STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 94-0810

)

MARK CLINTON RUSSELL, )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, the Division of Administrative Hearings (Division) by its duly assigned Hearing Officer, William R. Cave, held a formal hearing in the above-captioned case on June 28, 1994, in Sarasota, Florida.

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Insurance and Treasurer 612 Larson Building

Tallahassee, Florida 32399-0333

For Respondent: Alan F. Wagner, Esquire

Wagner, Vaughan & McLaughlin, P.A. 601 Bayshore Boulevard, Suite 910

Tampa, Florida 33606 STATEMENT OF THE ISSUES

Whether Respondent's license and eligibility for licensure as an insurance agent in the State of Florida should be revoked, suspended or otherwise disciplined.

PRELIMINARY STATEMENT

By an administrative complaint dated January 20, 1994, and subsequently amended by order dated May 16, 1994, the Petitioner Department of Insurance and Treasurer (Department) is attempting to revoke, suspend or otherwise discipline the Respondent's license and eligibility for licensure as an insurance agent in the State of Florida. As grounds therefor, it is alleged by the Department that Respondent wrongfully received and retained fiduciary funds belonging to Principal Financial Group which had been diverted to Respondent by an employee of Principal Mutual Life Insurance Company (Principal) disguised as commission payments on terminated insurance policies in violation of Sections 626.561(1); 626.611(7),(9), (10) and (13; and 626.621(2) and (4), Florida Statutes.

Respondent filed his Answer To Administrative Complaint on February 10, 1994. By letter dated February 14, 1994, this matter was referred to the Division for the assignment of a Hearing Officer and the conduct of a hearing.

In support of the charges, the Department presented the testimony of William Moran and Betty Jo Dickson. The deposition of Jan Henderson n/k/a Jan Tedrow (Department's exhibit 4) was received as evidence in lieu of her live testimony at the hearing. The Department's exhibits 1 through 7 and 9 through

12 were received as evidence. The Respondent testified on his own behalf and presented the testimony of Donald Leitgib, Guy R. Cook and Joyce Ann Russell. The depositions of Averell Karstens and Diana McGovern (Respondent's exhibits 15 and 16, respectively) were received as evidence in lieu of their live testimony at the hearing. Respondent's exhibits 1 through 38 were received as evidence.

A transcript of the hearing was filed with the Division on July 14, 1994. The parties requested and were granted and extension of time for filing their proposed findings of fact and conclusions of law with the understanding that the time constraint for the entry of a Recommended Order imposed under Rule 28- 5.402, Florida Administrative Code, was waived in accordance with Rule 609Q- 2.031(2), Florida Administrative Code. The parties timely filed their proposed findings of fact and conclusions of law under the extended time frame. A ruling on each proposed finding of fact submitted by the parties has been made as reflected in an Appendix to the Recommended Order.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made:

1. The Respondent, Mark Clinton Russell, is currently eligible for licensure and licensed in the State of Florida as an insurance agent and was so licensed at all times material to this proceeding.

   
   

2. At all times material to this proceeding, Medical Underwriters of Sarasota, Inc. (Underwriters), was an incorporated insurance agency organized under the laws of the State of Florida, and Respondent was the vice-president.

   
   

3. The Principal Financial Group (PFG) is the parent corporation of a number of insurance-related entities with whom Respondent had contractual relationships beginning in November 1985 and ending in May 1993. Principal, formerly known as Bankers Life Company, is an Iowa corporation licensed to sell group and individual life and health insurance products in Florida.

   
   

4. Principal has two strategic business units -- Individual and Group -- each of which is administered and operated with separate goals, leadership, and procedures. The Individual business unit is responsible for the sale of insurance products to individuals, while the Group unit is responsible for the sale of insurance products to groups of people.

   
   

5. Also affiliated with PFG is Principal Marketing Services, Inc. (Principal Marketing), and Princor Financial Services Corporation (Princor). Principal Marketing is a general agency for competing life and health companies which was formed to permit Principal agents to sell competitors' insurance products on those occasions when a Principal product was not available for a particular, prospective insurance client. Princor is a securities broker dealer and, through its agents, offers securities such as annuities and mutual funds for sale to the public.

   
   

6. Respondent began his association with PFG in 1985 when he executed "UMEG Employers" and "GME 1495" contracts with Principal, which was then known

   as Bankers Life Company. These contracts, which were subsequently re-executed in 1987, permitted Respondent to sell group life and health insurance policies as an agent of Principal. Further, on those occasions when Respondent sold a Planned Employee Program group policy, he would receive a Planned Employee Program Group Commission Agreement for each sale.

   
   

7. In January 1989, Respondent executed additional contracts with Principal: a Special Brokerage Agency Personal Production Contract, DD 714; Brokerage General Agency Agreement; and a Special Brokerage Agency Management Agreement. These contracts permitted Respondent to sell insurance products from Principal's Individual business unit, for which he would earn sales and renewal commissions. The contracts also permitted Respondent to recruit, appoint, and manage agents to sell Principal insurance products. As a consequence of his recruitment and management work, Respondent was entitled to certain management compensation and override commissions.

   
   

8. The Special Brokerage Agency Personal Production Contract, DD 714, provides that Principal will not advance commissions on future premium deposits. However, as will be shown in later Findings of Fact, Principal did not always abide by this provision.

   
   

9. Respondent was the insurance agent of record for Principal at Underwriters at all times material to this proceeding.

   
   

10. Also in 1989, Respondent became a licensed securities broker and executed a Registered Representative's Agreement with Princor. Further, Respondent executed a Marketer Contract and a Management Contract for Manager with Principal Marketing. These contracts permitted Respondent to sell insurance products of other companies and to earn override commissions on the sales of insurance agents appointed and managed by him.

