The Issue The issue is whether Interamerican Financial Corporation is guilty of six types of violations of the Florida Retail Installment Sales Act alleged in the Department's Administrative Complaint of June 23, 1992, and, if so, what penalty should be imposed.
Findings Of Fact Interamerican Financial Corporation (Interamerican) is a Florida corporation with its sole place of business at 2600 S.W. 3rd Avenue, Suite 730, Miami, Florida. Interamerican is registered with the Department as a Retail Installment Seller, under license number HI-0004299/SF-592236293 000. The Department is authorized by the Florida Retail Installment Sales Act (Chapter 520, Florida Statutes) to examine licensees engaged in the retail installment financing business. Interamerican is in the business of financing automobile loans. Most of its loans are ones banks will not make because of the age of the automobile or because of the borrower's lack of a credit history. Borrowers are often first time retail installment purchasers. The purchase price of the vehicles financed ranges from about $2,000.00 to $5,000.00. Interamerican is owned by Raul Lopez and his wife. Mr. Lopez is President of the corporation. Its affairs are conducted on a day to day basis by Ms. Iris Hernandorena, who has been an employee of Interamerican since its inception twelve years ago in December 1980. There are 3 employees other than Ms. Hernandorena, two of whom are full time employees. Interamerican has flexible criteria for reviewing applications when deciding whether to make loans. Interamerican weighs the length of the applicant's employment, the length of residence at the applicant's present address, personal references, and the applicant's salary. Applicants often speak little or no English. They depend on Ms. Hernandorena to explain each element of the transaction to them. They are highly dependent on the good faith of Ms. Hernandorena, and their limited fluency in English leaves most of them ill-equipped to protect their own interests in the financing transaction. The Department conducted an examination of Interamerican on February 10 and February 27, 1992. This examination covered the period from November 1, 1990, through January 31, 1992. The examining officer examined 7.6 percent of Interamerican's 314 financing contracts for the examination period. Ms. Iris Hernandorena is a single mother with three children, is a naturalized American citizen and a native of Argentina. As a practical matter, Ms. Hernandorena runs the affairs of Interamerican for Mr. Lopez with little supervision. Ms. Hernandorena reviews and approves applications for credit using the criteria set out in Finding 4, pays the automobile dealers when an application has been approved, and handles face-to-face dealings with the borrowers. Before the time period covered by the examination, Interamerican was an authorized agent for Bankers Insurance Group to issue credit life insurance certificates to Interamerican borrowers who elected to purchase credit life insurance. It was Interamerican's practice to include credit life insurance on the retail installment contracts at the time they were initially presented for a borrower's consideration. Credit life insurance was always explained to the customer by Ms. Hernandorena. Whenever a borrower requested it, the credit life insurance and the premiums were deleted from the retail installment contract. Fewer than 4% of Interamerican's borrowers declined credit life insurance. When the loan documents were signed, the borrowers signed Franchise Creditor Insurance Certificate applications which disclosed credit life insurance premiums. These premiums were also disclosed on the face of the retail installment contracts. If a borrower elected credit life insurance, a certificate of insurance was issued and Interamerican forwarded one half of the premium disclosed on the financing contract to Bankers Insurance Group. Because the premium was included in the total amount financed by borrowers, this payment to Bankers was an additional cash outlay by Interamerican. Over the life of the loan, the borrower repaid the full amount financed and Interamerican recovered pro rata in each payment its cash outlay to Bankers (the first 1/2 of the insurance premium financed), and its commission (the second 1/2 of the premium financed). During its examination, the Department made its random sampling of 314 Interamerican customer files. It found four which contain the following information concerning charges for credit life insurance: Bankers Credit Life Amount of Credit Insur. Account Buyer's Date of Life Insurance Certif. Number Name Contract Premium Charged Number TA 388 Maria E. Arias 12-24-91 $60.22 FLO 44341 VE 165 Juan A. DelVilla 11-25-91 $74.38 FLO 43482 BEN 603 Julio C. Figueroa 05-06-91 $32.52 FLO 43378 HON 178 Darryl D. Pride 02-27-91 $70.38 FLO 43018 (Administrative Complaint, Paragraph 6) The monies received from these customers for credit life insurance policies were never remitted to Bankers Insurance Group. Bankers Insurance Group had no record of franchise creditor insurance certificates issued on behalf of these borrowers, or of any payments from Interamerican to Bankers for the period January 1, 1991, to February 26, 1992. Franchise credit life insurance certificates on the borrowers were not submitted to Bankers Insurance Group, nor do any of the certificate numbers match any series of numbers issued by Bankers during the past five years. The standard credit life insurance policies which had been issued through Bankers Insurance Group before the credit period had provided that Interamerican was named as beneficiary in the event of the borrower's death. The amount of the insurance coverage automatically reduced during the life of the loan so that the benefits due under the policy in the event of the death of the borrower equaled the amount of the loan balance at all times. Before the period covered by the Department's examination, Interamerican had two occasions when a borrower died and Interamerican had to make application to Bankers Insurance Group for payment of the proceeds due on the credit life insurance the borrower had purchased. In both instances, Interamerican had a difficult time collecting the remaining portion of the loan from Bankers Insurance Group. As a result of these experiences, before the audit period at issue here, Ms. Hernandorena decided on her own that Interamerican should become "self-insured," rather than send Bankers Insurance Group fifty percent of the credit life insurance premium financed by the borrower at the signing of the retail installment contract. After Interamerican ceased sending credit life insurance premiums to Bankers Insurance Group, it was the intention of Ms. Hernandorena to use the funds collected for credit life insurance premiums as a sort of reserve for bad debts out of which to pay the uncollected loan balances of borrowers who died, after having paid for credit life on their retail installment contracts. No specific escrow or reserve account was established with the funds, however. Because so few borrowers decline credit life insurance (see Finding 7), for about 96% of the 314 financing contracts entered into during the credit period, borrowers were charged for credit life insurance which was never put in force. Ms. Hernandorena reasoned that borrowers were not harmed by this arrangement. Borrowers never