ee ekel “ah 2S Oy THE TREASURER OF THE STATE OF FLORIDA DEPARTMENT OF INSURANCE BILL NELSON IN THE MATTER OF: BANKERS INSURANCE COMPANY BANKERS LIFE INSURANCE COMPANY BANKERS SECURITY INSURANCE COMPANY CASE NO. 34554-00-CO: / ADMINISTRATIVE COMPLAINT TO: BANKERS INSURANCE COMPANY BANKERS LIFE INSURANCE COMPANY BANKERS SECURITY INSURANCE COMPANY 360 Central Avenue St. Petersburg, Florida 33701 YOU ARE HEREBY NOTIFIED that pursuant to the provisions of the Florida Insurance Code. the Insurance Commissioner of the State of Florida, has caused an investigation to be made of your activities in this State and as a result alleges the following: l. The Treasurer and Insurance Commissioner, as head of the DEPARTMENT OF INSURANCE (hereinafter referred to as the "DEPARTMENT"), has jurisdiction over the subject matter and of the parties herein pursuant to Chapters 120, 624, and 627, Florida Statutes, 2. BANKERS INSURANCE COMPANY, BANKERS SECURITY INSURANCE COMPANY and BANKERS LIFE INSURANCE COMPANY are domestic insurance companies operating under subsisting certificates of authority issued by the DEPARTMENT. BANKERS INSURANCE COMPANY is wholly owned by BANKERS INSURANCE GROUP, INC.. and in turn, owns BANKERS SECURITY INSURANCE COMPANY and BANKERS LIFE INSURANCE COMPANY (hereinafter collectively referred to as “BANKERS’”). SARI ot rtncr VY Nw, 3. Kevin M. McCarty was at all times relevant to this Administrative Complaint Deputy Director of the Division of Insurer Services for the DEPARTMENT. The Division of Insurer Services is primarily responsible for the administration and enforcement of the provisions of the Florida Insurance Code governing the activities of insurers in the State of Florida. 4, On August 22. 1995, an agent of the Federal Bureau of Investigation informed Mr. McCarty that a wiretap had been found on his residential telephone line. It was ultimately determined that an investigator hired by BANKERS was responsible for the installation of the Wiretap. 3. In or about April of 1995, George K. Delano, BANKERS’ Secretary and General Counsel. decided to conduct an “investigation” of Mr. McCarty for the purpose of obtaining information that could be used to undermine or damage Mr. McCarty, and thus compromise the regulatory and policymaking decisions of the DEPARTMENT. BANKERS was looking for information that would prompt Commissioner Bill Nelson to fire Mr. McCarty. As stated by George K. Delano, “Nelson was reputed to be a bit of a boy scout and we thought if McCarty was doing anything unsavory, maybe Nelson would see the light.” 6. The decision to “investigate” Mr. McCarty was specifically approved by Robert Menke, Chairman of the Board of Directors of BANKERS, and with the knowledge of David Meehan, President and a member of the Board of Directors of BANKERS. This attempt to compromise the regulatory and policymaking decisions of the DEPARTMENT was authorized at the highest levels of BANKERS and thus constituted a method or practice utilized by BANKERS in the conduct of its business. to we WY 7. To implement the “investigation” of Mr. McCarty, BANKERS engaged the services of Edwin Blanton, an attorney located in Tallahassee, F lorida, to hire a private detective for the purpose of conducting the “investigation”. 8. In a letter dated April 20, 1995 from BANKERS to Mr. Blanton. BANKERS indicated that “we would like you to hire an investigator on our behalf to investigate Kevin Matthew McCarty. Kevin currently holds a position with the Florida Department of Insurance as Deputy Division Director of the Division of Insurer Services and reports to Carol Ostapouk [sic]. BANKERS further specified that “we would like to have a full blown investigation of Mr, McCarty to include any current romantic involvements.” 9. On or about May 27, 1995, BANKERS received from Mr. Blanton a preliminary report which included information relating to Mr. McCarty’s previous residence. business relationships, and confidential bank and telephone records. The initial report also included information regarding Carol Ostapchuk, then the Acting Deputy Insurance Commissioner. 10. When the information in the May 27th report did not serve BANKERS’ purposes in damaging or undermining Mr. McCarty, BANKERS escalated its efforts to discredit Mr. McCarty by authorizing his covert surveillance. 11. As a result of the covert surveillance, Mr. McCarty’s sexual orientation became the sole focus of BANKERS’ plot regarding Mr. McCarty and led to plans to videotape him engaged in homosexual activity. Only the logistics of such an endeavor prevented the videotaping from occurring. 12. On August 17, 1995, Mr. Blanton wrote Mr. Delano requesting to hear from him if he wished to continue the investigation. One day later, August 18, 1995, the wiretap referred Nw] Nw) to in paragraph 4 was discovered on Mr. McCarty’s telephone by a telephone company employee. 