    
    

11. During his association with the PFG companies, Respondent regularly received a number of commission statements that purported to account for commissions, overrides, compensation, credits, advances, and debits due from or to the companies. On the 8th and 20th of each month, the Principal Group business unit sent Respondent a Group and Pension Compensation Statement. On the 15th and 30th of each month, the Principal Individual business unit would send Respondent an Agent's Statement.

    
    

12. Although all group policy information is input into the company's computer system by Group personnel only, some sales and renewals of group policies appear on the Agent's Statement and some appear on the Group Statement. Because group policy information appears on both statements without any apparent rhyme or reason, the Group Compensation and Agent's Statements are confusing and difficult to read.

    
    

13. Respondent also received Commission Statements from Principal Marketing and Princor -- each of which were sent twice a month -- and a Management Compensation Statement, which was sent once a month. In addition, along with the statements that reflected his personal earnings, Respondent received commission statements twice a month for each of the approximately 45 Principal brokers appointed by him. Respondent was licensed with other life and health companies and received commission statements from them as well.

    
    

14. Because of the volume of commission paperwork sent to him by Principal, and the time it would have taken to do so, neither Respondent nor anyone else in the office reviewed the statements for accuracy. Respondent

    trusted Principal to pay him properly and to accurately account for the monies due him.

    
    

15. Respondent's commission statements and checks were sent to him by express, next day delivery. Respondent would have an idea about the size of the compensation check that he expected to receive from Principal and upon receipt of the check would confirm that it was "in the ballpark." Respondent's compensation statements and checks were received at work by the office administrator, who would confirm that the check received was approximately what Respondent expected, file the commission statements in three ring binders, and either deposit the commission check or give it to Respondent to deposit.

    
    

16. So far as is relevant here, Principal's Individual business unit began with Diana McGovern, who was employed by Principal as a Commission Specialist in the Agency Services Department from January 1990 until June 1992. In her capacity as a Commission Specialist, McGovern dealt directly with Principal agents and brokers, including Respondent, in Florida and six other southern states. McGovern's duties and responsibilities required her to answer brokers' questions regarding compensation statements and issue special checks for advances that would be repaid out of present or future commissions.

    
    

17. Immediately superior to McGovern was Bruce Woods, who served as the Supervisor of Agency Services. Woods reported to Tom Herman, a junior officer of Principal who served as the officer in charge of Agency Services. Herman reported to Principal's Brokerage Vice-President, which is sometimes referred to as a Regional Vice-President or RVP.

    
    

18. Since 1989, Respondent has had a number of RVPs. Initially, when Respondent first contracted with the Principal Individual group unit, Bill Gordon was his RVP. Gordon was succeeded by Gayle Thompson, who was followed by Russ Miller, who was Respondent's RVP from March 1991 through December 1992. At that time, Bill Moren assumed the position as Brokerage Vice-President of Principal.

    
    

19. On the Group side of Principal, the organization began with Kathy Bianchi, who served as Principal's Compensation Technician. In that role, Bianchi dealt with Principal brokers, including Respondent, who were also Old Northwestern or Roger's Benefit Group agents. Among other duties, Bianchi was responsible for sending certain agents' commission statements and compensation checks by express delivery. In January 1991, Jan Henderson assumed Bianchi's position as Compensation Technician and began dealing with Respondent.

    
    

20. Henderson's supervisor, or Team Leader, was Kelli Ellis. Ellis reported to the assistant manager, Deb Henman, who in turn reported to the manager, Betty Jo Dickson (who had previously served as the assistant manager before being promoted to Manager of the department).

    
    

21. Respondent also had dealings with Principal's Management Compensation Department -- most notably with Russ Griffin, an officer of Principal, and his executive secretary, Juanita Schuster.

    
    

22. In 1989, Respondent began to request and receive checks from Principal before they were due and payable in the normal course of Principal's issuance of commission statements and compensation.

    
    

23. The term "advance" was frequently used by Principal officers and employees to describe sending monies to Respondent both with and without a

    positive commission balance. The words "advance," "early check," or "special check" were used interchangeably by Dickson and others.

    
    

24. Respondent did receive -- with the express and repeated approval of officers at Principal -- advances of monies when he had no "positive balance" in his commission account and these advances were repaid from commissions he was to earn in the future.

    
    

25. In April 1989 -- over three years before receiving the funds here at issue -- Respondent called Bianchi and told her that he was in a jam and needed some money. He asked that Principal send him by overnight delivery an advance of $2000. Bianchi said "Okay" and told Respondent that if there was a problem, she would call him back and, if not, that he could expect the check "in the next couple of days". The advance arrived by overnight express. During 1989, Respondent requested and received from Bianchi four additional advances against commissions. In January 1990, Respondent requested and received yet another advance from Bianchi.

    
    

26. Although unknown at the time by Respondent, the 1989 and January 1990 payments from Bianchi were expressly approved by Betty Jo Dickson, then serving as Bianchi's supervisor and Assistant Manager. At some point, however, Dickson believed that Respondent's requests for advances were becoming abusive. As a consequence, Dickson placed a computer message in the Principal computer system which appeared whenever a Compensation Technician accessed Respondent's compensation account. The message read: "If Mark Russell should ever call for an advance let Betty Jo [Dickson] or Deb Henman know."

    
    

27. After the message regarding Respondent was placed into the computer, Dickson spoke directly to Respondent -- who had called asking for another advance. Dickson advised Respondent that she felt he had abused the system and that there would be no further early checks. Respondent tried to persuade Dickson to approve the requested advance but was unsuccessful.