would have received any payment from Bankers Insurance Group if the credit life insurance became payable--Interamerican was the only beneficiary of the insurance, which would pay only the outstanding loan balance. They received a substitute of equal value in her eyes, the waiver by Interamerican of any claim for the remaining balance due on the loan if the borrower died after having paid for what appeared to be "credit life" insurance issued through Bankers Insurance Group. The Department examined the following four Interamerican customers' files which disclosed that these customers were charged premiums for credit life insurance on their retail installment contracts apparently placed with Bankers Insurance Group after August 31, 1991 in excess of the uniform rate permitted by the Department of Insurance for credit life insurance contracts: Credit Life Uniform Account Buyer's Date of Insurance Rate Amount of Number Name Contract Premm Chrgd Permitted Ovrchrge VE 163 Early H. Wims 11-21-91 $57.66 $48.05 $ 9.61 TA 395 Reyna I. Boyd 01-27-92 $64.60 $53.84 $10.76 HON 236 A. Sarrantos 01-08-92 $58.93 $49.10 $ 9.83 TA 388 Maria E. Arias 12-24-92 $60.22 $50.19 $10.03 & Mario F. Carrion (Administrative Complaint, Paragraph 7) How these overcharges came about were not explained at the hearing. The Department submitted no evidence that these overcharges were part of a scheme to intentionally overcharge customers. There was no evidence that these four instances of overcharge in the sample of contracts audited equate to any specific likely percentage of overcharges in contracts not selected for audit. Contrast Finding 13, above. Interamerican failed to journal payment for and to affix documentary stamps to the following three customer contracts: Interamerican Account Buyer's Number Name Date of Charge Amount of Documentary Stamps Charged on Contract TA 395 Reyna I. Boyd 01-27-92 $6.15 TA 388 Maria E. Arias 12-24-91 $5.70 VE 159 Maria A. Reyes 10-25-91 $8.40 (Administrative Complaint, Paragraph 8) Interamerican did purchase the requisite amount of documentary stamps from the Florida Department of Revenue. The explanation given for the error in not affixing the stamps was that stamps of small denomination were not always on hand. Since the examination was in February 1992, this reason is not persuasive. Two of the contracts involved were ones from October and December of 1991. There had been adequate time to exchange larger stamps for smaller ones or to purchase more small denomination stamps. The amount involved, however, is trivial ($20.25). Interamerican negligently failed to maintain credit insurance acknowledgment forms, since it was not actually placing credit life insurance in force. See Findings 13 through 14, above. Contrary to the allegations of Paragraph 9 of the Administrative Complaint, Interamerican did not charge finance charges in excess of the legal maximum permitted by law. The contracts for the borrowers set forth below contained an "amount charged" on the face of the contract which is slightly in excess of the legal maximum charge. This came about because the machine used to calculate the amount placed on the contact had a limited number of decimal places. Each of these borrowers was later furnished with a payment coupon book by Interamerican which contained an amount charged within the maximum rate. These payment books were prepared with computer programs using more decimal places, and the payment books are what borrowers used in repaying their loans. No additional notification was given to the borrowers calling attention to the small differences, indicating that the payment books, rather than the contracts, stated the correct amount due. The payment books served as a notice of correction to the borrowers. No Interamerican customer has paid any finance charges in excess of the legal maximum (Tr. 23). The customer contracts examined contained the following information: Account Number Buyer's Name Total Amount Charged Per Contract Legal Maximum Differences VE 178 Sonia E. Vanturyl $2,152.86 $2,147.84 $5.02 VE 173 Monique D. Jordan $1,715.13 $1,711.16 $3.97 VE 165 Juan A. Delvilla $1,481.37 $1,477.99 $3.38 VE 152 Edward Mantilla $1,712,56 $1,708.56 $4.40 Jannette S. Williams $1,347.97 $1,344.84 $3.13 The Department conducts an examination of Interamerican and other retail installment sellers on a periodic basis. The prior examinations by the Department revealed no violations by Interamerican before the examination that is the subject of this proceeding. Throughout this examination by the Department, Interamerican furnished the Department with all the information and documents requested, made no attempt to conceal anything from the examiner, and was cooperative throughout the examination. This is consistent with Ms. Hernandorena's belief that on the credit life insurance charges, Interamerican had done nothing wrong.
Recommendation A final order should be entered finding Interamerican guilty of violations of Sections 520.995(1)(a), (b) and (c) and 520.07(4), Florida Statutes (1990 Supp.) as alleged in Paragraphs 11 and 12 of the Administrative Complaint, and dismissing the charges made in Paragraphs 13, 14 and 15 of the Administrative Complaint. The Department has suggested that the appropriate penalty in this case is to find Interamerican guilty of all allegations made in the Administrative Complaint and impose a cease and desist order enjoining Interamerican from future violations of the Retail Installment Sales Act, and to impose an administrative fine of $1,000 for each violation. It is difficult to determine whether the Department suggest a fine of $6,000.00, one for each paragraph in the Conclusions of Law in its Administrative Complaint (Paragraphs 11-15), or whether a separate fine of $1,000.00 is meant to be imposed for each violation alleged in each contract containing a violation, which would be a fine of approximately $16,000.00. Based on the belief that Interamerican was guilty of all the violations alleged, the Department also recommended that the retail installment sellers license of Interamerican be revoked. It seems pointless to enter an order that Interamerican desist from future violations of the act, and at the same time revoke its authority to engage in business under the act. The penalty of revocation is too draconian. Revocation is certainly a penalty available under the statute, but revocation is appropriate where there is a pattern of misconduct which indicates that the licensee will not conform to applicable rules and statutes in the future, or that the misconduct is so egregious that, without consideration of the likelihood of future misconduct, severe discipline is warranted. This is not such a case. Moving from the less serious to more serious charges, the three instances of failure to attach documentary stamps to contracts is only proof of lack of attention to detail, since a sufficient supply of stamps had been purchased from the Department of Revenue. There was no violation of the disclosure requirements of Section 520.07(3)(e), Florida Statutes (1990 Supp.). With respect to charging, in four instances, credit life insurance premiums in excess of those permitted by the uniform rates filed with the Department of Insurance, in those four cases the amount of each overcharge was approximately $10.00. Interamerican should be required to refund the excess amounts due to the borrowers, with