA) filed. |
| Jul. 17, 1995 | Letter to CCA from E. Uwaibi (RE: enclosing attachment A to JMC final order) filed. |
| Jul. 10, 1995 | Final Order filed. |
| Oct. 05, 1994 | Respondent's Exceptions to Recommended Order filed. |
| Sep. 07, 1994 | Letter to DOAH from L. Blackner (re: request for copy of RO) filed. |
| Aug. 31, 1994 | Correction to Recommended Order sent out. |
| Aug. 30, 1994 | Recommended Order sent out. CASE CLOSED. Hearing held 02/21/94. |
| Aug. 29, 1994 | Department's Reply to Response of James Mitchell & Co. to Petitioner's Notice of Filing Supplemental Authority filed. |
| Aug. 17, 1994 | (Respondents) Response of James Mitchell & Co., ET AL., to Petitioner's Notice of Filing Supplemental Authority filed. |
| Aug. 09, 1994 | (Petitioner) Notice of Filing Supplemental Authority filed. |
| Jul. 20, 1994 | Petitioner's Response to Respondents' Notice of Filing Supplemental Authority filed. |
| Jun. 13, 1994 | (Respondents) Notice of Filing Supplemental Authority & cover ltr filed. |
| Jun. 09, 1994 | (Respondents) Notice of Filing Supplemental Authority; Cover Letter filed. |
| Jun. 08, 1994 | Letter to CCA from W. Scherer (Re: copies of orders entered 6/6/94 by the U. S. Supreme Court) filed. |
| Apr. 28, 1994 | Respondent's Response to Petitioner's Motion To Strike Respondents Trial Memorandum filed. |
| Apr. 22, 1994 | Petitioner, Department of Insurance And Treasurer's Motion To Strike Respondents Trial Memorandum filed. |
| Apr. 13, 1994 | Corrected Page 17 of JMC's Proposed Recommended Order filed. |
| Apr. 08, 1994 | Corrected Page 17 of JMC'S PRO filed. (From James F. Carroll) |
| Apr. 07, 1994 | (Petitioner) Proposed Recommended Order; Closing Argument filed. |
| Apr. 07, 1994 | JMC's Closing Argument; JMC's Proposed Recommended Order; JMC's Appendix to Proposed Recommended Order and Proposed Final Order; JMC's Trial Memorandum; (2 vols) Appendix to JMC'S Trial Memorandum; (1) Computer Disk (containing Closing Argument, PRO & PFO |
| Mar. 29, 1994 | Letter to Counsel of Record from Sandi Nargiz (re: filing of transcript w/DOAH (vols 1-31) filed. |
| Mar. 23, 1994 | Letter to CCA from James F. Carroll (re: filing PRO and relaed documentation) filed. |
| Mar. 18, 1994 | Transcript (Vols 1-31) filed. |
| Mar. 08, 1994 | CASE STATUS: Hearing Held. |
| Mar. 03, 1994 | Respondents Motion for Leave to File Proposed Recommended Order in Excess of Forty Pages filed. |
| Mar. 02, 1994 | Department's List of Rebuttal Witnesses filed. |
| Feb. 28, 1994 | Respondents' Motion to Strike Petitioner's Rebuttal Witness w/Exhibits A-D filed. |
| Feb. 25, 1994 | Respondent's Supplemental Witness List filed. |
| Feb. 23, 1994 | Respondents' Supplemental Witness List filed. |
| Feb. 18, 1994 | CASE STATUS: Hearing Partially Held, continued to 2/28/94 - 3/4/94; 10:00am; Tallahassee) |
| Feb. 07, 1994 | Barnett's Motion for Sanctions filed. |
| Feb. 04, 1994 | Respondents' Notice of Intent to Use Summary filed. |
| Feb. 03, 1994 | Respondents' Better Respones to Request for Admissions filed. |
| Feb. 02, 1994 | Respondents` Request for Official Recognition and Motion to Make Certain Records Part of Case w/A-H filed. |
| Feb. 01, 1994 | CC (no enclosures) Letter to William Scherer from Robert A. Prentiss filed. |
| Feb. 01, 1994 | Order sent out. (Re: Depositions) |
| Feb. 01, 1994 | FALU'S Memorandum in Opposititon to Respondents' (JMC ET AL.) Motion to Compel FALU'S Legislative Vice President's, Herbert Morgan, Compliance with Deposition Discovery Requests w/Affidavit filed. |
| Jan. 31, 1994 | (Respondents) 3rd Notice of Taking Deposition Duces Tecum filed. |
| Jan. 26, 1994 | Order sent out. (Order on several motions) |
| Jan. 25, 1994 | Order sent out. (Re: Ruling on Several Motions) |
| Jan. 25, 1994 | Protective Order sent out. |
| Jan. 25, 1994 | Petitioner, Department of Insurance and Treasurer's Opposition to James Mitchedll's Second Motion to Compel RE: Electronic Mail, Filed on January 13, 1994 filed. |
