vs.
Respondent.
) Case No. 02-4024PL
A formal administrative hearing was conducted before Daniel M. Kilbride, Administrative Law Judge, Division of Administrative Hearings, on December 19, 2002, in St.
Petersburg, Florida.
For Petitioner: James A. Bossart, Esquire
Piper, Ludian, Howie & Werner, P.A. 5720 Central Avenue
St. Petersburg, Florida 33707 STATEMENT OF THE ISSUE
Whether Respondent's insurance agent licenses should be disciplined because selling a commercial note to an unqualified elderly person on February 11, 1999, demonstrates a lack of
fitness or trustworthiness to engage in the business of insurance, in violation of Sections 626.611(7), Florida
Statutes.
On September 23, 2002, Petitioner filed a one-count Administrative Complaint against Respondent, a Florida insurance agent, licensed by Petitioner. The complaint alleged violations of Sections 626.611(7), 626.611(9), 626.611(13), 626.621(2),
626.621(3), 626.621(6), and 626.9541(1)(e), Florida Statutes (Supp. 1998). Respondent denied the allegations and timely requested an administrative hearing. This matter was referred to the Division of Administrative Hearings (DOAH) on October 15, 2002. Following discovery, a formal hearing was held.
At the hearing, Petitioner voluntarily dismissed all statutory charges except for the alleged violation of
Section 626.611(7), Florida Statutes. Petitioner presented the testimony of two witnesses, Juanita Crouch and her daughter, Linda Bruno-Lagos, and submitted nine exhibits for admission, eight of which were admitted in evidence. Respondent testified in his own behalf and submitted four exhibits which were received in evidence.
The Transcript of the hearing was filed on January 6, 2003.
Petitioner and Respondent timely filed their Proposed Recommended Orders on January 21, 2003, and each has been given
careful consideration in the preparation of this Recommended Order.
Petitioner is the state agency responsible for regulating and licensing the sale of insurance in Florida, in accordance with the provisions of Chapter 626, Florida Statutes.
Respondent, Kevin Ira Frye, is currently eligible for licensure and licensed in the this state as a health insurance agent, life insurance agent, life and health insurance agent, and life, including variable annuity agent, pursuant to licensure number A090874, and was so licensed at all times relevant to these proceedings.
In the fall of 1998, Juanita Crouch of Spring Hill, Florida, expressed an interest in purchasing a long-term care insurance policy by responding to a solicitation she received in the mail from Respondent's agency. In response to her inquiry, Respondent came out to her home to discuss the insurance.
Ms. Crouch at this time was a 75-year-old retired homemaker and widow. Her only income was $1,100 a month stipend from her deceased husband's social security and her interest income from two Certificates of Deposit (CDs). She did not graduate from high school. She had never worked outside of the home, being a homemaker all of her life; her husband handled all of the family finances prior to his death. She does not own any
stocks, bonds or any other investments. Mrs. Crouch resides in a home purchased for her by her daughter, Linda Bruno-Lagos, and placed in her name through a recorded Articles of Agreement.
Mrs. Crouch could not be considered a sophisticated investor. In addition, her health was poor, and her memory was some-what impaired.
Mrs. Crouch possessed $25,000 deposited in two bank CDs that were coming due during the relevant time period.
Mrs. Crouch was looking for a investment with a reasonable rate of interest so that she could deposit the funds in order to augment her small income. This $25,000 represented her only savings.
Respondent, at this time, became aware that the CDs were coming due and during their next appointment, solicited Mrs. Crouch to take her $25,000 in savings and purchase a commercial promissory note to be issued by First American Capital Trust (FACT). FACT uses the proceeds from the issuance of the notes to fund the medium credit purchases of vehicle loans secured by perfected liens on new and used automobiles and light trucks.
Respondent represented to Mrs. Crouch that, by purchasing the FACT note, she would be investing in a guaranteed financial instrument similar to a bank Certificate of Deposit.
Mrs. Crouch would enjoy a 9.75 percent guaranteed interest rate on her investment over a nine-month period.
