STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF INSURANCE, )
)
Petitioner, )
vs. ) Case No. 00-3073
) ACCELERATED BENEFITS CORPORATION, )
)
Respondent. )
___________________________________)
RECOMMENDED ORDER
A hearing was held in this case in Tallahassee, Florida, on October 25, 2000, before Arnold H. Pollock, an Administrative Law Judge with the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Michael H. Davidson, Esquire
Department of Insurance
200 East Gaines Street 612 Larson Building
Tallahassee, Florida 32399-0333
For Respondent: Mark K. Logan, Esquire
Smith, Ballard & Logan, P.A.
403 East Park Avenue Tallahassee, Florida 32301
STATEMENT OF THE ISSUE
The issue for consideration in this case is whether the Respondent's license as a viatical settlement provider in Florida should be disciplined because of the matters alleged in the Administrative Complaint dated June 29, 2000.
PRELIMINARY MATTERS
By Administrative Complaint dated June 29, 2000, the Department of Insurance (Department) seeks to discipline Accelerated Benefits Corporation's (ABC) license as a viatical settlement provider in Florida because of alleged repeated instances wherein the Respondent effectuated viatical settlement agreements in the presence of circumstances wherein it knew, or with reasonable diligence should have known, that the underlying insurance policies had been procured through fraud or dishonesty by the insured individuals, and failed to report these irregularities to the insurance carriers of the Department. On July 20, 2000, the Respondent filed its answer to the Administrative Complaint and requested formal hearing. This hearing ensued.
At the hearing, the Petitioner presented the testimony of Paul G. Newton, an examiner with the Department, and Janice
S. Davis, formerly an examiner and now an analyst with the Department. The Petitioner also offered the Petitioner's Exhibits 1 through 12. The Respondent presented no witnesses and introduced the Respondent's Exhibits A and B.
Of the 12 exhibits offered by the Petitioner, 1 through
11 related to specific individuals who had sought viatical settlements of their insurance policies through the Respondent. Testimony of the Department's witnesses at
hearing indicated that during the investigative phase of this case, the Department's examiners sought copies of various files of the Respondent relating to certain insured settlement applicants. The files on 6 of the 11 policies in issue here were provided by the Respondent. These files have been marked as the Petitioner's Composite Exhibits 5, 6, 7, 9, 10, and 11. At the time these exhibits were released to the Department by the Respondent, the Respondent's agent indicated that the other files requested had been seized by representatives of the Statewide Prosecutor on a subpoena relating to an ongoing investigation by that agency of viatical settlement providers on a statewide basis. The Respondent's agent advised the Department's examiner, Ms.
Davis, of the individual to contact in the Prosecutor's office to procure the files sought. Ms. Davis contacted that individual and asked for the files, and shortly thereafter received through the U.S. mail what were purported to be copies of the files requested, which were marked at hearing as the Petitioner's Composite Exhibits 1 through 4 and 8 for Identification.
The Petitioner offered all eleven files into evidence. The Respondent objected on the basis that the exhibits were inadmissible as hearsay evidence. The objection on that basis was overruled. However, the Respondent also objected
to the admission of those files which had been received from the Statewide Prosecutor on the basis that they could not be properly authenticated. No evidence was presented regarding the documents' location, identification, storage, or copying from the time they were released by the Respondent to the Statewide Prosecutor until they were received by the Department's examiner through the mail. The objection to those exhibits, 1 through 4, and 8 is, therefore, sustained and the exhibits are not received into evidence. Therefore, only the Petitioner's Composite Exhibits 5 though 7, 9 through 11, and 12 are admitted into evidence.
A Transcript of the proceedings was provided on November 21, 2000. Subsequent to the receipt thereof, counsel for both parties submitted matters in writing which have been carefully considered in the preparation of this Recommended Order.
FINDINGS OF FACT
At all times relevant to the issues herein, the Petitioner, Department of Insurance (Department), was the state agency in Florida responsible for the licensing of viatical settlement providers and the regulation of the viatical settlement industry in this state. The Respondent, Accelerated Benefits Corporation (ABC), was licensed as a viatical settlement provider in Florida.