| Jan. 25, 1994 | Petitioner, Department of Insurance and Treasurer's Opposition to James Mitchell's Motion to Compel of January 14, 1994 filed. |
| Jan. 24, 1994 | (Petitioner) Amended Notice of Taking Deposition Duces Tecum filed. |
| Jan. 21, 1994 | Joint Motion for Entry of Confidentiality Ofrder; Protective Order (unsigned) filed. |
| Jan. 20, 1994 | Order sent out. (Re: Motion to Quash and for Protective Order Granted) |
| Jan. 20, 1994 | Respondents' Motion to Compel Production of Documents From PetitionerPursuant to Formal Discovery Requests During Depositions; Re-Notice of Taking Deposition Duces Tecum filed. |
| Jan. 20, 1994 | Petitioner, Department of Insurance and Treasurer's Opposition to James Mitchell's Motion to Compel of January 13, 1994; Petitioner, Department of Insurance and Treasurer's Opposition to James Mitchell's Motion to Compel of January 18, 1994 filed. |
| Jan. 19, 1994 | (Petitioner) Notice of Taking Deposition Duces Tecum; Petitioner's Response to Rspondent's Motion to Compel Additional Answers to Interrogatories filed. |
| Jan. 19, 1994 | Respondents` Motion to Compel; Respondents` Request for Oral Argument filed. |
| Jan. 19, 1994 | Petitioner's Motion to Quash and Motion for Protective Order filed. |
| Jan. 18, 1994 | Petitioner's Motion to Quash and Motion for Protective Order; Petitioner's Response to Respondents' Motion to Quash, Motion for Protective Order and Objections to Duces tecum as to the Depositions of James K. Mitchell, P. Daniel Demko and Norse Blazzard r |
| Jan. 18, 1994 | Respondent`s Amended Petition for Formal Proceedings and Answer to Order to Show Cause; Respondents` Memorandum in Opposition to Petitioner`s Motion to Compel Further Answes to Interrogatories and Requests for Admissions filed. |
| Jan. 14, 1994 | Respondents, Second Motion to Compel Production of Internal Memoranda and Electronic Mail Memoranda; Notice of Taking Continued Deposition Re: Documens Subsequenltly Furnished by Petitioner DOI; Notice of Taking Deposition; Respondents` Motion to Compel |
| Jan. 13, 1994 | (Respondents) Notice of Taking Deposition (4); Notice of Taking Continued Deposition RE: Documents Subsequently Furnished by Petitioner DOI filed. |
| Jan. 13, 1994 | Respondents' Serveth Request to Produce; Respondents' Motion to Shorten Time; Respondents' Second Motion to Compel Better Answes to DOI's Supplemental Answers; Respondents' Motion to Compel Against Petitioner Department of Insurance and Treasurer; Respond |
| Jan. 12, 1994 | Respondents' Motion for Protective Order and Objections to the Noticeof Deposition Duces Tecum of Ross Hansen filed. |
| Jan. 12, 1994 | Respondents' Notice of Adoption of Motion to Quash and Motion for Protective Order as to the Deposition of P. Daniel Demko and Objections to Duces Tecum; Respondents' Notice of Adoption of Motion for Protective Order and Objections to the Notice of Deposi |
| Jan. 12, 1994 | (Respondents) Notice of Taking Deposition; Respodnents' Notice of Adoption of Motion to Quash And Motion for Protective Order as to the Deposition of Norse Blazard and Objections to Duces Tecum filed. |
| Jan. 12, 1994 | Petitioner's Supplemental Answers to Respodnent's Interrogatories filed. |
| Jan. 11, 1994 | (Petitioner) Amended Notice of Taking Deposition Duces Tecum (2); Notice of Taking Deposition Duces Tecum (6) filed. |
| Jan. 10, 1994 | (Petitioner) RE-Notice of Taking Deposition filed. |
| Jan. 10, 1994 | (Petitioner) Notice of Taking Deposition; Respondents' Notice of Withdrawal; Respodnents' Notice of Substitution of Witnesses filed. |
| Jan. 06, 1994 | Order sent out. (hearing rescheduled for 2/7-11,14-18/94; 9:00am; Tallahassee) |
| Jan. 06, 1994 | Respondents` Notice of Withdrawal; of Specific Objection to Item 13 ofNotices of Deposition Duces Tecum of James K. Mitchell, Norse Blazzard and P. Daniel Demko; 2nd Notice of Taking Deposition Duces Tecum; Re-Notice of Taking Depo sition filed. |