13. Mr. McCarty’s employment with the DEPARTMENT began in January 1991. His regulatory and policymaking responsibilities have steadily increased. At the time of BANKERS’ surveillance of Mr. McCarty, he had primary regulatory responsibility for overseeing the activities of the Residential Property and Casualty Joint Underwriting Authority (RPCJUA). 14. The RPCJUA is a statutorily-created residual insurer designed to provide residential property insurance to Florida homeowners. who cannot otherwise obtain coverage from private insurers. The insurance market disruption created by Hurricane Andrew had resulted in rapid growth of the RPCJUA. reaching a peak of 935,000 policies by September 1995. During 1995, regulatory oversight and depopulation of the RPCJUA was one of the Department’s highest priorities and one of Mr. McCarty’s most important regulatory responsibilities. 15. In order to provide policyholder servicing, the RPCJUA entered into contracts with “servicing carriers” to provide policy and claims services for the RPCJUA. BANKERS INSURANCE COMPANY, was a servicing carrier for the RPCJUA and subject to the regulatory oversight of the DEPARTMENT. BANKERS became increasingly displeased with regulatory decisions of the DEPARTMENT, and in particular, the regulatory activities of Mr. McCarty. 16. In order to encourage depopulation, the RPCJUA offered monetary “takeout” bonuses for each policy removed from the RPCIUA by private insurers. Insurers competed for the opportunity to take out RPCJUA policies and receive these “takeout” bonuses. Pending before the DEPARTMENT in the period between April 1995 and August 1995 was a proposal 4 WU YU by BANKERS SECURITY INSURANCE COMPANY to take out 100.000 policies from RPCJUA, the approval of which would make BANKERS SECURITY INSURANCE COMPANY eligible for a “takeout bonus” of $8.8 million. BANKERS SECURITY INSURANCE COMPANY’s proposal required the approval of the RPCJUA and the DEPARTMENT. 17. Regulation of the business of insurance is essential to the protection and well- being of policyholders and the public. Section 624.301( 1), Florida Statutes, setting forth the powers and duties of the DEPARTMENT. provides that the DEPARTMENT shall enforce the provisions of the Insurance Code and shall execute the duties imposed upon it by the Code. Any attempt to subvert, manipulate. or undermine the regulatory process by attempting to subvert, manipulate, or undermine a DEPARTMENT employee in the performance of the DEPARTMENT’s regulatory duties, endangers both policyholders and the public. BANKERS’ actions, particularly while it had important regulatory issues pending before the DEPARTMENT, clearly evidence an attempt to subvert, manipulate, and undermine the regulatory process and evidence a lack of trustworthiness on the part of BANKERS’ management, officers and directors. If IS THEREFORE CHARGED that, BANKERS INSURANCE COMPANY, BANKERS SECURITY INSURANCE COMPANY and BANKERS LIFE INSURANCE COMPANY have violated or are accountable under the following provisions of the Florida Insurance Code by: (a) Using such methods and practices in the conduct of their business as to render the further transaction of insurance in this state hazardous or injurious to their policyholders or to the public. [Section 624.418(1)(b), Florida Statutes]; 5 WU YU (b) No longer meeting the requirements for the authority originally granted. [Section 624.418(1)(d), Florida Statutes; (c) Having management, officers. or directors that are untrustworthy. [Section 624.404(3)(a). Florida Statutes]. WHEREFORE, BANKERS INSURANCE COMPANY. BANKERS SECURITY INSURANCE COMPANY and BANKERS LIFE INSURANCE COMPANY are hereby notified that the Insurance Commissioner intends to enter an Order: (a) Suspending or revoking the Certificates of Authority of BANKERS INSURANCE COMPANY, BANKERS SECURITY INSURANCE COMPANY and BANKERS LIFE INSURANCE COMPANY: (b) Imposing such other penalties as may be proper under the provisions of the Florida Insurance Code; or to take such other administrative actions as the Treasurer and Insurance Commissioner may deem appropriate as provided by law. NOTICE OF RIGHTS Pursuant to Section 120.57, Florida Statutes and Rule 28-106, Florida Administrative Code (F.A.C.), you have the right to request a proceeding to contest this action by the Department. You may elect a proceeding by completing the attached Election of Rights form or filing a Petition. Your Petition or Election of a proceeding must be in writing and must be filed with the General Counsel acting as the Agency Clerk, Department of Insurance. If served by U.S. Mail the Petition or Election should be addressed to the Florida Department of Insurance at 612 Larson Building, Tallahassee, Florida 