Pursuant to an investigative subpoena issued by the Department, in November and December 1999, investigators of the Department examined the records of the Respondent, as well as other viatical settlement providers operating within the state, looking into the viatical settlement industry's practices in Florida. As a part of the investigation, Janice
S. Davis, an examiner/analyst with the Department, copied records of the Respondent relating to at least six individual viatical settlement transactions in which the Respondent was involved. These files relate to Counts 5 through 7 and 9 through 11 of the Administrative complaint. Ms. Davis also obtained from the Respondent the information regarding the location of several other cases, the files for which had been confiscated by the Statewide Prosecutor as a part of an ongoing investigation into the viatical settlement industry, and subsequently obtained copies of those files from the office of the Statewide Prosecutor. Those files relate to Counts 1 through 4 and 8 of the Administrative Complaint.
As outlined in Count Five of the Administrative Complaint, in May 1998, D.K. applied to The United States Life Insurance Company (US Life) for a $250,000 life insurance policy. As a part of the policy application, D.K. stated that he had not consulted with any physician or other practitioner within the five years prior to the application. On July 29,
1998, Life Benefit Services (LBS), a viatical settlement broker used by ABC, obtained a "Confidential Application Form" completed by D.K. which revealed that sometime in 1982, D.K. had been diagnosed as HIV positive. LBS prepared a "Policy Summary Sheet" regarding D.K.'s application on which it noted that D.K. had been diagnosed with HIV/AIDS. LBS also had records from D.K.'s physician reflecting that D.K. had been under a doctor's care during the preceding five years. The policy was issued to D.K. on or about August 1, 1998.
Notwithstanding the information it had on hand, LBS brokered the sale of the instant policy to ABC.
On or about August 25, 1998, D.K. and the Respondent entered into a contract which called for the Respondent to purchase D.K.'s $250,000 life insurance policy for $25,000.
At that point, the policy was still contestable. As a part of the transaction, the Respondent gave D.K. written instructions not to contact his insurance company until advised to do so by ABC. The Respondent also had D.K. sign an addendum to the purchase contract in which he agreed to not advise US Life that he had sold his policy and acknowledged his recognition that his life insurance policy was still contestable. D.K. was also asked and agreed to sign an undated change of ownership form for use by ABC at the expiration of the period of contestability.
While the policy was still contestable, an employee of the Respondent, Jennifer Grinstead, paid the annual premium on the policy out of her personal checking account. This served to conceal the fact that D.K. had sold the policy to the Respondent. Ms. Grinstead was reimbursed for the premium payment by American Title Company of Orlando. American Title was the Respondent's trustee.
The Respondent did not report any of the information it had regarding D.K.'s actual health history to US Life or the Department. A review of the documentation related to this transaction reflected that the Respondent purchased the policy rights from D.K. after it knew, or with the exercise of reasonable diligence should have known, that D.K. had made material misrepresentations regarding his health to US Life, and nonetheless attempted to conceal those misrepresentation from US Life.
With regard to Count Six, the evidence of record indicates that on May 4, 1997, W.E. applied for a $45,000 life insurance policy from Life USA Insurance Company (Life USA). On the application form he signed and submitted, W.E. specifically stated he had not received any medical or surgical advice or treatment within the preceding five years, had not been advised by a medical doctor that he had AIDS or ARC, and was not, at the time, taking any medication. Based
on the representations made by W.E., the policy was issued on November 12, 1997.
Notwithstanding the representations made by W.E. to Life USA, W.E. also advised United Viatical Settlements (UVS), the settlement broker used by the Respondent, on December 17, 1997, through a corollary application form, that he had been diagnosed with HIV "a few years ago," and several different other forms utilized by the Respondent reflect that the Respondent knew W.E. had AIDS or HIV, and was under a doctor's treatment for the condition during the preceding five years. Nonetheless, UVS brokered the sale of this policy to the Respondent.