| Jan. 06, 1994 | (Respondents) Notice of Taking Deposition (4); Respondents' Motion toCompel Production of Documents From Petitioner Pursuant to Formal Discovery Requests During Deposition; Respondents' Motion to Compel Herbert Morgan's Compliance With Deposition Discove |
| Jan. 05, 1994 | Petitioner, Department of Insurance and Treasurer's Motion to Compel Further Answers to Interrogatories and Requests for Admissions w/Exhibits 1-3 filed. |
| Jan. 04, 1994 | Order sent out. (ruling on motion) |
| Jan. 04, 1994 | Respondents' Memorandum in Opposition to Petitioner's Motion for Continuance w/Exhibits A-E filed. |
| Jan. 03, 1994 | Order sent out. (Re: Production of documents) |
| Jan. 03, 1994 | Petitioner's Motion for Continuance filed. |
| Dec. 30, 1993 | Respondents' Motion to Quash and Motion for Protective Order as to the Deposition of Norse Blazzard and Objections to Duces Tecum; Respondents' Motion for Protective Order and Objections to the Notice of Deposition Duces Tecum of James K. Mitchell w/Exhib |
| Dec. 30, 1993 | Respondents' Motion to Quash and Motion for Protective Order As to the Deposition of P. Daniel Demko and Objections to Duces Tecum w/Exhibit-A; Respondents' Motion to Compel Florida Association of Life Underwriters' Compliance With Subpoenas Duces Tecum w |
| Dec. 28, 1993 | Order sent out. (Re: petition for determination) |
| Dec. 27, 1993 | (Respondent) Notice of Taking Deposition (3) filed. |
| Dec. 27, 1993 | Respondent's Petition for Determination That an Agency Statement Violates w/Election of Rights filed. |
| Dec. 22, 1993 | Respondents' Motion for Leave to File Amended Petition for Formal PRoceedings and Answer, and Supporting Memorandum; Respondent's Amended Petition for Formal Proceedings and Answer to Order to Show Cause filed. |
| Dec. 20, 1993 | Respondents' Witness List filed. |
| Dec. 20, 1993 | (2) Notice of Taking Deposition filed. (From William R. Scherer) |
| Dec. 20, 1993 | Respondent's Motion to Compel Discovery and Request for Hearing and Supporting Memorandum filed. |
| Dec. 20, 1993 | Department's Witness List filed. |
| Dec. 17, 1993 | Petitioner, Department of Insurance and Treasurer`s Memorandum in Opposition to Respondent`s Memorandum Regarding Department of Banking And Finance`s Petition to Intervene filed. |
| Dec. 17, 1993 | Respondents' 2nd Amended Notice of Taking Deposition of Stephen Summerlin; Respondents' Amended Notice of Taking Deposition Duces Tecum of Steven Burgess; Respondents' Notice of Taking Deposition of Gabriel Mazzeo filed. |
| Dec. 15, 1993 | Order sent out. |
| Dec. 15, 1993 | (Petitioner) Notice of Taking Deposition Duces Tecum (5) filed. |
| Dec. 14, 1993 | Petitioner, Department of Insurance and Treasurer's Further Opposition to Department of Banking and Finance's Petition to Intervene filed. |
| Dec. 09, 1993 | Respondents' Sixth Request for Production of Documents filed. |
| Dec. 08, 1993 | (Respondents) Amended Notice of Taking Deposition; Respondents James Mitchell & Co., ET AL.'s Memorandum in support of Department of Banking and Finance's Petition to Intervene filed. |
| Dec. 03, 1993 | Department of Banking and Finance`s Response to Petitioner, Department of Insurance and Treasurer`s Opposition to the Department of Banking and Finance`s Petition to Intervene filed. |
| Dec. 03, 1993 | Respondents James Mitchell & Co., ET AL's Memorandum in Support of Department of Banking and Finance's Petition to Intervene filed. |
| Nov. 29, 1993 | Respondents' Notice of Deposition Under Rule 1.310 (b)(6) filed. |
| Nov. 29, 1993 | (Petitioner) Amended Notice of Taking Deposition filed. |
| Nov. 24, 1993 | Petitioner, Department of Insurance and Treasurer's Opposition to Department of Banking and Finance's Petition to Intervene filed. |
| Nov. 22, 1993 | Order sent out. (Re: Deadlines) |
| Nov. 22, 1993 | Petitioner's Notice of Service of Its Answers to Interrogatories of Respondent filed. |