    
    

28. Despite her threatened prohibition, Dickson thereafter approved -- about a year later -- a request by Respondent for an advance. In all, Dickson expressly approved a number of advances to Respondent and, despite the supposedly required positive balance to do so, her approvals came without any inquiry as to Respondent's then-current balance with Principal. In any event, by November 1991, Dickson's Principal Group unit had advanced over $20,444 to Respondent.

    
    

29. In 1989, Respondent also spoke with and requested advances from Diana McGovern. McGovern was Bianchi's counterpart in Principal's Individual business unit. As a commission specialist, McGovern sent special checks -- which she defined as money sent in advance against future commissions or renewals -- to Principal brokers on a daily basis.

    
    

30. McGovern had earlier been advised by her trainer, Rhonda Nelson, and by Tom Herman, the Principal officer responsible for her department, that there were no guidelines for issuing a special check and that she should simply use her best judgment in deciding whether to issue a special check.

    
    

31. McGovern soon began dealing with Respondent, who she knew had a substantial block of group business with a good persistency. When McGovern first started working with Respondent she would not advance money unless there was a positive balance in Respondent's commission account; however, as she had been instructed, McGovern soon felt she could trust Respondent and would advance

    monies to him without the necessity of a positive amount on his statement. Soon, McGovern was sending Respondent advances at least once a month, sometimes twice.

    
    

32. On occasion, McGovern did not feel that she could advance money to Respondent and, despite Respondent's persistence in requesting an advance, McGovern refused to do so. Several times when met with a "no" from McGovern, Respondent went over her head and spoke with Bruce Woods who, on occasion, would overrule McGovern's decision and authorize an advance. On two or three occasions, after Woods failed to approve Respondent's request for an advance, Respondent went to Wood's supervisor, Tom Herman, an officer of Principal, who would authorized the advance.

    
    

33. Unlike Principal's Group business unit, there was never any message on the computer screens of the Individual business unit notifying McGovern or anyone else that approval was required before advancing any money to Respondent. McGovern only needed to obtain approval to issue a special check if the amount requested exceeded $10,000. By early 1992, McGovern's department had advanced by special check over $127,860 to Russell.

    
    

34. Prior to May 1992, Respondent received numerous advances authorized by and provided to him by officers of Principal. Two advances -- totalling $5,164

    -- were requested from and approved by Bill Gordon in July 1990, who was then serving as the President of Principal Marketing.

    
    

35. Additional advances were requested from and approved by Russ Griffin, an officer of Principal in the Management Compensation division of Principal's Individual business unit. Griffin's department was responsible for generating and sending to Respondent his monthly Management Compensation Statement. Between June and November 1990, Griffin advanced $133,453 to Respondent. In addition, Griffin's executive secretary, Juanita Shuster, sent Respondent two

    advances totaling $30,500. In all, Griffin's Management Compensation Department advanced Respondent $163,953 prior to May 1992.

    
    

36. Part of this amount included a single advance -- with the knowledge and apparent approval of Gayle Thompson (Respondent's RVP) and Griffin-- of

    $93,000 to allow Respondent to close on a house he purchased. This advance, as well as others from Principal's Management Compensation department, were made despite the fact that Respondent did not then have a positive balance with the company and could not repay the advance for some time. Thompson had earlier advanced $15,000 to Respondent in July 1990.

    
    

37. In all, by April 21, 1992, Respondent had requested, received, and repaid in excess of $330,000 of monies advanced by Principal. There was no evidence that Respondent had been advised by any of Principal's employees or officers that these requests were inappropriate or questionable in any respect or that his privilege to request advances had been terminated .

    
    

38. Sometime around April 1991, Respondent's RVP, Russ Miller, visited Respondent in Sarasota to discuss Principal's desire that Respondent expand his business. It was Respondent's understanding from Miller that Principal wanted to build a brokerage business and that his business needed to expand or Principal would sever its relationship with him.

    
    

39. As a consequence, Respondent began to expand his business by renting a substantially larger office, hiring additional agents and office staff and purchasing office equipment.

40. Miller returned to Sarasota a year later, in April 1992. While in Sarasota, Miller reviewed Respondent's business plan, which Respondent had forwarded to Miller prior to his arrival. The business plan specified Respondent's anticipated need for advances and that any future renewal commissions would be used as the source of repayment for those advances.

    
    

41. Respondent advised Miller that in order to continue the expansion, the Respondent would need advances from Principal. It was Respondent's understanding from Miller that since he had obtained advances in the past, that future advances should not create a problem. As a consequence, when Respondent required an advance immediately after Miller's April 1992 visit, he called Henderson -- the commission technician in charge of Respondent's group renewals and compensation.

    
    

42. In May 1992, Respondent began requesting and receiving advances from Henderson, who had replaced Bianchi as Respondent's compensation technician in Principal's Group Business Unit. Thereafter, Respondent requested and received, between May 1992 and May 1993, $329,043.09 of additional monies from Principal -

    - forwarded by Henderson. It is these funds and how they were requested and obtained by Respondent which are at issue in this proceeding.

    
    

43. There is no dispute that Respondent requested the money from Henderson, that Henderson forwarded the money to the Respondent and that the Respondent received the money.

    
    

44. Respondent did not offer or promise Henderson anything in return for her sending him the money, and Henderson did not receive any money or benefit whatsoever from anyone for diverting Principal's funds to Respondent. Likewise, Respondent did not threaten, coerce or improperly encourage Henderson to send him money.

    
    

45. Respondent's requests of Henderson to send him funds were never made with the intention that Henderson wrongfully divert funds from Principal. Likewise, Respondent did not know, and there was no reason for Respondent to have known, that Henderson was wrongfully diverting Principal's funds.