In late December 1997, at which time the policy was still contestable, the Respondent entered into a contract with
W.E. for the purchase of the $45,000 policy for $4,914.25. As a part of the sales procedure, the Respondent issued to W.E. instructions not to contact his insurance company until instructed to do so by the Respondent's representative, and it also had W.E. sign an addendum to the purchase agreement in which W.E. acknowledged that the policy in issue was still contestable. W.E. was also asked to agree not to inform Life USA of the sale of the policy to the Respondent and to sign an undated change of ownership form for use by the Respondent to transfer ownership when the contestability period had expired.
The arrangement between the Respondent and W.E. called for Jennifer Grinstead to pay the annual premium on the policy for W.E. from her personal account and to receive reimbursement for those payments from American Title Company, the Respondent's trustee. This arrangement served to conceal from Life USA the fact that W.E. had sold the policy to the Respondent.
The Respondent did not report the fact that it had knowledge of W.E.'s medical condition to the Department. The evidence of record reflects that at the time of the purchase of W.E.'s policy, the Respondent knew or should have known that W.E. had made material misrepresentations regarding his medical state to Life USA on his application for life insurance from that company, and it thereafter took actions which served to conceal those material misrepresentations from the company.
In the Case of Count Seven, on April 26, 1997, A.T. applied for a life insurance policy from Lincoln Benefit Life (Lincoln) in the amount of $48,000. On the application form,
A.T. specifically stated that he had not been under medical observation or treatment within the preceding five years, and that he had not been diagnosed as having AIDS or ARC, or tested positively for HIV. The policy was issued by the company on or about June 2, 1997.
Notwithstanding those representations, on January 14, 1998, Medical Escrow Society, a viatical broker used by the Respondent in its dealing with Lincoln, received an application form from A.T. on which A.T. indicated he had tested positive for HIV on August 8, 1989, had been diagnosed with AIDS ON August 10, 1994, and was under the care of a physician. Medical Escrow Society nonetheless brokered the sale of the policy to the Respondent.
Shortly after the contestability period on this policy expired. On June 25, 1999, the owner of the policy, Ralph Cahall, entered into a contract with the Respondent whereby the Respondent bought Cahall's interest in the proceeds for $29,238.72. At the Respondent's request, ownership of the policy was changed from Cahall to American Title Company of Orlando, the Respondent's trustee without either Lincoln or the Department being informed of the transfer.
The file relating to this policy indicates that the Respondent brought about the transfer from Cahall after it knew or, in the exercise of reasonable diligence should have known, that A.T. had made material misrepresentations regarding his health on the application to Lincoln, and that the Respondent, though it did not report what it knew to the
Department, also thereafter undertook a course of action which was designed to conceal that information from Lincoln.
With regard to Count Nine, the evidence indicates that on or about September 30, 1996, R.M. submitted an application for a $100,000 life insurance policy to Interstate Assurance Company (Interstate). On the application, R.M. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, and the policy was issued on October 9, 1996.
Notwithstanding that representation, on July 18, 1997, R.M. completed an application form for Benefits America, a broker used by the Respondent with regard to this policy, in which he stated he had been tested positive for HIV on February 11, 1994. A "Policy Acquisition Worksheet" utilized by the Respondent on or about July 22, 1997, when R.M. was dealing with Benefits America regarding the viatication of his life insurance policy, reflects that the company was aware at that time that R.M. had been diagnosed with HIV in 1994. Even with that knowledge, the Respondent went through with the viatication, and on July 31, 1997, while the policy was still within the contestability period, bought the policy for
$15,430.
On August 4, 1997, R.M. executed an addendum to the purchase agreement at the behest of the Respondent, wherein he
recognized the policy was still contestable and agreed, among other things, not to contact his insurance company or tell them he had sold the policy to a viatical settlement provider. He also was asked to sign, and signed, an undated change of ownership agreement for use by the Respondent at the end of the contestability period.
Jennifer Grinstead, an employee of the Respondent, paid R.M.'s annual premium on the policy during the contestibility period out of her personal checking account. This action, when done in conjunction with R.M.'s failure to advise the insurance company of the sale, served to conceal the transfer of ownership from R.M. to the Respondent. Ms. Grinstead was reimbursed for the premium payments by the Respondent's trustee.