interest at the legal rate from the date of the contract. Due to the small amounts involved, for each instance Interamerican also should be assessed a fine of $250.00, for a total fine of $1,000.00 for that class of violations. No penalty can be imposed on the allegation that Interamerican charged excess finance charges, because it did not do so. Neither can a penalty be imposed for failure to maintain credit insurance acknowledgment forms, since no insurance was placed to be acknowledged by an insurer. Although it is true that those forms were not maintained, the real violation, which is the most serious violation, is the failure to have purchased the insurance at all. The Administrative Complaint alleges in Paragraph 7 four instances where charges were made for credit life insurance where no insurance was actually purchased. Ms. Hernandorena had mistakenly decided that by charging the amount permitted for credit life insurance, without purchasing it, and waiving the right of Interamerican to obtain payment from any borrower who died after paying for credit life insurance, the borrowers were receiving what they paid for. In a rough sense, this was true, but the transaction documents simply were not structured that way. Had the evidence been convincing that borrowers were being charged for credit life insurance as a ruse to obtain additional money from them, when they were receiving nothing in return, I would not hesitate to recommend that the Department revoke the license of Interamerican, especially when the evidence demonstrates that the overcharge occurred not only in the four cases alleged, but in 96% of all contracts Interamerican entered into. On the other hand, Interamerican's evidence was persuasive that the borrowers were receiving something of value for the credit life insurance premiums, even though the insurance was never purchased. The testimony of Ms. Hernandorena was sincere, and I simply do not believe that her explanation of what was done was an after-the-fact justification concocted in an attempt to excuse Interamerican's misconduct. Ms. Hernandorena made a serious error in doing what she did, but she did not engage in a scheme to defraud borrowers. On this charge, Interamerican should be required to repay the amount of credit life insurance premiums plus interest at the legal rate to the four borrowers listed in Paragraph 6 of the Administrative Complaint, and to review its records and make similar refunds to all borrowers who paid for credit life insurance, plus interest at the legal rate from the date of each contract. An administrative fine in the amount of $4,000.00 should also be imposed, the maximum fine for the four instances of overcharge alleged and proven. Had the Department undertaken to allege and prove additional instances of overcharges, the fine would be larger, but that is not how the complaint was drafted. Although the conduct proven does not rise to the level of an intentional scheme to defraud, the misconduct is sufficiently serious that a significant penalty, less severe than revocation, ought to be imposed. That Interamerican has otherwise conducted its affairs over the years in conformity with the law weighs in its favor. The appropriate penalty here is to suspend the licensure of Interamerican for 30 days, to place its licensure on probation for the following 11 months, and to restrict its licensure to prohibit the "waiver of liability" plan created by Ms. Hernandorena and to require submission of all credit life insurance premiums to an appropriate insurer. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st day of December, 1992. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN DOAH CASE NO. 92-4404 The following are my rulings on findings proposed by the parties: Findings proposed by the Department: 1.-4. Adopted in Findings of Fact (FOF)1. 5. Adopted in FOF 5. 6.-7. Rejected as unnecessary. 8.-9. Adopted in FOF 5. 10.-11. Rejected as recitations of testimony, not findings of fact. Adopted in FOF 6. Implicit in FOF 6. Adopted in FOF 3. Adopted in FOF 6. Rejected as unnecessary. Adopted in FOF 4. Adopted in FOF 8. Adopted in FOF 13 and 14. Adopted in FOF 7. Adopted in FOF 4. Adopted in FOF 13. Rejected as unnecessary-Interamerican never contended it was an insurance company. Findings proposed by Respondent: Adopted in FOF 1. Adopted in FOF 2 and 4. Adopted in FOF 5. Adopted in FOF 3, 4 and 6. Adopted in FOF 7. Adopted in FOF 9. Adopted in FOF 10. Adopted in FOF 12. Adopted in FOF 13 and 14. The Borrower was the insured, Interamerican was the beneficiary. Adopted in FOF 11. Adopted in FOF 13. Adopted in FOF 15. Adopted in FOF 16. Adopted in FOF 17. Adopted in FOF 18. Adopted in FOF 19. COPIES FURNISHED: Steven R. Walker, Esquire Office of Comptroller Suite 708-N 401 N.W. 2nd Avenue Miami, Florida 33128 Ted Bartlestone, Esquire Suite 1550, 1 Biscayne Tower 2 South Biscayne Boulevard Miami, Florida 33131 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William G. Reeves, General Counsel Department of Banking and Finance The Capitol, Room 1302 Tallahassee, Florida 32399-0350
The Issue Should discipline be imposed by Petitioner against Respondent's insurance agent licenses, life including variable annuity (2-14), and general lines (2-20), pursuant to Chapters 624 and 626, Florida Statutes (2004)?
Findings Of Fact Stipulated Facts Respondent is licensed by Petitioner as a life including variable annuity (2-14) and a general lines (2-20) insurance agent and has been issued license D029506. During the time referenced in the Administrative Complaint, Respondent was licensed as a customer representative (4-40) and a life including variable annuity (2-14) agent. The Department has jurisdiction over Respondent's insurance licenses and appointments. At all times relevant to the dates and occurrences referenced in the Administrative Complaint, Respondent was employed or affiliated with Direct General Insurance Agency, Inc., a Tennessee corporation, doing business in Florida as Florida No-Fault Insurance Agency (Cash Register). Additional Facts: At times relevant to the case Respondent held his life including variable annuity license (2-14) under an appointment with Direct Life Insurance Company. At times relevant to the case Respondent had a customer representative license (4-40) under appointment with Direct General Insurance Agency, Inc. At present Respondent continues to hold the life including variable annuity license (2-14) under an appointment with Direct General Life Insurance Company. At present he has a general lines license property and casualty license (2-20) under appointments with Direct General Insurance Company and American Bankers Insurance Company of Florida. On February 8, 2005, Brandi Dean called Cash Register to receive a quote for the purchase of basic automobile insurance coverage. She was provided a quote at that time. On February 8, 2005, Brandi Dean, went to the Cash Register to purchase basic automobile insurance coverage. She had done business with the insurance agency before. Her policy with Direct General Insurance Company was Policy No. FLCR162714439, as reflected in Petitioner's Exhibit numbered 15, with a scan cover sheet entitled "Renewal Auto." On February 8, 2005, Ms. Dean purchased automobile insurance coverage that would be effective from February 10, 2005 through February 10, 2006. She was charged $316 for property damage liability (PD) and $216 for basic injury protection (PIP) for a total of $532, with a $25 policy fee. The application information within the exhibit reflects the customer's name, signature, and initials in various places. On February 8, 2005, Ms. Dean was provided another form referred to as an Explanation of Policies, Coverages and Cost Breakdown (including non-insurance products). Petitioner's Exhibit numbered 16. She signed that document. It reflected the auto policy coverage information. It also set forth under a category referred to as optional policies, the purchase of Lloyd's Accident Medical Protection Plan for $110. Petitioner's Exhibit numbered 17 is additional information concerning the Accident Medical Protection Plan application by the customer signed by her. It details a $110 annual premium for individual coverage of $1,000 medical expense, and 125/day-365 day hospital coverage. Within that same exhibit there is a form signed by the customer titled 100% certain underwriters @ Lloyd's/London (DB/33) Accident Medical Protection Plan. This reflects $110 cost, $125 daily coverage and the total annual benefit of $45,625. Petitioner's Exhibit numbered 18 is a scan cover sheet entitled Renewal Finance with Premium Finance Agreement Information in association with Direct General Financial Services, Inc., in which the customer Ms. Dean paid $69.63 down, financed $599.82, with a total price of $748.61 when considering the annual percentage rate for financing. This document in totality was initialed and signed by Ms. Dean. Ms. Dean was provided a receipt for her cash down-payment on the purchase. Petitioner's Exhibit numbered 14. Petitioner's Exhibit numbered 19 is an Insurance Premium Financing Disclosure Form signed by the customer, reflecting the cost of the automobile insurance and the hospital indemnity plan, the amount of total cost and includes the policy fee for the automobile insurance, document stamp tax, the down payment, and the total amount financed $599.82. Ms. Dean was left with the impression that she had only purchased automobile insurance. She believed that the monthly payments for the financing were only in relation to automobile insurance. Ms. Dean does not recall having the accidental medical protection plan explained to her as to its terms. She does not recall anyone explaining that it was an optional plan unassociated with automobile insurance. She told the agent that she dealt with that she was only interested in purchasing the state-required automobile insurance coverage. Had she realized that she was purchasing optional accident medical protection, not part of the automobile insurance purchase, she would have declined the optional policy. Ms. Dean does recall that the agent she dealt with made some brief explanation about the documents involved in the transaction but not every page was explained. Ms. Dean recalls explanations about the automobile policy but nothing about optional coverage. Ms. Dean glanced over the documents but did not read every word included in the documents. Ms. Dean does not recall whom she dealt with on February 8, 2005. Otherwise, the record does not reflect the person who sold the automobile insurance and accidental medical protection plan to her at that time. At times relevant, Denise Daley Turnbull worked at Cash Register. She was a customer representative license (4- 40), appointed by Direct General Insurance Agency, Inc. On March 24, 2005, William L. Green, Jr., came to Cash Register to purchase automobile insurance. He dealt with Ms. Turnbull. He made a $170.02 down payment for his purchases, as reflected in Petitioner's Exhibit numbered 4, which is a receipt provided to Mr. Green. A scan cover sheet related to an auto policy purchased, together with the application information for the automobile insurance purchased through Direct General Insurance Company is found within Petitioner's Exhibit numbered Mr. Green purchased automobile insurance for property damage liability (PD) in the amount of $590 and basic personal injury protection (PIP) for $370, with a $25 policy fee, totaling $985. He signed and initialed parts of the forms in association with the automobile insurance. Ms. Turnbull also signed forms in association with the automobile insurance. Petitioner's Exhibit numbered 6 is an explanation of policies, coverages and cost breakdown (including non-insurance products) reflecting the overall purchases by Mr. Green. He signed that form. It relates the automobile insurance purchase. It also relates the purchase of an American Bankers Travel Protection Plan for $60, a Lloyd's Accidental Medical Protection Plan for $110 and life insurance of $98. With fees and other costs the total purchase was $1270.99. Of relevance here, Petitioner's Exhibit numbered 9 is a scan cover sheet in relation to the life policy signed by Ms. Turnbull. It also includes application information to Direct Life Insurance Company with certain questions reflected that were initialed by the purchaser. Mr. Green signed the application. Respondent also signed the application, as well as printing his name and insurance license number on the form. Petitioner's Exhibit numbered 10 is a scan cover sheet for a New Finance with Direct General Financial Services, Inc., which reflects a $162.03 down-payment, $1105.17 in amount financed, with a $129 finance charge. The total sales price for all purchases was $1396.20, to include the life insurance with Direct Life Insurance Company. Mr. Green signed the premium finance agreement. Petitioner's Exhibit numbered 11 is a copy of the Insurance Premium Finance Disclosure Form signed by Mr. Green. Ms. Turnbull has no recollection of the Respondent's participation in the sale of the life insurance policy to Mr. Green. She does recall that Respondent was in the insurance agency office when the life insurance was purchased. She recognizes Respondent's signature in association with the life insurance application and purchase. Mr. Green had no intention of purchasing life insurance when he went to Cash Register on March 24, 2005. He recalls dealing with Ms. Turnbull. No one else sat with Mr. Green and explained policy information to him. Specifically, Respondent did not sit with Mr. Green and offer explanations about the policy. Mr. Green did not see Respondent sit with Ms. Turnbull and Respondent remained silent while she sold the life policy. Had Mr. Green realized that he was purchasing life insurance he would have declined the opportunity.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That Petitioner enter a final order finding a violation under Count I as set forth in the conclusions of law, dismissing Count II and suspending Respondent's license for six months for the violation. DONE AND ENTERED this 7th day of May, 2007, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 7th day of May, 2007. COPIES FURNISHED: William Gautier Kitchen, Esquire Gregg Marr, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0333 L. Michael Billmeier, Jr., Esquire Galloway, Brennan and Billmeier, P.A. 240 East Fifth Avenue Tallahassee, Florida 32303 Michael L. Rothschild, Esquire Larry S. Davis, P.A. 1926 Harrison Street Hollywood, Florida 33020 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0307
The Issue Whether Respondent engaged in conduct proscribed by the Insurance Code as is particularly set forth in the Administrative Complaint filed December 7, 1993.