    
    

46. Respondent did not tell Henderson or suggest to Henderson how she was to accomplish the transfer of the money to Respondent.

    
    

47. Although Henderson's computer instructed her to advise Betty Jo (Dickson) or Deb Henman should Respondent call for an advance, Henderson did not seek permission before advancing Respondent money.

    
    

48. Henderson had no knowledge that Respondent had in the past received advances on future commissions without a positive balance in commissions at the time he received the advance. Likewise, Henderson was not aware that these advances had been approved by a person or persons in the Principal organization with authority to approve such advances. It is clear that Henderson misunderstood Respondent's request of her to advance him money, and as a result she devised a method of adding money to Respondent's commission statement and forcing the computer to pay Respondent unearned money.

    
    

49. Henderson's sole, expressed reason for diverting funds from Principal was to "help" Respondent and she was willing to devise and go to the lengths that she did because she felt that she "was in a dead end job" that "wasn't going anywhere" and about which she "didn't care".

50. Since Respondent had received advances on unearned commissions in the past that were approved by someone in authority at Principal, there was no reason for Respondent to suspect that the money received through Henderson was being improperly diverted to him. Likewise, since Respondent did not thoroughly check his commission statements, there was no reason for him to have noticed how Henderson accomplished the diversion of Principal's funds to him. Respondent had sufficient reasons to assume that advances sent to him by Henderson had been approved by Principal.

    
    

51. In the latter part of May 1993, Henderson's diversion of funds was discovered when she inadvertently input a code to the system that brought Respondent's commission statement to the attention of Henderson's team leader, who noticed that payments were being credited to terminated accounts. Henderson was identified as the source of the payments because of her computer sign-on code, which she made no effort to conceal when diverting funds to Respondent.

    
    

52. After an investigation by Averell Karstens, Principal's Chief Fraud Investigator, Henderson was confronted and terminated from her employment. When confronted, Henderson admitted improperly sending money to Respondent

    
    

53. Shortly thereafter, Principal called the FBI and the United States Attorney's Office regarding the conduct of Henderson and what they suspected to be the conduct of Russell. Henderson pled guilty to multiple counts of mail and wire fraud and testified before a federal grand jury regarding her conduct at Principal.

    
    

54. Subsequent to learning of Henderson's improper diversion of Principal's money, Respondent's commissions statements and financial dealings with Principal were gone over with by Principal to determine what monies had been improperly obtained by Respondent. The results of this intensive and extensive investigation confirmed that Principal's complaint concerning monies allegedly provided improperly to Respondent are limited to the payments made to Respondent by Henderson between May 1992 and May 1993, totalling $329,043.09.

    
    

55. Subsequently, Respondent's agency agreements with Principal were terminated. A complaint alleging theft and other fraudulent acts was filed by Principal with the U. S. Attorney's office. Respondent's clients were taken from him and all rights of future commissions were terminated by Principal.

    
    

56. Despite a detailed investigation by the FBI and the U. S. Attorney's office and, a federal grand jury investigation, Respondent has never been charged or convicted of any illegal activity relating in any way to Henderson's diversion of funds from Principal.

    
    

57. In an attempt to recover what Principal considers unauthorized payments to Respondent, Principal has filed a civil lawsuit in the Circuit Court of Sarasota County, Florida.

    
    

58. Respondent has filed a civil lawsuit against Principal, Princor and Principal Marketing in the Iowa District Court For Polk County alleging breach of contract, defamation, interference with prospective business advantage and intentional infliction of emotional distress. The Respondent is seeking a monetary award in this case.

    
    

59. At the time of hearing in the instant case, both of the civil cases were still pending.

60. Although Respondent admits that the $329,043.09 is unearned, he has not repaid Principal this sum because he is awaiting the outcome of the two aforementioned civil actions. However, Respondent also admits that he no longer has the funds and would have to borrow the money should he be required to repay Principal.

    
    

61. There is insufficient evidence to show that Respondent knowingly requested Henderson to wrongfully divert to him payments totaling $329,043.09 belonging to PFG. Furthermore, there is insufficient evidence to show that Respondent received and retained the diverted funds knowing that he had no right to the monies.

    
    

    CONCLUSIONS OF LAW

    
    

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

    
    

63. Section 626.561, Florida Statutes, provides, in pertinent part:

    
    

    1. All premiums, return premiums, or other funds belonging to insurers or other received by an agent, solicitor, or adjusted in trans- actions under his license shall be trust funds so received by the licensee in a fiduciary capacity; and the licensee in the applicable regular course of business shall account for and pay the same to the insurer, insured, or other person entitled thereto.

       
       

64. Section 626.611, Florida Statutes, provides, in pertinent part:

    
    

    The department shall deny, suspend, revoke, or refuse to renew or continue the license of any agent, solicitor, or adjuster or the permit of any service representative, supervising or managing general agent, or claims investigator, and it shall suspend or revoke the eligibility to hold a license or permit as any such person, it is finds that as to the applicant, licensee, or permittee any one or more of the following applicable grounds exist:

    * * *

    (7) Demonstrated lack of fitness or trustworth- iness to engage in the business of insurance.

    * * *

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

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

    * * *

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

65. Section 626.621, Florida Statutes, provides, in pertinent part:

    
    

    The department may, in its discretion, deny, suspend, revoke, or refuse to renew or continue the license of any agent, solicitor, or adjuster or the permit of any service representative, supervising or managing general agent, or claims investigator, and it may suspend or revoke the eligibility to hold a license or permit of any such person, if it finds that as to the applicant, licensee, or permittee any one or more of the following applicable grounds exist under circum- stances for which such denial, suspension, revocation, or refusal is not mandatory under

    s. 626.611:

    * * *

    (2) Violation of any provision of this code or of any other law applicable to the business of insurance in the course of dealing under the license or permit.