The Respondent did not report to Interstate or to the Department that R.M. had made material misrepresentations regarding his health in procuring the issuance of the policy even though it knew or, in the exercise of due diligence, should have known that the material misrepresentations had been made.
As to Count Ten, on May 12, 1997, J.R. submitted an application to Interstate for a life insurance policy on his life in the amount of $980,000. On his application, J.R. indicated he had not been diagnosed with an immune system
disorder within the preceding ten years, had not been treated by a member of the medical profession in the preceding five years, and was not, at the time, on medication or undergoing treatment or therapy. The policy was issued on May 19, 1997.
Notwithstanding those representations, on July 9, 1997, J.R. filled out an application form for the Respondent's broker for this transaction, Life Benefit Services, on which he indicated he had been diagnosed as HIV positive in May 1996. A "Mortality Profile" provided to the Respondent by AVS indicated that J.R. was first diagnosed as being HIV positive in August 1995, nine months or so earlier than he admitted, and that he had been undergoing treatment by a doctor and receiving medications well within the five years preceding the application.
On August 20, 1997, J.R. entered into a contract with the Respondent calling for the sale of this insurance policy to ABC for a net sum of $107,800. At this point, the policy was still contestable. At that time, the Respondent instructed J.R. in writing not to contact his insurance company until told to do so by the Respondent's representative. The Respondent also had J.R. sign an addendum to the purchase agreement in which he acknowledged the policy was still contestable, that he would not inform Interstate of the sale, and that he would sign an undated
change of ownership form for use by ABC when the contestability period expired.
Notwithstanding that the Respondent knew of the material misrepresentations made by J.R. as to his health when he procured the policy, it did not report what it knew to the Department, and took steps to insure Interstate was not informed of what was going on.
With regard to Count Eleven, on May 16, 1996, the same J.R. applied to Massachusetts General Life Insurance Company, later, Conseco Life Insurance Company (Conseco), for a $99,900 life insurance policy. On his application, J.R. stated he had never had any medical tests or any known indication of diseases, conditions, or physical disorders which were not mentioned on the form. AIDS, ARC, and HIV positive were not mentioned on the form, and if known to have been present, should have been noted.
About a year and three months later, on July 9, 1997, J.R. submitted an application form to Life Benefit Services, the broker used by ABC on this policy, on which he stated he had tested positive for HIV in May of 1996. By letter dated July 28, 1997, Life Benefit Services advised ABC that J.R. was terminally ill and had been on medication and undergoing treatment by a physician within the preceding five
years. In addition to this information, the Respondent had available to it the information regarding J.R.'s condition discovered as a result of the purchase of the Interstate policy.
Notwithstanding this knowledge, on September 17, 1997, while the policy was still contestable, ABC purchased the Conseco policy from J.R. for the net sum of $13,986. By letter dated September 17, 1997, the Respondent advised J.R. not to contact his insurance company until instructed to do so by Ms. Holman, the Respondent's Director of Contracts, and requested he execute an addendum acknowledging those instructions and that the Conseco policy was still contestable. He was also asked to agree to sign an undated change of ownership assignment for use by ABC after the contestability period had expired.
While the policy remained contestable, the annual premiums due from J.R. were paid from her personal checking account by Ms. Grinstead, an ABC employee, who was reimbursed therefor by American Title, ABC's trustee.
None of the above information was reported by the Respondent to Conseco or the Department even though it knew or, with the exercise of reasonable diligence should have known that J.R. had made material misrepresentations regarding his physical health in his application for life insurance to
Massachusetts General Life Insurance company, and it appears the Respondent attempted to conceal those misrepresentations from Conseco.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this case. Section 120.57(1), Florida Statutes.