| Nov. 15, 1993 | Letter to DRA from James F. Carroll (re: request for telephone status conference) filed. |
| Nov. 15, 1993 | (Respondents) Notice of Taking Deposition Duces Tecum filed. |
| Nov. 12, 1993 | (Respondents) Notice of Taking Deposition (3) filed. |
| Nov. 08, 1993 | Respondents' Fourth Set of Requests for Production of Documents filed. |
| Nov. 05, 1993 | Third Notice of Hearing sent out. (hearing set for 1/18/93; 9:00am; Tallahassee) |
| Nov. 04, 1993 | (Respondents) Notice of Taking Deposition (4); Amended Notice of Taking Deposition (8) filed. |
| Nov. 04, 1993 | Joint Motion for Continuance filed. |
| Nov. 02, 1993 | Department`s Response to JMC`S First Request for Production of Documents; Department`s Response to JMC`S Second Request for Production of Documents filed. |
| Nov. 01, 1993 | (Petitioner) Notice of Taking Deposition (11) filed. |
| Nov. 01, 1993 | Department of Banking and Finance's Petition to Intervene filed. |
| Oct. 28, 1993 | Respondents' Third Request for Production of Documents filed. |
| Oct. 25, 1993 | Order sent out. (Re: Respondents' Motion to Transfer Case Denied; Respondents' Motion to Take Official Recognition of FO Granted; Respondents' Motion for Continuance Denied; Hearing set for 11/15/93; 9:00am; Respondent's Motion to Join Additional Parties |
| Oct. 21, 1993 | Petitioner`s Motion for Protective Order and Response to Respondent`s Motion to Shorten Time and Motion for Leave to File Interrogatories in Excess of Thirty filed. |
| Oct. 21, 1993 | Respondents` Motion to Trnasfer to Hearing Officer Mary and Memorandum in Support of Motion to Transfer; Respondents` Exhibit A to Motion to Join Additional Parties filed. |
| Oct. 20, 1993 | Respondents' Notice of Hearing; Motion to Join Additional Parties w/cover ltr filed. |
| Oct. 15, 1993 | (Respondents) Second Request for Production of Documents; Respondents` Second Set of Interrogatories to Petitioner; Respondents` Motion for Leave to File Interrogatories in Excess of Thirty; Respondents` Motion to Shorten Time; Notice of Appearance filed. |
| Oct. 12, 1993 | (Petitioner) Response in Opposition to Motion for Continuance filed. |
| Sep. 28, 1993 | (Petitiones/Respondents) Motion for Continuance w/Exhibits A&B filed. |
| Sep. 09, 1993 | Second Notice of Hearing sent out. (hearing set for Nov. 15-19, 1993; 9:00am; Tallahassee) |
| Sep. 08, 1993 | Respondents' First Request for Production of Document to Petitioner filed. |
| Sep. 08, 1993 | Notice of Service of Interrogatories to Petitioner filed. |
| Sep. 07, 1993 | (Petitioners/Respondents) Request for Continuance filed. |
| Sep. 01, 1993 | (Respondents) Motion for Official Recognition filed. |
| Aug. 27, 1993 | (Respondents) Notice of Service of Interrogatories; Response to Request for Admissions filed. |
| Jul. 28, 1993 | (Petitioner) Request for Admissions; Notice of Service of Petitioner's First Set of Interrogatories to Respondent filed. |
| May 17, 1993 | Order of Prehearing Instructions sent out. |
| May 17, 1993 | Notice of Hearing sent out. (hearing set for Oct. 18-22, 1993; 9:00am; Tallahassee) |
| May 13, 1993 | Joint Response to Initial Order filed. |
| May 04, 1993 | Initial Order issued. |
| Apr. 29, 1993 | Agency referral letter; Order to Show Cause; Election of Rights (unsigned) filed. |
| Apr. 21, 1993 | Agency referral letter; Election of Rights; Respondent`s Petition for Formal Administrative Hearing (4-26-93 will send copy of order to show cause) filed. |
| Apr. 13, 1993 | Agency referral letter; Election of Rights; Respondent`s Petition for Formal Proceedings (4-15-93 will send order to show cause) filed. |
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 30, 1996 | Opinion | |
| Jul. 07, 1995 | Agency Final Order | |
| Aug. 30, 1994 | Recommended Order | Insurance agency and bank found to have violated code. Recommended cease and desist, require agency to obtain a license and revocation of license. |
