STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, )

)

Petitioner, )

)

vs. ) Case No. 03-1940PL

)

EDWARD MICHAEL FARLEY, )

)

Respondent. )

)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in West Palm Beach, Florida, on September 10, 2003.

APPEARANCES

For Petitioner: David J. Busch

Philip M. Payne

Department of Financial Services and Chief Financial Officer

Division of Legal Services 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

For Respondent: None

STATEMENT OF THE ISSUES

The issues are whether Respondent committed the acts and omissions alleged in the Administrative Complaint and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

By Administrative Complaint dated April 29, 2003, Petitioner alleged that Respondent was currently licensed as a life, life and health, general lines, and health agent, holding license number A081006. The Administrative Complaint alleges that, at all relevant times, Local 16 was the name of an entity or entities that engaged in the business of insurance or operated as one or more multiple employer welfare arrangements in Florida, but was unauthorized to conduct insurance business in Florida.

Count I of the Administrative Complaint alleges that, in May 2000, Respondent, as a licensed insurance agent, contacted

P. H. to sell her and her company a health insurance plan through Local 16. Count I alleges that Respondent informed

1. H. that her employees would have to join Local 16 and that the plan was not regulated by federal ERISA laws or Petitioner. After P. H. signed up her company, effective June 1, 2000, P. H. or her company paid premiums in the aggregate amount of $32,000 from June 2000 through April 2001, plus $20 per month per employee as membership dues. Count I alleges that Local 16 failed to pay $3000 in covered medical claims and is now in bankruptcy.

   Count I alleges that Respondent thus violated Section 624.11, Florida Statutes, by transacting insurance business

   without complying with the Florida Insurance Code; Section 626.611(7), Florida Statutes, by demonstrating a lack of fitness or trustworthiness to engage in the business of insurance; Section 626.611(8), Florida Statutes, by demonstrating a lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment; Section 626.621(2), Florida Statutes, by violating any provision of the Florida Insurance Code or any law applicable to the insurance business; Section 626.621(6), Florida Statutes, by engaging in unfair methods of competition or in unfair or deceptive acts of practices, as prohibited by Chapter 626,

   Part XI, Florida Statutes, or otherwise having shown himself to be a source of injury or loss to the public; and Section 626.901(1), Florida Statutes, by directly or indirectly acting as an agent for, or otherwise representing or aiding, any insurer that is not authorized to transact business in Florida.

   Count II alleges that, in May 2000, Respondent, as a licensed insurance agent, contacted A. B. to sell him and other employees of P. H.'s company a health insurance plan through Local 16. Allegedly inducing A. B. to believe that he was insured through Local 16, Respondent allegedly accepted premiums and membership dues from the company. Following the effective date of June 1, 2000, A. B. incurred covered surgical and related medical expenses, but Local 16 refused to pay the

   claims, which total about $35,000. Count II alleges that Respondent thus violated the same statutes cited in Count I.

   At the hearing, Petitioner called 11 witnesses and offered into evidence 13 exhibits: Petitioner Exhibits 1-13. All exhibits were admitted.

   The court reporter filed the transcript on September 24, 2003. Petitioner filed its proposed recommended order on October 22, 2003.

   FINDINGS OF FACT

   
   

   1. At all material times, Respondent has been licensed in Florida as a life, life and health, general lines--property and casualty, and health agent. His license number is A081006. Respondent was initially licensed on July 24, 1978. He was licensed as a health insurance agent in May 2000.

   2. At no time has Local 16, United States Workers of America Local 16 National Health Fund, IIAWU National Health Fund, or Local 16 National Health ever been licensed or authorized to do business in Florida as a life and health insurance company or reinsurance company. All references in this Recommended Order to "Local 16" include all of these entities.

   3. Patricia Holdridge is the owner of Patty Contracting Corporation, doing business as East Coast Electric and

      Mr. Electric (East Coast Electric) in Sebastian, Florida. She has owned East Coast Electric for 11 years.

   4. In May 2000, Ms. Holdridge served as the manager of East Coast Electric. In that capacity, she met with Respondent, who was an agent employed by Stuart Insurance, Inc., in Palm City, Florida. Respondent visited Ms. Holdridge's office and dropped off literature on group health insurance.

   5. Ms. Holdridge spoke with Respondent about her company's insurance needs. At the time, the company had temporary health insurance, following the insolvency of the prior health insurer. Respondent said that he could provide health insurance for the company's ten or eleven employees.