In an eleven-count administrative complaint, the Department of Insurance seeks to discipline the Respondent's license as a Florida viatical settlement provider for multiple alleged violations of Section 626.989(6), Florida Statutes, by purchasing insurance policies from viators under circumstances which should have caused a person of ordinary intelligence to know or believe that the viator had committed insurance fraud, and thereafter failing to report that knowledge or belief to the Department as required by statute. The Department also alleged that the Respondent further engaged in a deliberate effort to conceal this fraud, and the failure to report as required demonstrated that the Respondent is either untrustworthy or incompetent to act as a viatical settlement provider. See Section 626.9914(1)(b)m, Florida Statutes.
The burden of proof rests with the Petitioner to establish the offenses alleged by clear and convincing
evidence. Department of Banking and Finance vs. Osborne- Stern, 670 So. 2d 935 (Fla. 1996).
The documentary evidence involving the Respondent's activity regarding the eleven counts is in the form of eleven case files relating viators and interest transfers alleged in the eleven counts. With regard to Counts One through Four and Eight, the evidence of record consists of the testimony of Ms. Davis, the Department's investigator, who indicated she had sought release of the records from the Respondent pursuant to an investigative subpoena but was advised by the Respondent's representative that the records in issue had been confiscated by representative of the Statewide Prosecutor. The Respondent's representative gave Ms. Davis the name of the individual to contact in the office of the Statewide Prosecutor and Ms. Davis did so. In response to Ms. Davis' request for the records relating to these counts, she received the records which were marked as the Petitioner's Exhibits 1 through 4 and 8.
However, no independent evidence was presented, save
the testimony of Ms. Davis, to establish that the records received from the Statewide Prosecutor's office were the ones received by that agency from the Respondent. In short, a clear chain of custody was not established, and the records relating to Counts One through Four and Eight were not
sufficiently authenticated as to be admissible over the Respondent's objection. There being no other evidence regarding those Counts, the Petitioner failed to establish, by any pertinent standard that the Respondent committed any offense as alleged in those Counts.
As to the remaining Counts, Five through Seven and Nine through Eleven, Section 626.989(6), Florida Statutes, provides in pertinent part:
Any professional practitioner licensed or regulated by the Department of Business and Professional Regulation, except as otherwise provided by law, any medical review committee as defined in ss 766.101, any private medical review committee, and any insurer, agent, or other person licensed under the code, or an employee thereof having knowledge or who believes that a fraudulent insurance act or any other act or practice which, upon conviction, constitutes a felony or a misdemeanor under the code, or under ss.
817.234, is being or has been committed shall send to the Division of Insurance Fraud a report or information pertinent to such knowledge or belief and such additional information relative thereto as the department may require.
The Respondent argues that the totally documentary evidence presented by the Petitioner as to the allegations, does not establish any actionable fraud on the part of the Respondent or on the part of any third party. Therefore, it claims, the evidence presented is insufficient to clearly and convincingly establish that the Respondent had a duty to
report suspected fraudulent actions by any of the viators or brokers involved.
The Respondent also argues that the acts by the viators, by the Respondent, or any third party do not establish the "intent" necessary to constitute actionable misconduct. It contends that the Department offered no testimony to explain the medical terms contained in the documents filled out by the viators and/or the brokers and agents of the Respondent, urging that it is improper to consider the terms HIV, AIDS, ARC, and the various other medical terms utilized on the forms and reports involved as being equal under the law.
During the course of the hearing, counsel for the Department indicated the Department was not charging the Respondent with fraud and does not have to prove the actual presence of fraud. (R-156,157). A review of the Administrative Complaint, however, reflects that each of the Counts pertinent hereto alleges that the Respondent:
Has engaged in fraudulent or dishonest practices, or otherwise has been shown to he untrustworthy or incompetent to act as a viatical settlement provider. [Section 626.9914(1)(b), Florida Statutes]
The Department argues that the actions of the Respondent, in facilitating the sales of the insurance policies as alleged, took steps to facilitate the transfers
and while doing so came into possession of information regarding misrepresentation of material medical histories which it failed to report, and that made it untrustworthy or incompetent to act as a viatical settlement provider.