Findings Of Fact During times material, Respondent, Nelson Speer Benzing, was licensed with Petitioner, Department of Insurance and Treasurer, as a life insurance and as a life and health insurance agent. During times material, Respondent was an employee of U.S. Savings Trust Management (herein USSTM). During times material, Respondent was never appointed with Petitioner to represent Wisconsin National Life Insurance Company (herein Wisconsin). However, Respondent did attend a workshop sponsored by Wisconsin. At some time prior to March 5, 1992, Respondent met with George Cantonis, President of Mega Manufacturing, Inc. (herein Mega) in order to obtain Cantonis' permission to make a sales presentation to Mega's employees. Cantonis granted Respondent permission to make a sales presentation to Mega's employees. On March 5, 1992, Respondent made a sales presentation to Mega's employees. The purpose of said presentation was to enroll the employees of Mega in a "savings plan" offered by USSTM. The presentation lasted approximately 15- 30 minutes. Employees were told that the plan, as presented, incorporated an insurance savings plan which had a "liquid" component as well as a long term savings component. At no time during this sales presentation did Respondent explain to employees of Mega that he was a licensed life insurance agent. During the course of his presentation, Respondent described USSTM's product variously as an "insurance saving plan", as an "investment in insurance companies" and as a "retirement savings plan". At no time during the presentation did Respondent specifically state that he was selling life insurance. At the conclusion of the presentation, Respondent enrolled all interested employees in USSTM's plan. During the enrollment procedure, Respondent told the employees to complete portions of at least three documents which included a form entitled "Employee History", a Wisconsin's life insurance application, and an employee payroll deduction authorization. Cantonis enrolled through the above procedure and signed a blank Wisconsin National Life Insurance application. Subsequent to the group sales presentation, Respondent made a similar presentation to Tina Netherton, Mega's office manager, who was working in the office and answering the telephone. At the conclusion of the presentation to Netherton, she enrolled in the plan and also signed a blank Wisconsin National Life Insurance application pursuant to instructions from Respondent. Both Netherton and Cantonis believed that the "savings plan" consisted of both a short term "liquid cash element and a long term investment". Neither were aware that they had purchased life insurance. Both Netherton and Cantonis had, in their opinion, adequate life insurance at the time of Respondent's sales presentation, and would not have purchased additional life insurance if they had been told (by Respondent) that they were purchasing life insurance. Both Netherton and Cantonis executed beneficiary designations on their belief that such was needed so that disbursements, if any, could be made to their designee in the event of their death. Approximately three weeks after enrollment, Netherton and Cantonis received brochures from USSTM which acknowledged their enrollment and detailed the benefits of the "savings plan". The brochure advised that Netherton and Cantonis had enrolled in an insurance "savings plan" and failed to state that they had purchased life insurance. Cantonis and Netherton attempted to withdraw funds from the liquid portion of the plan and were unable to do so. Four to five months after their enrollment, Cantonis and Netherton received life insurance policies from Wisconsin. Pursuant to the insurance applications, Cantonis and Netherton were issued Wisconsin life insurance policy numbers L00566485 and L00566483, respectively. Cantonis and Netherton maintained their Wisconsin policies in order to realize some gain from their overall loss in dealing with Respondent and USSTM. At the time that Respondent made his presentation to Mega's employees and officials, he had never before made sales presentations in order to enroll employees in plans offered by USSTM. Respondent's general manager, Vincent Radcliff, was the agent of record of Wisconsin. The insurance application and policies issued to Cantonis and Netherton were signed by an agent other than Respondent. Respondent's supervisor, Vincent A. Radcliff, III, was disciplined by Petitioner and Respondent cooperated with the Petitioner in investigating the complaint allegations filed against his supervisor, Radcliff. Respondent was first licensed by Petitioner on November 15, 1989. Respondent has not been the subject of any prior disciplinary actions by Petitioner.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Petitioner enter a Final Order suspending Respondent's life and health insurance licenses for a period of three (3) months. It is further RECOMMENDED that Petitioner order that Respondent engage in continuing education respecting the manner and means of soliciting on behalf of insurance companies, and to the extent that he completes the required courses within an acceptable time frame, that the suspension be suspended pending the outcome of Respondent's satisfactory completion of such continuing education courses. 1/ RECOMMENDED this 1st day of July, 1994, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of July, 1994.
The Issue The issue in this proceeding is whether Respondent’s certificate of authority to transact life insurance in the State of Florida should be revoked, suspended, or otherwise disciplined.
Findings Of Fact Respondent, Liberty National Life Insurance Company, is a foreign insurer licensed to transact life insurance in Florida under a Certificate of Authority issued by the state. The application for life insurance used by LNL is form A-250. This application is used for all regular and batch life insurance applications, except Career Life Plus and Group Term life insurance policies, which are not at issue in this proceeding. Form A-251 is the application used to apply for life insurance riders on an applicant's spouse or children. Both applications are used in multiple states and are intended to elicit information that may or may not be relevant or used in the state relevant to any given applicant. For instance, Question 16 in form A-250 asks, "Is the Proposed Insured a Citizen of the United States? (If "No" complete and attach A- 282-2.") Form A-282-2 is titled "Residency Questionnaire." The form elicits information related to whether an applicant is a legal resident of the United States, whether the applicant intends to remain a resident of the United States and what citizenship the applicant holds. Like the applications, the residency form is used in multiple states and is intended to elicit information that may or may not be relevant or used in the state relevant to any given applicant. For instance, the questionnaire asks whether the proposed insured has traveled outside the United States during the last 12 months. The applicant's response to the travel question was not intended to be used for underwriting purposes in Florida after it enacted a law prohibiting the denial of insurance based solely on an applicant's past travel or future travel plans. See § 626.9541(1)(dd)1., Fla. Stat. Importantly, Florida does not prohibit any insurer from asking about such travel and such inquiry does not violate Florida law. Each application, along with any required or additional information, is submitted by an agent to LNL's centralized underwriting department and is assigned to an individual underwriter. The underwriter reviews the application for completeness. If the application is not complete or if there are questions about the application, the underwriter either requests the information from the agent or requests a telephone interview be done. Activity on the application is entered into LNL's electronic processing system which maintains the electronic application file. How much detail support information is entered on any given application file varies by underwriter. None of the underwriters who made entries in the application files at issue in here testified in this proceeding. LNL's policy is to process most applications within two weeks, with some few applications taking up to 30 days. Pending applications are maintained on a pending applications list which is reviewed by upper management for compliance with LNL's processing policy. LNL’s underwriting guidelines for persons of foreign national origin residing in the United States were instituted in 2003 or 2004 over concerns the company had regarding the reliability of documents from certain countries and the potential for fraud based on such unreliable documents. Towards that end, LNL categorized foreign nations into four groups: “A,” “B,” “C,” and “D.” The basis for the categorization was the long-time, actuarially-recognized standard in the life insurance industry and the re-insurance industry that mortality risks are severe in “D” countries, somewhat severe in “C” countries, and moderate in “A” and “B” countries. In part, these mortality risks are derived based on the political stability of a country, crime rates, law enforcement, and access to good quality medical care and treatment in a given country. In general, C and D countries possess one or more of the factors that contribute to severe mortality risks. Additionally, political instability causes the authenticity and availability of birth and death records to be unreliable. These country code classifications are used throughout the life insurance industry. Importantly, these country codes are sustained by mortality statistics generally regarded as reliable by