   6. After agreeing to the details of the new health insurance, Ms. Holdridge met with Respondent another time to sign the papers. At this time, she learned that a labor union was somehow involved. She told Respondent that there was no way that a labor union could be involved because her company could not afford to pay union wages to its employees.

   7. Respondent assured Ms. Holdridge that the union's participation in the health insurance was a "technicality." He told her that the union would never contact her or interfere with her business. Ms. Holdridge accepted this explanation, emphasizing again that no union could be involved with her company.

   8. The paperwork that Respondent produced for

      
      

      Ms. Holdridge to complete included an application for health insurance. One form was a Member Enrollment Application with the Local 16 National Health Fund in Newton, New Jersey. The application is for health insurance and asks basic questions concerning the insureds' medical and claims history. Another form in the package that Respondent gave Ms. Holdridge was a Membership Application with "USWA, Local 16, TCIU, AFL-CIO, CLC," also in Newton, New Jersey. Another form in the package was an "Application and Representatvie [sic] Authorization [for] Affiliated Business Trade Services," in Jacksonville.

   9. The materials that Respondent supplied Ms. Holdridge included descriptions of two plans, with differing co-payment amounts, with premiums set by the age groups containing the employee and his or her covered family members. The two plans were the "80/60" plan and the "90/70" plan. The Summary of Benefits for the 80/60 plan lists numerous covered types of services and assures 80 percent payment after deductible for listed providers and 60 percent payment after deductible for nonlisted providers. The Schedule of Benefits Summary for the 90/10 plan lists numerous covered types of services and assures

      90 percent payment, purportedly without any copayment, for listed providers and 70 percent payment after deductible for nonlisted providers. A second Schedule of Benefits Summary for

      the 90/10 plan also bears the heading, "Local 16 National Health Fund."

   10. Respondent also provided Ms. Holdridge with insurance identification cards. The health insurance card is entitled, "USWA Local 16 TCU-AFL-CIOP, CLC National Health Fund." The dental insurance card is entitled, "Local 16 National Health Fund."

   11. After signing up for the insurance, East Coast Electric received invoices from Local 16. These invoices were broken down by employee and included entries for "welfare fund," "dues," and "ABTS." The amount entered for "welfare fund" is the premium for each employee's health insurance, based on the type of coverage and numbers and ages of dependents. The invoices directed East Coast Electric to pay this sum to Local 16, National Health Fund." The amount entered for "dues" is for union membership dues. The invoices directed East Coast Electric to pay this sum to Local 16, TCIU. The amount entered for ABTS is for the Affiliated Business Trade Services. The invoices directed East Coast to pay this sum to Affiliated Business Trade Services. The invoices directed East Coast Electric to send all of its payments to Affiliated Business Trade Services.

   12. At some point after signing up for the insurance, Respondent provided Ms. Holdridge with a Labor Agreement to

       sign. This detailed agreement provided that USWA Local 16 TCIU, AFL-CIO, CLC had been designated by a majority of the employer's employees to act as the exclusive bargaining agent.

       Ms. Holdridge refused to sign the agreement, and she heard nothing about her refusal to sign.

   13. East Coast Electric paid Local 16 a total of $32,000 from June 1, 2000, for group health insurance for its employees.

   14. Numerous employees of East Coast Electric signed up for the group health insurance offered by Local 16. Each of them signed forms indicating that he or she was joining the union, but none of them intended or wanted to join Local 16. Each employee understood that he or she was merely signing up for group health insurance.

   15. Allen Baurley was an electrician with East Coast Electric when the company purchased health insurance from Local

   16. After obtaining coverage with Local 16, Mr. Baurley suffered a sudden illness for which he submitted covered medical bills of over $34,000. Local 16 never paid any of these claims, in whole or in part. Mr. Baurley has paid $5000 of this debt through monthly payments and incurred $3500 in legal fees defending himself in a collection action brought by the hospital.

       1. Holly Emard was the office manager of East Coast Electric when the company purchased health insurance from

          Local 16. She signed up for group health insurance from

          
          

          Local 16. She incurred $300 in covered medical expenses, which Local 16 did not pay.

       2. Ms. Emard also handled communications between East Coast Electric and Local 16. As medical expenses went unpaid, she would contact Respondent, who offered to relay medical bills to Local 16. Sometimes, when she followed up, Respondent would claim not to have received the bill, and sometimes he would say that the union would be cutting checks later in the month. One time, Respondent suggested that Ms. Emard send an unpaid bill to a specified person with Local 16. Respondent was always very nice to Ms. Emard, but he did not help much with the payment problems. Eventually, Ms. Emard was spending half of her day on health insurance matters.