The evidence regarding Counts Five though Eight and Ten and Eleven clearly reflects that the viators had made representations regarding their health in response to questions contained on the initial applications for insurance, which would indicate they did not have any of the conditions about which information was sought, or had not been under the care of a medical practitioner for a set period of time. The evidence also shows that subsequent to the submittal of those applications, and, apparently, based on the information contained therein, the policies applied for were issued.
Thereafter, the evidence shows, and while the policies were still contestable by the insurer for demonstrated misrepresentation, the viators submitted other applications to the Respondent's brokers containing information which was inconsistent with the representations made on the initial applications, and this information was made known to the Respondent. Even after those inconsistencies were made known to the Respondent, the Respondent's agents engaged in a course of conduct designed to
keep the inconsistencies from the insurers during the period of contestability.
The Respondent contends there is no direct evidence that it participated in any misconduct alleged, and that the reliance by the Department on a purely documentary case to prove its allegations is insufficient to support discipline. While it is true that as to the actions of the Respondent, the only evidence of record is found in its records which were confiscated from it by the Department's investigator, the fact remains that those records are admissible as a business records exception to the hearsay exclusion (See Section 90.803(6), Florida Statutes.), and in their totality, provide sufficient evidence to demonstrate that the Respondent had a duty to report the misrepresentations and failed to do so.
The Respondent also contends that the failure of the Department to present medical testimony to describe the conditions in issue, ie. AIDS, ARC, and HIV, makes it impossible to conclude what these conditions are or that the concealment of them is or should be a reportable event. In light of the continuing public emphasis on and news coverage of these conditions over the past decade, such an argument is disingenuous. The initial applications asked particular questions. The viators answered those questions. They thereafter provided inconsistent answers to the same or very
similar questions regarding the same subject matter at a later date. It is inconceivable the viators did not know what they were reporting, or that the professionals employed by the Respondent and its agents should not have seen the inconsistency and recognized the need to report it. This is especially true when it is shown that the Respondent's employees suggested in writing to the viators that they not contact their insurers or report the sale of their policies during the contestable period, and also paid the viators' premiums in the interim.
Under the circumstances shown it is clear the Respondent either knew or should have known of the material misrepresentations made by the viators in each incident as alleged in Counts Five though Seven and Nine through Eleven and should have reported it. The failure to do so, either by design or by negligence, constitutes a violation of Section 626.989(6), Florida Statutes.
Whether by design or by negligence the Respondent is also clearly in violation of Section 626.9914(1)(b), Florida Statutes. That provision states that the Department shall suspend, revoke, or refuse to renew the license of any viatical settlement provider if the Department finds the licensee has engaged in fraudulent or dishonest practices, or otherwise has been shown to be untrustworthy or incompetent to
act as a viatical settlement provider. In the instant case, the active participation of the Respondent in the concealment of material misrepresentations by the viators to defeat the insurer's potential for invoking the contestability provisions of the policies in issue goes beyond mere incompetence and justified revocation of the Respondent's license.
Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance enter a Final Order dismissing Counts One through Four and Eight of the Administrative Complaint, but finding the Respondent guilty of Counts Five though Seven and Nine through Eleven of the Complaint, and both revoking its license and its eligibility for licensure as a viatical settlement provider in Florida.
DONE AND ENTERED this 28th day of December, 2000, in Tallahassee, Leon County, Florida.
___________________________________ ARNOLD H. POLLOCK
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6947 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2000.
COPIES FURNISHED:
Michael H. Davidson, Esquire Department of Insurance
200 East Gaines Street 612 Larson Building
Tallahassee, Florida 32399-0333
Mark K. Logan, Esquire Smith, Ballard & Logan, P.A.
403 East Park Avenue Tallahassee, Florida 32301
The Honorable Bill Nelson
State Treasurer/Insurance Commissioner The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300
Daniel Y. Sumner, General Counsel Department of Insurance
The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Feb. 05, 2001 | Agency Final Order | |
| Dec. 28, 2000 | Recommended Order | Viatical settlement provider which knew viators had made material misrepresentations on applications for insurance and who failed to report same to Department of insurance is subject to discipline. |