life insurance actuaries, and by the professional opinion of Mr. Himmelberger, the only expert life insurance actuary who testified at final hearing. LNL's underwriting guidelines for foreign nationals or foreign risks were reflected in a memorandum dated July 26, 2004, and sent to all of the company's district managers for dissemination. The memorandum stated as follows: If the proposed insured is from a country classified as A or B you should follow normal underwriting procedures. If a proposed insured is from a country classified as C or D, you must submit the following information. If the proposed insured is a U.S. Citizen: A copy of citizenship documents or A notarized statement verifying that the proposed insured is a citizen and providing the date citizenship was acquired. An IBU (Interview by Underwriter) is required on all cases. If the proposed insured is not a U.S. Citizen: Form A-282-2 . . . is required on all A-250/A-251 or batch applications. Copies of W-2 forms from the last three years are required. The ultimate face amount issued (if any) will be limited to the income for the most recent year. Attach a cover letter indicating the number of consecutive years the proposed insured has been in the United States (subject to rejection if less than 10 years, depending on other information submitted). An IBU . . . is required on all cases. Minor children of non-citizen parents will be underwritten as non-citizens. Applications for $100,000 and above will be reviewed on a case-by-case basis. The information above is required for all cases regardless of face amount. These guidelines were also incorporated into the company’s instruction manual for its agents. The goal of these underwriting guidelines and the use of the country codes are to try to assess the risk of a person who was born outside of the United States permanently returning to their country of origin where, depending on the country, there may be a higher risk of mortality. An applicant’s connection to the United States, as evidenced by steady employment or family, and desire to permanently stay in this country, as evidenced by naturalization or length of legal residency, lowers the actuarial risk underwritten by LNL. The evidence demonstrated that these criteria were actuarially supported. Therefore, applicants who are foreign nationals born in “A” or “B” countries with lower mortality risks, and who legally reside in the United States or are naturalized United States citizens at the time they apply for insurance are underwritten using the same underwriting criteria as applied to United States citizens. The only extra information required is proof of residency or citizenship and a confirming interview by the underwriter (IBU) or by an outside subcontractor through a rapid interview process. Life insurance applications by foreign nationals from “C” or “D” countries who have become naturalized United States citizens at the time they apply for insurance are underwritten using the same underwriting criteria that LNL applied to United States citizens and require the same information as those from “A” or “B” countries. Applicants who are foreign nationals from “C” or “D” countries and who are not naturalized United States citizens, but reside in the United States at the time of application for insurance, are required to provide proof of legal residency for 1 year and annual income for three years. Both of these factors indicate a stronger connection to the United States and desire not to return to live in a country with a higher mortality risk. These applicants are also required to complete a telephone interview to confirm this information. Additionally, applicants from “C” or “D” countries who are legal residents in the United States at the time of application for insurance may be declined for coverage or have the coverage limited to the amount of the applicant’s income. However, whether the application is declined depends on other information (such as employment history and income) that shows a stronger connection to the United States. There is no requirement that the underwriter decline to issue or limit the amount of insurance to such an applicant simply because the person has not resided in the United States continuously for 10 years. Clearly, LNL’s underwriting guidelines do not cause LNL to refuse to issue insurance to applicants from “C” or “D” countries based solely on the applicant’s national origin. Rather, these underwriting rules and guidelines incorporate the political, social and economic climate of a country which leads to instability, crime and poor access to health care and relatively higher or lower risks of mortality. Additionally, these guidelines require the length, nature, and quality of the applicant’s residency in the United States to be considered to determine the strength, quality, and duration of the applicant’s ties to the United States. The additional underwriting information required for such applicants is designed to gather evidence of such matters so that LNL’s underwriters may make informed underwriting judgments about the underwriting risks associated with issuing insurance. These underwriting guidelines are consistent with the actuarial risks posed by higher mortality risks in “C” or “D” countries and the risk that applicants will voluntarily or involuntarily return to his or her country of origin to again take up residence there, and thereby be subjected to the high mortality risks associated with residing in a “C” or “D” country. The evidence demonstrated that these guidelines are consistent with generally accepted actuarial principles of risk classification. The limitation of coverage amount to the applicant’s most recent year’s income is likewise consistent with generally accepted actuarial principles of risk classification and risk management for life insurers. Indeed, there was no expert actuarial evidence offered by OIR to the contrary. Additionally, there was no substantive evidence that demonstrated LNL had an informal policy or practice of refusing to issue life insurance to applicants who are persons of “C” or “D” countries solely because of their national origin. The evidence clearly showed that LNL had issued policies to such applicants given the number of applications reviewed by OIR in its examination of LNL. On July 1, 2006, Florida’s “Freedom to Travel Act,” Section 624.9541(1)(dd), Florida Statutes, became effective. Around July 6, 2006, LNL sent a memorandum to its underwriters informing them of the passage of Florida’s “Freedom to Travel Act” and instructing them to comply with the act. The memorandum also informed the underwriters that they could no longer use an applicant’s past travel or future travel plans to underwrite life insurance on Florida applicants. However, as indicated earlier, the multi-state residency questionnaire asks about an applicant’s past travel. Such information is not used for underwriting purposes by LNL on Florida applications. After notification of Florida’s “Freedom to Travel Act,” it has been LNL’s policy, in respect to applications for life insurance from Florida residents, not to refuse life insurance or limit life insurance coverage based solely on the individual's past lawful foreign travel or future travel plans. Additionally, it should be noted that the term travel had a variety of meanings during the hearing. At times it referred to short-term travel and at other times it referred to an applicant’s more permanent return to a country to reside in that country. From June 23, 2008 through November 14, 2008, OIR conducted a "market conduct" examination of LNL pursuant to Section 624.3161, Florida Statutes. A market conduct examination is a review of the business practices and records of an insurer. The examination is designed to monitor marketing, advertising, policyholder services, underwriting, rating, and claims practices. The LNL examination covered the period from January 1, 2004, through March 31, 2008, and was conducted by Examination Resources, LLC, at the offices of LNL in Birmingham, Alabama. The purpose of the examination was to verify compliance by the company with the Florida Unfair Trade Practices Act, Section 626.9541, Florida Statutes. Examination Resources assembled a team of examiners to conduct the survey. Some members were more experienced than others were in examining records of a company and in performing a market conduct survey. At least two of the team members, Terry Corlett and Todd Fatzinger, were certified financial examiners (CFE), certified insurance examiners (CIE) and fellows of the Life Management Institute (FMLI). One member of the examination team was a certified life underwriter (CLU). During the examination period, LNL’s underwriters reviewed approximately 1,500 life insurance applications per week from Florida, in addition to applications from other states. As a consequence, LNL received 101,461 applications for life insurance. Approximately 40,000 applications out of the total applicant pool were batch processed. Batch-processed applications are standard applications (A-250 and A-251) that are processed through an automated computer system with no further underwriting review and are either approved or disapproved based on information in the application for life insurance. The evidence indicated that some applications from applicants born outside of the United States were batch-processed applications. However, the batch process does not capture any information based on an applicant's country of birth or travel in the electronic file system used by LNL. Since the batch process does not capture country of birth or travel information, these applications were not reviewed by the examiners in the market conduct survey of LNL's