       3. Maurice Gay, Jr., was a scheduler and estimator with East Coast Electric when the company purchased health insurance from Local 16. Of the $1700 of covered medical expenses that he submitted to Local 16, the union health fund paid only $12.

          Mr. Gay's then-wife had a serious, lifetime pre-existing condition that had been covered by other health insurance. Induced by Respondent's representations of coverage from Local 16, she dropped her other insurance and enrolled with

          Local 16. When she tried to obtain health insurance elsewhere, after her adverse experience with Local 16, she found that

          insurers treated her situation as a lapse in coverage, so she incurred over $4000 in uncovered medical expenses--resulting in monthly payments to her health care providers and referrals to collection agencies.

       4. Catherine Desmarais was the only witness who was victimized by the sale of Local 16 group health insurance, but was not an employee of East Coast Electric. Ms. Desmarais was an accountant employed by Beacon Accounting Services, Inc., in Palm City, Florida, when the company purchased health insurance from Local 16.

       5. Ms. Desmarais testified that she never met Respondent.

          
          

          She signed up for group health insurance from Local 16 for herself, her husband, and two of her children sometime in 2000. Her supervisor at work informed her that she had to join

          Local 16, and Ms. Desmarais did so, although there was no union, shop steward, or other evidence of union activities at Beacon Accounting after she enrolled. Beacon Accounting employees joked at times, saying a supervisor could not do something, or else they would call the union.

       6. Ms. Desmarais' first attempt to use the Local 16 health insurance was when she tried, unsuccessfully, to fill a prescription. When the pharmacy refused to honor her insurance card, Ms. Desmarais told her supervisor, who suggested that she speak with Respondent.

       7. Ms. Desmarais telephoned Respondent, who said that someone else had had a similar problem and that he had already called someone in New Jersey and had corrected the problem. However, Ms. Desmarais eventually incurred about $3500 in covered medical expenses, for which Local 16 paid nothing.

       8. Later, in November 1991, after learning that Local 16 had filed for bankruptcy, Ms. Desmarais contacted Respondent, who informed her and her employer of another self-insured plan. However, Beacon Accounting elected to purchase group health insurance elsewhere.

       9. On November 15, 2002, a general adjuster for Fireman's Fund Insurance Company wrote Ms. Desmarais a letter in connection with its insured, Stuart Insurance. The letter attempts to initiate a process to conclude outstanding claims that arose when Local 16 became insolvent. The letter explains that its author was having difficulty linking Ms. Desmarais to a Local 16 group health policy. However, Ms. Desmarais produced at the hearing a copy of her Local 16 National Health Fund insurance identification card, which bears her name. Given the numerous administrative problems that East Coast Electric had with Local 16, the obvious explanation is that Local 16's poor recordkeeping resulted in the misplacing of Ms. Desmarais' insurance file.

       10. The employees of East Coast Electric never organized, never joined Local 16, never engaged in collective bargaining, and never negotiated the subject plan pursuant to any collective bargaining or union membership. At all material times, Respondent was aware of all of these facts, as he fraudulently required the employees of East Coast Electric to falsely indicate that they were or were applying to become members of Local 16.

       11. As marketed to persons who were not members or participants of Local 16, the subject plan was not an "employee benefit plan," as that term is described below.

       12. The subject plan was never an insured plan, as described below. If it had qualified as an "employee benefit plan," the subject plan would have been a "multiple employer welfare arrangement," as described below.

       13. United States Workers of America Local 16 National Health Fund filed for protection under Chapter 7 of the Bankruptcy Code the United States Bankruptcy Court, District of New Jersey (Newark Division), Case No. 01-42881, on November 27, 2001. The case is still pending.

           CONCLUSIONS OF LAW

           
           

       14. The Division of Administrative Hearings has jurisdiction over the subject matter. §§ 120.569 and 120.57(1), Florida Statutes (2003).

       15. Section 624.11, Florida Statutes, provides: "No person shall transact insurance in this state, or relative to a subject of insurance resident, located, or to be performed in this state, without complying with the applicable provisions of this code."

       16. Section 624.10 defines the transaction of insurance as

           
           

           follows:

           
           

           "Transact" with respect to insurance includes any of the following, in addition to other applicable provisions of this code:

           
           

           1. Solicitation or inducement.

              
              

           2. Preliminary negotiations.

              
              

           3. Effectuation of a contract of insurance.

              
              

           4. Transaction of matters subsequent to effectuation of a contract of insurance and arising out of it.

              
              

       17. Section 624.02, Florida Statutes, defines "insurance" as: "a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies."