    * * *

    (4) Failure or refusal, upon demand, to pay over to any insurer he represents or had represented any money coming into his hands belonging to the insurer.

    
    

66. In a disciplinary proceeding, the burden is upon the regulatory agency to establish facts upon which its allegations of misconduct are based. Balino v. Department of Health and Rehabilitative Services, 348 So..2d 349 (1st DCA Fla. 1977). The Petitioner must prove the material allegations of the Administrative Complaint by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987)("In a case where the proceedings implicate the loss of a livelihood, an elevated standard is necessary to protect the rights and interests of the accused."); Pic N' Save v. Department. of Business Regulation., 601 So. 2d 245,

    249 (Fla. 1st DCA 1992).

    
    

    The power to revoke a license should be exercised with no less careful circumspection than the original granting of it. And the penal sanctions should be directed only toward those who by their conduct have forfeited their right to the privilege, and then only upon clear and convincing proof of substantial causes justifying forfeiture.

    
    

    Reid v. Florida Real Estate Commission, 188 So. 2d 846, 851 (Fla. 2d DCA 1966), as quoted in Ferris, 510 So. 2d at 295.

    
    

67. The Department has failed to prove by even a preponderance of the evidence -- much less the clear and convincing standard of proof required -- that Russell knowingly requested Henderson to wrongfully divert to him payments totaling $329,043.09 belonging to PFG. Likewise, the Department has failed to prove by a preponderance, much less a clear and convincing weight, of the evidence that Russell received and retained the diverted funds knowing that he had no right to the monies.

68. The evidence adduced at the hearing on this cause simply does not support the allegations of wrongdoing alleged by the amended administrative complaint.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is recommended that the Department enter a Final Order which dismisses the amended complaint against Russell.

DONE AND ORDERED this 2nd day of December, 1994, in Tallahassee, Florida.

WILLIAM R. CAVE, 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 2nd day of December, 1994.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-810

The following constitutes my specific rulings, pursuant to Section 120.59(2), Florida Statutes, on all of the proposed findings of fact submitted by the parties in this case.

Petitioner's Proposed Findings of Fact:

1. Each of the following proposed findings of fact is adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding(s) of Fact which so adopts the proposed finding(s) of fact: 1(1); 2(2); 3(6,7,8); 4(8); 5(9); 6(19); 21(51,52,53); 23(55); 24(42); 25(60); 26(57); 27(42,43); and 35(60).

2. Proposed findings of fact 8 through 20, 29, 31, 32, 33 and 36 are rejected as not being supported by evidence in the record, notwithstanding Henderson testimony. However, there may be portions of each proposed finding of fact that are adopted as modified in Findings of Fact 41 through 49, otherwise they are rejected as not being supported by evidence in the record.

3. Proposed findings of fact 7, 22, 28 and 34 are neither material nor relevant to this proceeding.

4. The first sentence of proposed finding fact 30 is rejected as not being supported by evidence in the record. The second sentence is adopted in Finding of Fact 8.

Respondent's Proposed Findings of Fact:

1. Proposed findings of fact 1 through 70 are adopted in substance as modified in Findings of Fact 3 through 61. Otherwise, they are rejected as not being supported by evidence in the record or recitation of testimony or unnecessary.

COPIES FURNISHED:

James A. Bossart, Esquire Department of Insurance

and Treasurer

612 Larson Building

Tallahassee, Florida 32399-0333

Alan F. Wagner, ESquire

Wagner, Vaughan & McLaughlin, P.A. 601 Bayshore Boulevard

Suite 910

Tampa, Florida 33606

Tom Gallagher, State Treasurer and Insurance Commissioner

Department of Insurance and Treasurer The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Bill O'Neil, General Counsel Department of Insurance and Treasurer The Capitol, PL-11

Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have a right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit writtren exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contactg lthe 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 sto this Recommended Order should be filed with the agenmcy that will issue the final order lin this case.

================================================================= AGENCY FINAL ORDER

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

OFFICE OF THE TREASURER DEPARTMENT OF INSURANCE

IN THE MATTER OF CASE NO. 94-L-O39JB MARK CLIFTON RUSSELL DOAH CASE NO. 94-810

/

FINAL ORDER

THIS CAUSE came on before the undersigned, Treasurer of the State of Florida, acting in his capacity as Insurance Commissioner, for consideration and

final agency action. On January 20, 1994, the Florida Department of Insurance (hereinafter referred to as the "DEPARTMENT") filed a one (1) count Administrative Complaint charging MARK CLIFTON RUSSELL (hereinafter referred to as the "RESPONDENT") with various violations of Chapter 626, Florida Statutes. This Administrative Complaint was subsequently amended, however, the violations charged were not significantly different.

Respondent timely filed a request for a formal proceeding pursuant to section 12O.5(1), Florida Statutes. Pursuant to notice, the allegations contained in the Amended Administrative Complaint were heard before William R. Cave, Hearing Officer, Division of Administrative Hearings, on June 28, 1994, in Sarasota, Florida.

After consideration of the evidence, argument and testimony presented, the hearing officer issued his Recommended Order (attached hereto as Exhibit A).

The hearing officer recommended the Department enter a Final Order dismissing the Amended Administrative Complaint against she Respondent. The Petitioner timely filed four (4) exceptions to the hearing officer's Conclusions of Law and an exception to the recommendation of dismissal.