Respondent gave Mrs. Crouch various brochures, including a document entitled "Disclosure Statement." The brochures purported to show that the investment was fully insured and guaranteed. No provision of this disclosure statement was ever explained by Respondent to Mrs. Crouch, including the disclosure warning by FACT that this investment was "inherently risky." Mrs. Crouch testified that she did not understand the information and was relying on Respondent's representations. This testimony is credible.
Respondent testified that he purposely avoided explaining any provision of the disclosure statement. Respondent believed that it was Mrs. Crouch's sole responsibility to read the brochures and understand the details of the investment. In fact, Respondent testified that telling potential investors that they could lose all of their money was something he didn't discuss, as it might discourage sales. Respondent left the brochures explaining the investment with Mrs. Crouch to read and review, which she did not do. Respondent was aware, or should of been aware, that Mrs. Crouch, given her age and financial circumstances as a retiree, desired to place her funds only in safe, low risk, investments.
Mrs. Crouch did not meet the suitability standards to purchase the FACT note, as set forth in the disclosure statement prepared by FACT. FACT required potential investors to have either a net worth of $1,000,000, or an annual income in excess of $200,000 a year, or in the alternative, no more that
20 percent of an individuals total assets could be invested.
The application submitted by Respondent lists her net worth as between $150,000 and $250,000. Mrs. Crouch's actual net worth is significantly less than this sum. Respondent prepared the application, which Mrs. Crouch signed, and he determined the estimate of Mrs. Crouch's net worth. Respondent was either aware or should have been aware that Mrs. Crouch did not have such a net worth as was listed on her application, and, therefore, did not meet FACT's eligibility requirements. She should not have been sold the note.
Mrs. Crouch elected to invest her $25,000 with FACT to purchase the note. On February 11, 1999, she gave the funds to Respondent, which was promptly remitted to FACT. On March 8, 1999, FACT issued a Certificate of Commercial Note, at the full redemption value of $26,961.35 in the name of Juanita Crouch, with a maturity date nine months from the date of the note.
In December of 1999, Mrs. Crouch received a letter from FACT informing her that FACT had filed for bankruptcy
protection on September 30, 1999. A receiver has been appointed who is attempting to recover assets.
Mrs. Crouch never received any return on her purchase of the FACT note. She filed a claim in the U.S. Bankruptcy Court, but with the exception of two small payments from the receiver, she has never received any payments on the note. She has apparently suffered a loss of most, if not all, of her principal of $25,000.
Mrs. Crouch, relying on Respondent's representations, thought she was purchasing a note that would pay a fixed yield with very low risk. What she unknowingly purchased was a commercial note that carried a warning from FACT that "extending credits to retail buyers with medium credit ratings is inherently risky." Mrs. Crouch was clearly unaware of this risk and Respondent made no attempt to make her aware.
Despite the representations made to Mrs. Crouch by Respondent, at no time was her investment insured or guaranteed by the Federal Deposit Insurance Corporation, or any insurance company, nor any other entity. In fact, the Disclosure Statement states that the private insurance covers the vehicle loans only and not the notes directly. Respondent failed to disclose to Mrs. Crouch that her note and investment was not insured, even though he testified that he was aware of and
understood that the note itself was not insured at the time of the sale.
Respondent has been a licensed insurance agent since December 9, 1997, and was employed by Senior American Insurance and Financial Services. Respondent has not previously been disciplined by Petitioner.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and parties in this proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes.
Petitioner is the state agency charged with the administration of the sale of insurance in Florida, and for licensing and regulating sales agents throughout the state, pursuant to Chapter 626, Florida Statutes, and is authorized to discipline those licensed thereunder who violate the law.
Revocation of license proceedings are penal in nature, State ex rel. Vining v. Florida Real Estate Commission, 281 So. 2d 487 (Fla. 1973), and must be construed strictly in favor of the one against whom the penalty would be imposed. Munch v. Department of Professional Regulation, Division of Real Estate,
592 So. 2d 1136 (Fla. 1st DCA 1992); Fleischman v. Department of
Professional Regulation, 441 So. 2d 1121 (Fla. 3rd DCA 1983). The standard of proof required in this matter is that relevant
and material findings of fact must be supported by clear and convincing evidence of record. Department of Banking and
Finance v. Osborne Stern & Co., 670 So. 2d 932 (Fla. 1996). Petitioner has the burden of proving by clear and convincing evidence each of the allegations in the Administrative Complaint. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).