       18. Section 626.611(7) and (8), Florida Statutes, provides:

           The department or office shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, adjuster, customer representative, service representative, or managing general

           agent, 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:

           
           

           1. Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

              
              

           2. Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment.

           
           

       19. Section 621.622(2) and (6), Florida Statutes, provides:

           The department or office may, in its discretion, deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, adjuster, customer representative, service representative, or managing general agent, and it may suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist under circumstances for which such denial, suspension, revocation, or refusal is not mandatory under s. 626.611:

           
           

           (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 appointment.

           
           

           (6) In the conduct of business under the license or appointment, engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited under part IX of this chapter, or having otherwise shown himself or herself to be a

           source of injury or loss to the public or detrimental to the public interest.

           
           

       20. Section 626.9541(1)(k), Florida Statutes, provides:

           
           

           UNFAIR METHODS OF COMPETITION AND UNFAIR OR

           DECEPTIVE ACTS.--The following are defined as unfair methods of competition and unfair or deceptive acts or practices:

           
           

           1. Misrepresentation in insurance applications.--

              1. Knowingly making a false or fraudulent written or oral statement or representation on, or relative to, an application or negotiation for an insurance policy for the purpose of obtaining a fee, commission, money, or other benefit from any insurer, agent, broker, or individual.

                 
                 

       21. Section 626.901(1), Florida Statutes, provides:

           
           

           No person shall, from offices or by personnel or facilities located in this state, or in any other state or country, directly or indirectly act as agent for, or otherwise represent or aid on behalf of another, any insurer not then authorized to transact such insurance in this state in:

           1. The solicitation, negotiation, procurement, or effectuation of insurance or annuity contracts, or renewals thereof;

           2. The dissemination of information as to coverage or rates;

           3. The forwarding of applications;

           4. The delivery of policies or contracts;

           5. The inspection of risks;

           6. The fixing of rates;

           7. The investigation or adjustment of claims or losses; or

           8. The collection or forwarding of premiums;

           
           

           or in any other manner represent or assist such an insurer in the transaction of insurance with respect to subjects of insurance resident, located, or to be

           performed in this state. If the property or risk is located in any other state, then, subject to the provisions of subsection (4), insurance may only be written with or placed in an insurer authorized to do such business in such state or in an insurer with which a licensed insurance broker of such state may lawfully place such insurance.

           
           

       22. Petitioner must prove the material allegations by clear and convincing evidence. Department of Banking and

           Finance v. Osborne Stern and Company, Inc., 670 So. 2d 932 (Fla. 1996) and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

       23. Count I involves the transaction with Ms. Holdridge, the owner of East Coast Electric, and Count II involves the transaction with Mr. Baurley, an employee of East Coast Electric.

       24. The key facts in this case are that the East Coast Electric employees never received the health insurance for which they or their employer paid and that Respondent induced his insurance customers to falsely apply for membership in Local 16 when applying for health insurance. The materiality of Respondent's fraud regarding the union status of the employer and its employees is described below.

       25. These facts establish that Respondent lacks the fitness or trustworthiness and the knowledge and competence required by Section 626.611(7) and (8), Florida Statutes. This statute provides for the revocation of Respondent's license.

       26. The main legal issue in this case is whether Petitioner's jurisdiction over Respondent's transacting of insurance is preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sections 1001 et seq. (ERISA). As is relevant to this case, ERISA preempts state regulation of insurance, including most instances of the sale of insurance, if the subject plan is an "employee welfare benefit plan" (EWBP) and is sponsored by a single employer or a union. These questions are questions of fact. Compare International Association of Entrepreneurs of America Benefit Trust v. Foster, 883 F. Supp. 1050 (E.D. Va. 1995) (determination of whether a plan is an employee welfare benefit plan is a question of fact).

       27. In general, ERISA applies, pursuant to 29 U.S.C. Section 1003(a), to "any employee benefit plan if it is established or maintained--

           1. by any employer engaged in commerce or in any industry or activity affecting commerce; or

              
              

           2. by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or

              
              

           3. by both.

           
           

       28. Under 29 U.S.C. Section 1002(3), an "employee benefit plan" is either an "employer welfare benefit plan" (EWBP) or

           another type of plan of no relevance to this case. As is relevant to this case, an "EWBP" is:

           any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services[.]