RULINGS ON PETITIONER'S EXCEPTIONS

1. Petitioner excepts to the hearing officer's failure to find Respondent violated any of the statutes alleged in the Amended Administrative Complaint. While accepting the hearing officer1s factual findings, Petitioner specifically excepts to the hearing officer's failure to find violations of sections 626.561(1), 626.611(10) and 626.621(4), Florida Statutes. The factual basis of Petitioner's exceptions, as found by the hearing officer, are that:

   
   

   1. Respondent received $329,043.09 in wrongfully diverted funds (although not diverted by Respondent);

      
      

   2. Respondent knew the funds had not been earned and were owing to the insurer (whose funds had been diverted);

      
      

   3. The insurer made demand upon Respondent for return of the funds; and

      
      

   4. Respondent would not, and could not, return the funds upon request.

   
   

   Based on these factual findings, Petitioner believes Respondent violated sections 626.561(1), 626.611(10) and 626.621(4), Florida Statutes, which provides as follows:

   
   

   626.561(1) All premiums, return premiums, or other funds belonging to insurers or others received by an agent, solicitor, or adjuster in transactions under his license shall be trust funds so received by the licensee in a fiduciary capacity; and the licensee in the applicable regular course of business shall account for and pay the' same to the insurer, insured, or other person entitled thereto.

   
   

   626.611(10) Misappropriation, conversion, or

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

   
   

   626.621(4) Failure or refusal, upon demand, to pay over to any insurer he represents or has represented any money coming into his hands belonging to the insurer.

   
   

2. The hearing officer, while listing the statutory violations alleged, does not address the statutory violations individually in his Recommended Order. Rather, he reduces the case to two conclusions. The hearing officer stated that the Department failed to meet its burden of proof, correctly noted as clear and convincing evidence, that Respondent knowingly requested the $329,043.09 be wrongfully diverted to him and that Respondent received, and retained, the diverted funds knowing he had no right to the money. (Conclusion of Law no. 6). Ultimately, these conclusions are irrelevant to whether certain violations occurred, and legally incorrect as to others.

   
   

3. It is undisputed that Respondent had at the time of the events alleged in the Amended Administrative Complaint various written agreements with Principal Financial Group (hereinafter "PRINCIPAL"), and its various subsidiaries or affiliates, which enabled Respondent to represent PRINCIPAL in the solicitation and sale of its insurance products. (Findings of Fact 6-10). It is also undisputed that between May 1992 and May 1993, "...Respondent requested, and received $329,043.09 of additional monies from Principal..." (Finding of Fact no. 42). Further, the hearing officer found that there was no dispute that Respondent requested the money from a company representative, Jan Henderson, that Henderson forwarded the money and that the Respondent received the money. (Finding of Fact no. 43). It was also correctly pointed out by the hearing officer that it is these funds that were at issue in this proceeding. (Finding of Fact no. 42).

   
   

4. The $329,043.09 from PRINCIPAL, regardless of how the funds arrived and by what method, were received pursuant to section 626.561(1), Florida Statutes, and were trust funds to be held in a fiduciary capacity by the Respondent. Whether Respondent knew, or should have known, these funds were wrongfully diverted does not change the character of the funds received. Therefore, the finding by the hearing officer that Respondent did not know that the funds were wrongfully diverted by Henderson is irrelevant to Respondent's duty pursuant to section 626.561(1), Florida Statutes, to account for these funds. In conjunction with this duty is the statutory violation of section 626.621(4), Florida Statutes, which prohibits the failure or refusal, upon demand, to pay over to any insurer he represents or has represented any money coming into his hands belonging to the insurer. Respondent admitted, and the hearing officer found, that: (1) The $329,043.09 received from the insurer was unearned; and

   (2) Respondent no longer has the funds. (Finding of Fact no. 60). Respondent's failure, refusal and apparent inability to comply with the insurer's demand for the return of funds received by Respondent, as a matter of law, demonstrated those elements necessary to establish a violation of section 626.621(4), Florida Statutes. Therefore, Petitioner's exception as to this point is accepted.

   
   

5. Petitioner also excepts to the Conclusions of Law on a statutory violation of section 626.611(10), Florida Statutes, on a theory of conversion. Petitioner asserts that Respondent's refusal and/or inability to repay the insurer upon demand constitutes a conversion and an "unlawful withholding" of

the insurer's funds in contravention of section 626.611(10), Florida Statutes. This statutory section provides:

626.611(10) Misappropriation, conversion, or unlawful withholding of moneys belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license or appointment.

Although Petitioner cites to cases involving conversion, in a civil context, it appears the Petitioner is more specifically excepting to the hearing officer's conclusion that Respondent did not receive, and retain, the diverted funds knowing he had no right to the moneys. (Conclusion of Law no. 6)

Neither the findings by the hearing officer, nor the record, support a conclusion that Respondent knew the funds were being diverted to him illegally when he received them. (It should be noted that Respondent apparently began requesting, and receiving, approximately $40,000 per month for every month between September 1992 and May 1993, an amount well in excess of commissions) However, his retention of the funds and inability to repay these funds is just as relevant. Respondent had no legal right to retain the funds forwarded to him by the insurer, regardless of his knowledge or lack of knowledge that the funds were being wrongfully diverted. Clearly, and contrary to the hearing officer's conclusion, Respondent's retention of these funds constituted, at a minimum, an "unlawful withholding" and therefore, a violation of section 626.611(10), Florida Statutes. Petitioner's exception is, therefore, accepted.

In the context of these rulings on Petitioner's Exceptions to the Recommended Order, it must be noted that Respondent submitted a document entitled "Respondent's Reply to Petitioner's Exceptions" on December 28, 1994, which was received on January 6, 1995. There are no provisions in the rules governing these procedures, or in Chapter 120, Florida Statutes, for such a pleading. In fact, acceptance of this document would allow the Petitioner to conceivably file a "reply" which then could lead to filings ad infinitum.