32399-0333. If Express Mail or hand delivery is 6 Nw) Y utilized. the Petition or Election should be delivered to 612 Larson Building, 200 East Gaines Street, Tallahassee. Florida 32399-0333. The Petition or Election must be received by, and filed in the Department within twenty-one (21) days of the date of your receipt of this notice. YOUR FAILURE TO RESPOND TO THIS ADMINISTRATIVE COMPLAINT WITHIN TWENTY-ONE (21) DAYS WILL CONSTITUTE A WAIVER OF YOUR RIGHT TO REQUEST A PROCEEDING ON THE MATTERS ALLEGED HEREIN AND AN ORDER OF REVOCATION WILL BE ENTERED AGAINST YOU. If a proceeding is requested and there is no dispute of fact the provisions of Section 120.57(2), Florida Statutes would apply. In this regard you may submit oral or written evidence in Opposition to the action taken by this agency or a written statement challenging the grounds upon which the agency has relied. While a hearing is normally not required in the absence of a dispute of fact, if you feel that a hearing is necessary:one will be conducted in Tallahassee, Florida or by telephonic conference call upon your request. If you dispute material facts which are the basis for this agency’s action you may request a formal adversarial proceeding pursuant to Section and 120.57(1), Florida Statutes. If you request this type of proceeding, the request must comply with all of the requirements of Rule 28- 106. F.A.C., and contain a) A. statement identifying with particularity the allegations of the Department which you dispute and the nature of the dispute; b) An explanation of what relief you are seeking and believe you are entitled to; c) Any other information which you contend is material. YY Y These proceedings are held before the State administrative law judge of the Division of Administrative Hearings. Unless the majority of witnesses are located elsewhere, the Department will request that the hearing be conducted in Tallahassee. If you request a hearing, you have the right to be represented by counsel, or other qualified representative, to take testimony, to call and cross-examine witnesses, and to have subpoena and subpoena duces tecum issued on your behalf. Pursuant to Section 120.573, Florida Statutes, you are hereby notified that mediation is not available. Failure to follow the procedure outlined with regard to your response to this notice may result in the request being denied. All prior correspondence in this matter shall be considered freeform agency action, and no such correspondence shall operate as a valid request for an administrative proceeding. Any request for administrative proceeding received prior to the date of this notice shall be deemed abandoned unless timely renewed in compliance with the guidelines as set out above. DATED and SIGNED this 23rd day of March, 2000. BILL NELSON Treasurer and Insurance Commissioner CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing ADMINISTRATIVE COMPLAINT has been furnished to: BANKERS INSURANCE COMPANY, BANKERS SECURITY INSURANCE COMPANY and BANKERS LIFE INSURANCE COMPANY by U.S. Certified Mail this 23rd day of March. 2000. Steven H. Parton ~ Dennis Silverman Florida Department of Insurance Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, FL 32399-0333 ww) WY PILE p STATE OF FLORIDA bee) dy oy. DEPARTMENT OF INSURANCE "8 ¢1 1d 5. 24 00 CIVISION OF IN THE MATTER OF: ADMINIS TRATT VE BANKERS INSURANCE COMPANY CASE NO.: SERIES, / ELECTION OF RIGHTS Thave received and have read the Administrative Complaint filed against me including the Notice of Rights contained therein and I understand my options. I am requesting disposition of this matter as indicated below. (Choose one) 1. [ ] Ido not desire a proceeding. The Department may enter an order revoking my license(s). 2. I do not dispute any of the Department’s factual allegations and I hereby elect an informal proceeding to be conducted in accordance with section 120.57(2), Florida Statutes. In this regard I desire to (Choose one): [ ] submit a written statement and documentary evidence [ ] attend an informal hearing to be held in Tallahassee; or { ] attend an informal hearing by way of telephone conference call. 3. [ ] Ido dispute the Department’s factual allegations. I have attached to this form a statement indicating the specific issues of fact which are disputed and other required information indicated in the Notice of Rights. I hereby request a formal adversarial proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes to be held before the Division of Administrative Hearings. DATE: Signature of Petitioner TO PRESERVE YOUR RIGHT TO A Name: PROCEEDING, YOU MUST RETURN THIS FORM WITHIN TWENTY-ONE Address: (21) DAYS OF RECEIPT TO THE DEPARTMENT OF INSURANCE AT THE ADDRESS INDICATED IN THE NOTICE OF RIGHTS. Phone:

Docket for Case No: 00-001719