           
           

           29 U.S.C. § 1002(1).

           
           

       29. Clearly, the plan marketed by Respondent was to have provided the type of health benefits described in the ERISA definition of an EWBP. Also, an employee organization-- Local 16--sponsored the subject plan.

       30. However, as found in the Findings of Fact, the subject plan, as marketed to East Coast Electric and its employees, was not an EWBP. In general, ERISA preemption applies at the insurer level, such as with respect to such insurer-level issues as reserves and permissible or required provisions in insurance policies. To be effective, though, the ERISA preemption applies at other levels, such as marketing and administration. This

           case obviously involves the extent of the ERISA preemption at the sales level.

       31. The EWBP definition applies only "to the extent that" the employee organization maintains the plan for its participants or their beneficiaries. ERISA does not explicitly define "participant," but indirectly does so in the definition of "employee organization":

           The term "employee organization" means any labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning an employee benefit plan, or other matters incidental to employment relationships; or any employees' beneficiary association organized for the purpose in whole or in part, of establishing such a plan.

           
           

           29 U.S.C. § 1002(4).

           
           

       32. Presumably, Local 16 maintained the plan that was marketed to East Coast Electric and its employees for the benefit of Local 16's participants. Local 16's participants are those employees who, in good faith, organized and joined Local

1. Local 16's participants do not include the employees of East Coast Electric, who obviously never organized and never joined Local 16. Instead, at Respondent's fraudulent urging, these employees merely signed up for health insurance by executing, among other things, documents that falsely applied

   for membership in Local 16 that they neither sought nor obtained.

   1. Thus, the Local 16 plan, as marketed by Respondent to East Coast Electric and its employees, was not an EWBP and therefore was not an "employee benefit plan." For this reason, ERISA does not preempt Petitioner's jurisdiction to regulate any aspect of Respondent's transaction of insurance business with East Coast Electric and its employees.

   2. Even if the subject plan had satisfied the ERISA definition of an EWBP, ERISA would not have preempted Petitioner from regulating Respondent's transaction of insurance business with East Coast Electric and its employees. Under ERISA, the preemption issue requires consideration of a series of ERISA provisions that alternatingly withdraw and confer jurisdiction upon state insurance regulators. These ERISA provisions are known as the Preemption Clause, Savings Clause, Deemer Clause, and MEWA Clause.

   3. The Preemption Clause, which is 29 U.S.C. Section 1144(a), provides that ERISA "shall supersede any and all State laws insofar as they may . . . relate to any employee benefit plan . . .." The Savings Clause, which is 29 U.S.C. Section 1144(b)(2)(A), provides that ERISA shall not "be construed to exempt or relieve any person from any law of any State which regulates insurance . . .." The Deemer Clause, which is 29

      U.S.C. Section 1144(b)(2)(B), provides that an "employee benefit plan" shall not "be deemed to be an insurance company or other insurer . . . or to be engaged in the business of insurance

      . . . for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts "

   4. In 1983, Congress enacted the MEWA Clause, which is 29

      
      

      1. Section 1144(b)(6)(A). The MEWA Clause and related provisions state:

         1. Notwithstanding any other provision of this section--

            1. in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides--

               1. standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and

               2. provisions to enforce such standards, and

            2. in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this subchapter, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this subchapter.

               
               

         2. The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii),

      individually or by class, multiple employer welfare arrangements which are not fully insured. Any such exemption may be granted with respect to any arrangement or class of arrangements only if such arrangement or each arrangement which is a member of such class meets the requirements of section 1002(1) and section 1003 of this title necessary to be considered an employee welfare benefit plan to which this subchapter applies.

      
      

      (D) For purposes of this paragraph, a multiple employer welfare arrangement shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.

      
      

   5. The definition of a "multiple employer welfare arrangement" (MEWA) is set forth at 29 U.S.C. Section 1002(40)(A) and provides, in relevant part:

      The term "multiple employer welfare arrangement" means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained--

      1. under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements[.]

   6. The MEWA definition explains the materiality of Respondent's fraud in falsely enrolling the employees of East Coast Electric with Local 16. Union membership would qualify the subject plan as an EWBP, as discussed above. Union membership would preclude Petitioner's regulation of the marketing of the subject plan because a MEWA excludes any plan covered by a collective bargaining agreement.

   7. Respondent sold the subject plan to at least two employers: East Coast Electric and Beacon Accounting Services, Inc. The employees of these corporations did not participate in Local 16. Therefore, the subject plan was a MEWA.