Therefore, the Respondent's Reply to Petitioner's Exceptions was not considered in the rendering of this Final Order.

After careful consideration of the entire record, the submissions of the parties and being otherwise fully advised in the premised, it is ORDERED:

1. The Findings of Fact of the hearing officer are adopted in full as the Department's Findings of Fact.

   
   

2. The Conclusions of Law of the hearing officer are rejected except as to the appropriate burden of proof.

   
   

3. The hearing officer's recommendation that the Respondent's license(s) and eligibility for appointment be dismissed is rejected as the appropriate disposition of this matter. Rather, based on the findings set forth above that Respondent violated sections 626.561(1), 626.611(10) and 626.621(4), Florida Statutes, and pursuant to the provisions of sections 626.611 and 626.621, these violations mandate a period of suspension or revocation. Therefore, the appropriate disposition of this matter is a suspension of Respondent's license(s) and eligibility for appointment for a period of nine (9) months.

ACCORDINGLY, the Respondent's license(s) and eligibility for appointment are hereby SUSPENDED for a period of nine (9) months. The suspension shall

begin ten (10) days after the effective date of this Order and continue for a period of nine (9) months after that date. The Respondent may apply for reinstatement to commence at the end of the suspension period as authorized by Section 626.641, Florida Statutes. During the period of suspension the Respondent shall not engage in or attempt to profess to engage in any transaction or business for which a license or appointment is required under this code or directly or indirectly own, control, or be employed in any manner by any insurance agent or agency.

Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to Section 120.68, Florida Statutes, and Rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing a petition or notice of appeal with the General Counsel, acting as the agency clerk, at 612 Larson Building, Tallahassee, Florida 32399- 0300, and a copy of the same with the appropriate District Court of Appeal within thirty (30) days of rendition of this Order.

DONE and ORDERED this 26th day of January, 1995.

COPIES FURNISHED:

William R. Cave, Hearing Officer Division of Administrative Hearings 1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Alan F. Wagner, Esquire

Wagner, Vaughan & McLaughlin, P.A. 601 Bayshore Boulevard, Suite 910

Tampa, Florida 33606

James Bossart, Esquire Department of Insurance Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0333

BILL NELSON TREASURER AND

INSURANCE COMMISSIONER

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DISTRICT COURT OPINION

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NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND, IF FILED, DETERMINED DISPOSITION THEREOF.

DEPARTMENT OF INSURANCE AND IN THE DISTRICT COURT OF APPEAL TREASURER, OF FLORIDA

SECOND DISTRICT

Appellant,

CASE NO. 95-469

vs. DOAH CASE NO. 94-810

MARK CLINTON RUSSELL,

Appellee.

/ Opinion filed February 19, 1996.

Appeal from the Department of Insurance.

Counsel: Alan F. Wagner of Wagner, Vaughan and McLaughlin, P.A., Tampa, for Appellant, James A. Bossart, Tallahassee, Florida for Appellee.

Mark Russell asks us to overturn a final order of the Department of Insurance that suspended his insurance agency's license for violations of the Florida Insurance Code. After an administrative hearing, the hearing officer concluded that the Department should dismiss its complaint against Russell. The Department accepted the hearing officer's findings of fact, but rejected the result, deciding instead that Russell's sections constituted conversion and a failure to return funds belonging to an insurer, in violation of Sections 626.561, 626.611, and 626.621, Florida Statutes (1993). The findings of fact do not support this legal conclusion. Accordingly we Reverse.

This case centers around money that Russell received from Principal Mutual Life Insurance Company in excess of the commissions Principal owed him. Russell characterized the money as advances, loans to be repaid from future commissions earned. Although their contract stated that Principal "will not advance commissions on future premium deposits," the hearing officer found that Russell received, with the express and repeated approval of Principal's officers, advances of money when he had no positive balance in his commission account and that these advances were repaid from commissions he was to earn in the future.

By April 21, 1992, Russell had received from Principal, and repaid, advances in excess of $330,000.00.

In May 1992, a new commissions technician, Jan Henderson, was assigned to Russell's account. Russell began requesting advances from her. The hearing officer found that

Henderson had no knowledge that [Russell] had in the past received advances on future commissions without

a positive balance in commissions at the time he received the advance. Like-wise, Henderson was not aware that these advances had been approved by a person or persons in the Principal organization with authority to approve such advances. It is clear that Henderson misunderstood [Russell's] request of

her to advance him money, and as a result she devised a method of adding money to [his] commission statement and forcing the computer to pay [him] unearned money.

Henderson was, in fact, diverting Principal's funds to Russell. Principal learned of these diversions in May 1993 and confronted Henderson, who admitted she improperly sent money to Russell. It then terminated Russell's contracts and filed a complaint with the U.S. Attorney's office, alleging Russell had committed theft and other fraudulent acts. Russell has, however, never been charged with any illegal activity related to Henderson's diversion of funds.

Principal also filed a civil suit against Russell seeking return of the unauthorized payments, and Russell filed suit against Principal alleging breach of contract, defamation, interference with prospective business advantage and intentional infliction of emotional distress.

In connection with this dispute, the Department filed an administrative complaint against Russell, charging violations of the Florida Insurance Code. It is the final order on the Department's complaint that is before us for review. The Department concedes that neither the findings of the hearing officer, nor the record, would sustain a conclusion that Russell knew Henderson

was illegally diverting funds to him at the time he received them. It contends, however, that Russell's refusal to return the funds constituted a violation of sections 626.561(1), 626.61(1), 626.611(10) and Section 626.561(1) 1/ provides criminal penalties for an agent's refusal to return funds belonging to an insurer; section 626.61(10) 2/ lists grounds for compulsory suspension of an agent's license for unlawful withholding of moneys belonging to insurers.