The following provisions of Chapter 626, Florida Statutes (Supp. 1998), are relevant. The provisions provide as follows, in pertinent part:
626.611 Grounds for compulsory refusal, suspension, or revocation of agent's, title agency's, solicitor's, adjuster's, customer representative's, service representative's, managing general agent's, or claims investigator's license or appointment.--The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, solicitor, adjuster, customer representative, service representative, managing general agent, or claims investigator, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist:
* * *
(7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.
Respondent's conduct in its entirety indicates a lack of trustworthiness to sell insurance and is therefore a violation of Section 626.611(7), Florida Statutes (Supp. 1998).
The evidence is clear and convincing that Respondent was acting as a financial investment advisor to Juanita Crouch. His advising her to invest in the FACT note violated her trust. Mrs. Crouch was not a knowledgeable or sophisticated investor; her only concern was augmenting her small income. She desired to purchase and actually thought she was purchasing a very low risk investment akin to bank certificates of deposit into which she had previously invested.
Respondent knew or certainly should have known that Mrs. Crouch was only interested in a safe and secure investment for her savings. The disclosure statement provided by FACT makes it very clear that the investment was an inherently risky proposition and should only be undertaken by individuals who met specific and high financial suitability criteria. Although
Mrs. Crouch had an obligation to read the information given to her, Respondent led Mrs. Crouch to believe that her investment was fully insured or guaranteed in some fashion, that it was, in fact, as safe as her bank CD, and that she would not lose her principal. Mrs. Crouch relied on the representations. In fact, her investment was never insured, and Respondent was aware that
it was not. Respondent failed to inform Mrs. Crouch of these facts.
Respondent, by his conduct, has demonstrated a lack of fitness and trustworthiness in the sale of a financial product. Respondent knew his representations concerning the FACT note were either false, or made without any knowledge of their truth or falsity. He intended that Mrs. Crouch act on his representations and invest her money in this product. As a result, she has suffered great financial loss of her entire savings. Respondent's solicitation of the FACT note to
Mrs. Crouch was not an appropriate investment for retired individuals of limited means who were seeking safety and income. This clearly demonstrates a lack of fitness and trustworthiness to sell insurance. Therefore, Respondent has violated Section 626.611(7), Florida Statutes. See Department of Insurance v.
Hoyt, DOAH Case No. 02-2370PL (October 25, 2002); see also Department of Insurance v. Robert Darren Carlson, DOAH Case No. 95-4947 (March 21, 1996).
Rule 4-231.030(6), Florida Statutes, provides that "'Penalty per count' refers to the penalty to be assessed for a single count which shall be equal to the highest stated penalty in the count for all violations proven." Rule 4-231.160, Florida Administrative Code, sets forth aggravating and mitigating factors to be considered in determining penalties.
Violations of Section 626.611(7), Florida Statutes, are punishable with six months' suspension per violation. Rule 4- 231.080, Florida Administrative Code.
In this case, the circumstances are aggravated by the large sum of money lost and the fact that Mrs. Crouch has lost her entire life savings. She now has very limited opportunity to make up the loss through proceedings in the bankruptcy court. Furthermore, Respondent made no attempt to disclose, much less explain, any of the risks of the investments to Mrs. Crouch, including the fact that her investment was not insured. Finally, his intentional and flagrant disregard for FACT's financial suitability criteria directly led to Mrs. Crouch's financial loss. Had he followed them, she would not have purchased the note. In mitigation, Respondent has no prior record of disciplinary action against his licenses.
period of probation upon such reasonable conditions as the Department may require.
DONE AND ENTERED this 6th day of February, 2003, in Tallahassee, Leon County, Florida.
DANIEL M. KILBRIDE
Filed with the Clerk of the Division of Administrative Hearings this 6th day of February, 2003.
James A. Bossart, Esquire Department of Financial Services
Piper, Ludian, Howie & Werner, P.A. 5720 Central Avenue
St. Petersburg, Florida 33707
Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
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.