   8. The subject plan was not insured, so it is subject generally to Florida law regulating insurance. Such law, of course, includes Section 626.611(7) and (8), Florida Statutes.

   9. Alternatively, even if the subject plan were an EWBP, Petitioner's jurisdiction over Respondent's transacting of insurance business would not be preempted by ERISA, at least with respect to one allegation. Petitioner alleged that Respondent committed an unfair or deceptive act or practice, which expressly includes knowingly making a false statement on an insurance application for a fee from an insurer.

   10. In Independent Distributors Co-op. USA v. Advanced

       
       

       Insurance Brokerage of America, Inc., 264 F. Supp. 2d 796 (S.D. Ind. 2003), an insurance consultant developed a group health

       insurance plan for a trade association of employers. The consultant misrepresented to the trade association that the health plan would not be a MEWA. The trade association adopted the health plan, for which the consultant became the plan administrator. Within two years of its inception, the plan failed due to financial and legal reasons, and the trade association commenced a legal action in federal court against the administrator for fraud and breach of contract, under state law.

   11. The Independent Distributors court held that the Preemption Clause did not apply to allegations of fraud in the inducement, which obviously predated the plan that was otherwise subject to ERISA. The court reasoned that adjudication of a state-law claim of a fraudulent inducement to participate in an ERISA-covered plan could not subject the plan itself or its administration to the kind of conflicting regulations that ERISA was designed to prevent. Nor would the state-law claim of fraudulent inducement require an adjudication of a participant's right to benefits under an ERISA-covered plan. Absent these core considerations that justify the Preemption Clause, the court declined to dismiss the complaint.

   12. Similar considerations preclude the application of the Preemption Clause to one of the allegations in the present case. Respondent's fraudulent misstatements in the union applications

       that were part of the health insurance applications are deceptive acts that do no "relate to any employee benefit plan." State disciplinary proceedings against its licensees guilty of such fraud in the transacting of insurance in no way subject ERISA-covered plans to conflicting regulations. Therefore, the Preemption Clause does not remove from Petitioner's jurisdiction the allegation of an unfair or deceptive act or practice.

   13. The subject case presents different facts from those presented in Chilton v. Prudential Insurance Company of America,

       124 F. Supp. 2d 673 (M.D. Fla. 2000), in which the court held that ERISA preempted Section 626.9541(1)(o)1, Florida Statutes. The statute defines as an unfair or deceptive act or practice the knowing collection of a premium without providing an insurance policy. The court reasoned that the Preemption Clause applied, but the Savings Clause did not apply, because the plaintiff's claim required reference to the insurance policy at issue. By contrast, in the present case, Petitioner's claim of an unfair or deceptive act or practice requires reference only to the fraudulent application for membership in Local 16 and not to the policy or plan documents.

   14. Respondent has repeatedly sought a stay of this case due to the bankruptcy proceeding in which Local 16 is the debtor. However, Respondent has never explained why the insolvency of a plan sponsor or insurer would have any bearing

       on a disciplinary proceeding involving a licensee and the manner in which he has transacted insurance business.

   15. Even if the debtor were the licensee, 29 U.S.C. Section 362(b)(4) provides that the automatic stay in bankruptcy for actions and proceedings described in 29 U.S.C. Section 362(a)(1) does not extend to the:

       commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power[.]

       
       

   16. The record establishes considerable public injury resulting from Respondent's fraud. The record omits any indication of attempts by Respondent to mitigate these injuries or to make restitution for the financial losses that Respondent's fraud made possible. By his callous deception, Respondent escaped the state regulatory scheme intended to protect the consuming public just long enough to enable Local 16 to sell its worthless insurance to numerous innocent persons.

In his Response to Petitioner's Proposed Recommended Order, Respondent reveals a fundamental misunderstanding of his professional obligations, as he treats this case as the equivalent of a civil claim for relief for his injured customers. Ample cause exists for revocation.

RECOMMENDATION

It is

RECOMMENDED that the Department of Financial Services enter a final order revoking Respondent's license.

DONE AND ENTERED this 30th day of December, 2003, in Tallahassee, Leon County, Florida.

S

ROBERT E. MEALE

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) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 2003.

COPIES FURNISHED:

Honorable Tom Gallagher Chief Financial Officer

Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 David J. Busch

Philip M. Payne

Department of Financial Services and Chief Financial Officer

Division of Legal Services 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

Edward Michael Farley Post Office Box 1696 Palm City, Florida 34991

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 must be filed with the agency that will issue the final order in this case.

Docket for Case No: 03-001940PL

Orders for Case No: 03-001940PL