Section 626.621(4) 3/ states grounds for discretionary suspension of an agent's license if he refuses, on demand, to pay over any money coming into his hands that belongs to the insurer.

The Department must prove the allegations of its administrative complaint by clear and convincing evidence, Ferris v. Turlington, 510 So. 2d 292 (Fla.

1987). In order for the Department to establish that an agent violated the above-mentioned statutes, it must show that the funds the agency unlawfully withheld or refused to pay over the funds belonging to the insurer. We note that under sections 626.561(1) and 626.611(10), the Department must establish that the agent acted willfully, but that section 626.621(4) does not carry a requirement of willfulness. Bowling v. Department of Ins., 394 So. 2d 165, 170 (Fla. 1st DCA 1981). We will analyze this case under the less stringent test of section 626.621(4).

The hearing officer found that the advances Principal made to Russell before the ones at issue here were repaid from future commissions. After discovering Henderson's misdeeds, Principal terminated Russell's right to receive these future commissions, which Russell contended were the agreed source of repayment of the money owed. The hearing officer also found that Russell had not paid Principal because he was awaiting the outcome of the two civil actions. These findings of fact do not support the Department's conclusion that it proved, by clear and convincing evidence, that Russell failed to pay over money belonging to Principal. Whether Russell owes Principal any money, or how much, is presently at issue in the two lawsuits, which were instituted before the

Department filed its complaint against Russell. We not that if the courts determine that Russell does owe Principal some amount of money, and he then refuses to repay it, the Department is free to bring a new action against him. We reverse the Department's final order suspending Russell's license and remand for entry of an order dismissing the administrative complaint.

Reversed and remanded.

ALTENBERND and QUINCE, JJ., Concur.

ENDNOTES

1/ "All premiums, return premiums, or other funds belonging to insurers or others received by an agent, solicitor, or adjustor in transactions under his license shall be trust funds so received by the licensee in a fiduciary capacity. . . . The licensee in the applicable regular course of business shall account for and pay he same to the insurer, insured, or other person entitled thereto." s 626.561(1), Fla. Stat. (1993).

2/ "Misappropriation, conversion, or unlawful withholding of moneys belonging to insureds or beneficiaries or to others and received in conduct of business under the license or appointment." S 626.611(10), Fla. Stat. (1993).

3/ "Failure or refusal, upon demand, to pay over to any insurer he represents or has represented any money coming into his hands belonging to the insurer." S 626.621(4), Fla. Stat. (1993).

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AGENCY AMENDED FINAL ORDER

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

THE TREASURER OF THE STATE OF FLORIDA DEPARTMENT OF INSURANCE

IN THE MATTER OF CASE NO.: 94-L039JB MARK CLIFTON RUSSELL DOAH CASE NO.: 94-0810

/

AMENDED FINAL ORDER

THIS CAUSE came on before the undersigned, Treasurer of the State of Florida, acting in his capacity as Insurance Commissioner, for consideration and final agency action. On January 20, 1994, the Florida Department of Insurance (hereinafter referred to as the "Department") filed a one (1) count Administrative Complaint charging MARK CLIFTON RUSSELL (hereinafter referred to as the "Respondent") with various violations of Chapter 626, Florida Statutes.

The Administrative Complaint was subsequently amended. Respondent timely filed a request for a formal proceeding pursuant to section 120.5(1), Florida Statutes. Pursuant to notice, the allegations contained in the Amended

Administrative Complaint were heard before William R. Cave, Hearing Officer, Division of Administrative Hearings, on June 28, 1994, in Sarasota, Florida.

After consideration of the evidence, argument and testimony presented, the hearing officer recommended the Department enter a Final Order dismissing the Amended Administrative Complaint against the Respondent. The Petitioner timely filed four (4) exceptions to the hearing officer's Conclusions of Law and an exception to the recommendation of dismissal. The Department entered a Final Order on January 26, 1995 that rejected the hearing officer's recommendation to dismiss the Amended Administrative Complaint and suspended Respondent's licenses and eligibility for appointment for nine months, beginning ten (10) days after entry of the Final Order. Respondent timely filed a Notice of Appeal and a Motion for Stay of the Final Order with the Department. An order granting the Respondent's Motion for Stay was entered by the Department on February 16, 1995.

An appellate opinion was issued by the District Court of Appeal of Florida, Second District, on February 19, 1996. The court found that the Department failed to prove by clear and convincing evidence that Petitioner failed to return funds belonging to an insurer. A mandate issued on March 12, 1996, requires the reversal of the Department's Final Order suspending Respondent's license and remands the cause to the Department for entry of an Order dismissing the Administrative Complaint, without prejudicing the Department's right to bring a new action, providing that the Department can prove that Respondent owes money to the insurer and has not repaid it.

IT IS THEREFORE ORDERED that the Administrative Complaint, as amended, against Mark Clifton Russell be dismissed and Respondent's license and eligibility for licensure and appointment are hereby reinstated. This Order is without prejudice to the Department to bring a new action against Mark Clifton Russell as provided in the opinion of the 2nd District Court of Appeal.

DONE and ORDERED this 17th day of April, 1996.

COPIES FURNISHED TO:

William R. Cave, Hearing Officer Division of Administrative Hearings 1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Alan F. Wagner, Esquire

Wagner, Vaughan & McLaughlin, P.A. 601 Bayshore Boulevard, Suite 910

Tampa, Florida 33606

James Bossart, Esquire Department of Insurance Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0333

BILL NELSON TREASURER AND

INSURANCE COMMISSIONER

Docket for Case No: 94-000810

Orders for Case No: 94-000810