records. Because these applications were not reviewed, it is unknown how many of these applicants were born outside of the United States. Out of the approximately remaining 61,000 applications, the team reviewed 7,040 life insurance applications received by LNL during the period of January 1, 2004 through March 31, 2008, that LNL identified as being from an applicant born outside the United States. No one member of the examination team reviewed all of the files. There was some evidence that the criteria or standards of review and interpretation of files by each examiner was not consistent during the exam process. Very few of the examiners conducted any interviews or took testimony from the people who made entries in or handled a particular file that was reviewed. More importantly, the evidence did not demonstrate that the information sought during these rare interviews of unidentified underwriters on an unidentified file had any relevancy to the issues or allegations involved in this case. The only testimony regarding these few and unknown underwriters was that they generally did not recall anything about the file beyond what was in the electronic records of LNL. Such generalizations do not otherwise provide support for the interpretation of data or information in these files by the examiners or the failure to adduce such evidence by going to the human source of the data or information contained in the electronic records of LNL. Moreover, conspicuously absent from the examination process was an expert in statistical analysis and sampling of data from a universal pool of applicants. Given this lack of expertise, there is no evidence which demonstrated that the group of 7,040 applications reviewed by the examiners was a valid sample of all the applications processed during the examination period. Examination Resources submitted their draft report of examination to OIR around mid-November 2008. The report contained a number of statistics and conclusions drawn from those statistics. However, because of the absence of any reliable or valid statistical analysis of the information gathered by the examiners, none of the statistics or conclusions drawn from such statistics that were contained in the draft report is probative of any of the alleged violations contained in the Petitioner's Order in this matter. In short, other than to list the electronic records of LNL that were examined, the market conduct study and report provide no credible or substantive evidence that demonstrates LNL violated any provision of Florida law. The report may have formulated a basis that warranted OIR to investigate LNL further, but it is insufficient on its own to establish by any evidentiary standard that any violations occurred. The evidence did not demonstrate that a draft report from the examiners was finalized by Examination Resources or OIR. However, no further examination of the files of LNL was done after the draft report was completed. Likewise, no further analysis of the data was completed after the submission of the draft report to OIR. Both of these facts indicate that the draft report was the final report. In any event, as a consequence of OIR's perception of the report as a draft, OIR did not furnish a copy of the draft examination to LNL and did not afford LNL the opportunity for an informal conference concerning the draft examination report’s allegations or an opportunity to correct any of the alleged violations referred to in the order. Such a conference would have been required by Section 624.319, Florida Statutes, and Florida Administrative Code Rule 69N-121.066 if the report had been finalized with the Office. Instead, OIR used the report to issue its Order to suspend or revoke LNL's certificate of authority and required LNL to cease and desist from engaging in unfair trade practices as defined in Section 626.9541(1)(g)1., (x)1. and (dd), Florida Statutes, based on 35 counts involving 35 separate applications. Counts 17 (insurance issued to a 34-year-old Haitian- born female), 18 (insurance issued to an 18-year-old Haitian- born male), and 29 through 35 charged that LNL knowingly discriminated "between individuals of the same actuarially supportable class and equal expectation of life,” in violation of Subsection 626.9541(1)(g)1., Florida Statutes. These “actuarially supportable class” charges are addressed as a group. The remainder of the charges involving violations of Subsections 626.9541(1)(x)1. and 626.9541(1)(dd), Florida Statutes, are addressed below per each count. As to the actuarially-supportable class charges, OIR offered no competent substantial evidence defining or establishing what the actuarially supportable class consisted of or who the members of that class were. The only references to the alleged class were unsupported statements by OIR representatives and unqualified witnesses that the actuarial class was the whole world. Moreover, there was no evidence in the record that demonstrated that these members had the same life expectancy. Indeed, the only evidence in the record about the actuarial class was the testimony of Mr. Himmelberger who stated that the alphabetical classifications of countries established actuarial classes for persons born in those countries and that persons born in “C” or “D” countries residing in the United States are not in the same actuarially-supportable class as persons who are United States citizens (including United States citizens born in “C” or “D” countries), or as persons born in “A” or “B” countries residing in the United States. OIR presented no evidence to contradict Mr. Himmelberger's testimony. Even assuming arguendo that Mr. Himmelberger's testimony is not accepted, the fact remains that no other qualified actuarial expert provided this statutorily crucial evidence. Given these facts, OIR has not established that LNL violated Subsection 626.9541(1)(g)1., Florida Statutes, in Counts 17, 18, and portions of Counts 29 through 35 that pertain to Subsection 626.9541(1)(g)1., Florida Statutes, and those counts should be dismissed. COUNT 1 Count 1 of the OIR Order alleged that, in June 2004, LNL refused to issue a $100,000 life insurance policy to a 23- year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for less than 10 years. The unrefuted evidence demonstrated that this applicant was declined insurance because she had no income. LNL’s underwriting rules limited the amount of insurance that could be issued to the prior year’s income. Since she had no income, the application was denied. However, in April 2006, when the applicant filed another application for life insurance and demonstrated that she had income, LNL issued a life insurance policy to her. OIR offered no competent evidence that LNL refused to insure this applicant solely on the basis of her national origin since it had an independent basis for its action based on its underwriting guidelines. As discussed above, these guidelines have several actuarially-sound underlying factors that are not related to the particular national origin of an applicant. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 2 Count 2 of the OIR Order alleged that, in June 2004, that LNL refused on two separate occasions to issue life insurance policies to a 65-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The applicant had originally applied for an $82,000 policy (A005491299) with his wife in April 2004. Later, in June 2004, the applicant applied for a $15,000 policy (A0050974020). At the time of the applications, the applicant had resided in the United States for less than 10 years. The first application required medical tests to be performed prior to approval. These tests included a paramedical examination, EKG, blood profile and urine sample. None of the medical tests were completed and no medical information was supplied prior to the time the underwriting decision to decline the application was made. Similarly, the medical underwriting information was not submitted with the second application. The evidence showed that LNL had a standard underwriting procedure that a second application cannot be processed unless all missing underwriting information required for a previous application is submitted with the second application. If such information is not submitted with the second application, the application is not processed and is closed or cancelled. As indicated, the second application was not submitted with the medical underwriting information required for the first application. Clearly, LNL did not refuse to issue insurance to this applicant solely because of his national origin. Its decision to decline to issue insurance on the first application was based on the lack of required medical information. The second application was not processed because the required medical information was not submitted with the second application. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 3 Count 3 alleged that, in June 2004, LNL refused to issue a $15,000 life insurance policy to a 23-year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for less than 10 years. No proof of income was submitted with the application. Vague underwriting notes in the file indicate the underwriter referred to this application as a “Haiti case.” However, the underwriter did not testify as to what was meant by this reference. Ms. Saxon, the Chief Underwriter for LNL, testified that she interpreted the reference to be the underwriter’s shorthand method of noting that the underwriting guidelines for “C” and “D” countries applied to this application. OIR argues, without evidence, that the quoted phrase means that the underwriter based the decision to decline this application on the applicant’s national origin. Given the vagueness of this phrase, its presence in the file does not support a conclusion that LNL refused to issue insurance to this applicant based solely on national origin. The better evidence demonstrated that this applicant was declined insurance on her application because she had not resided in the United States for 10 consecutive years, and had provided no proof of income at the time the underwriting decision was made. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 4 Count 4 charged that, in May 2004, LNL refused to issue a $21,000 life insurance policy to a 32-year-old Haitian- born female who was residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for less than 10 years and was a homemaker. The application file reflected the application was declined because the applicant failed to meet LNL underwriting rules after review by LNL’s legal department. No further explanation is contained in the file regarding the reason the application was declined. However, the evidence demonstrated that this applicant had also applied for a “critical illness policy” at the same time she applied for the $21,000 life insurance policy. The application was batch processed and the “critical illness policy” was issued to the applicant, indicating national origin was not a consideration for LNL. On the other hand, OIR, who has the burden of proof on this issue, offered no competent or convincing evidence that LNL refused to insure this applicant solely because of national origin. To conclude that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, from the lack of information in the file is pure conjecture and inappropriate especially given that this file was underwritten in 2004. Given these facts and the lack of convincing evidence, OIR failed to establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 5 Count 5 in the OIR Order alleged that, in May 2004, LNL refused to issue a $50,000 life insurance policy to a 27- year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for over 10 years, but had recently started her own business. The uncontradicted evidence demonstrated that this application was declined because proof of recent income was not supplied at the time of the underwriting decision. The applicant had supplied an affidavit from her former employer showing her income for 2002 and 2003. However, there was no information regarding her income since she had started her own business, leaving her ability to pay the premium in doubt. Again, OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 6 Count 6 charged that, in May 2004, LNL refused to issue a $20,000 life insurance policy to a 63-year-old Haitian- born male who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for more than 10 years and was retired. The unrefuted evidence showed that the application was cancelled and not processed by LNL because there was no documentation by the immigration authorities of the applicant’s legal residency status in the United States. Similarly, no proof of income was provided by the applicant. There was a notation in the file which read, “non[-]receipt of W2.” However, this phrase does not demonstrate that the applicant did not receive a W-2 or some other employer proof of retirement income or that LNL had any knowledge that the applicant was unable to provide such a document. In fact, in July 2004, the applicant submitted a second application for which a policy of life insurance was issued. Clearly, LNL did not refuse to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 7 Count 7 alleged that, in April 2004, LNL refused to issue a $25,000 life insurance policy to an 18-year-old Haitian- born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The applicant had been in the United States for at least 12 months and was a student. A notation in the file indicated that the agent was requested to ask the applicant to provide information on how long she had been in the United States. However, for unknown reasons, the requested information was not provided. As a consequence, the file was not processed and was cancelled for incompleteness. Such cancellation does not demonstrate that LNL refused to issue insurance but that the processing of the application was stopped due to incomplete information. Handwritten notes in the file indicated that the application would be declined if the applicant had not been in the United States for more than 10 years. However, the note writer did not testify at the hearing. This handwritten note does not support the conclusion that LNL based its decision solely on the basis of the applicant’s national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 8 Count 8 of the OIR Order alleged that, in May 2004, LNL refused to issue a $50,000 life insurance policy to a 39- year-old Haitian-born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that this application was the applicant’s second application (A005491240). At the top of the computer information screen that summarizes actions taken on this file, there was a handwritten note, “Haiti.” At the bottom of this screen, by the initialing dates on the screen, there was a handwritten note “cancel.” There was no evidence that the two notes are associated with each other or were entered at the same time. Whoever wrote the notes did not testify at the hearing regarding these, otherwise vague, notes. The uncontradicted evidence demonstrated that the first application (A005458685), dated February 14, 2004, was not processed because the applicant did not provide proof of income and other underwriting information. The application was cancelled on March 15, 2004. Likewise, the second application, dated April 18, 2004, was not processed and was canceled for failing to submit an acceptable proof of income that was required on the first application. In this case, the applicant provided with the second application an affidavit from her employer that she had been employed since December 2003 and was paid $7.00 an hour. However, the employer’s affidavit was considered insufficient as proof of income because it did not show how many hours she worked. Such information was critical in calculating income for this applicant and the application was cancelled. Such cancellations do not constitute a refusal to insure by LNL, but only reflect that the application cannot be processed without the required or requested information. Later, in August 2005, the applicant applied for life insurance a third time (A006467227) and was issued a policy of insurance. Clearly, LNL did not refuse to issue insurance to this applicant solely because of national origin since the applicant’s national origin had not changed and they later issued such insurance. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 9 Count 9 of the OIR Order alleged that, in May 2004, LNL refused to issue a life insurance policy to a 52-year-old Haitian-born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that processing of this application was canceled because a telephonic interview to explore unclear and questionable written information submitted by the applicant was not completed and because proof of income was not submitted. Indeed, the file reflected that the telephone number for the applicant was disconnected when the telephone interview was attempted. The file also reflected that the person paying the premium did not have the same last name as the applicant which raised legitimate questions regarding the payor’s interest in the policy and the relationship between the payor and the applicant. It was appropriate for LNL to seek to clarify these discrepancies. The applicant's file, also, contained an “Underwriter Support Summary” computer screen. The screen contained handwritten notes stating, “Haiti, Cancel-unemployed, non-US citizen.” Again, the writer of these vague notes did not testify at the hearing and the notes do not support a conclusion that LNL refused to issue insurance to this applicant based solely on her national origin. As indicated, necessary underwriting information was not submitted by the applicant and processing of the application was stopped, and the application was cancelled. OIR offered no competent evidence that LNL either refused to insure this applicant or that such alleged refusal was solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 10 Count 10 of the OIR Order alleged that, in March 2004, LNL refused to issue a $50,000 life insurance policy to a 34- year-old Haitian-born male who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that the applicant had lived in this country for more than 10 years, was a permanent resident and was a self- employed taxi driver. The application file reflected that processing of this application was cancelled because additional information that the agent was requested to obtain was not returned. Additionally, no proof of income was submitted by the applicant. The file was not clear whether the additional information being sought was related to proof of income or medical issues. Later, blood work information was received that indicated this applicant had some medical risks that were outside of LNL’s underwriting guidelines. OIR offered no competent evidence that LNL either refused to insure this applicant or that such alleged refusal was solely because of national origin. Given these facts and the general lack of evidence in this applicant’s file, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 11 Count 11 of the OIR Order charged that, in May 2004, LNL refused to issue a $20,000 life insurance policy to a 61- year-old Haitian-born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The applicant had resided in the United States for more than 10 years and had high blood pressure. She had applied for United States citizenship, but was unemployed. Her sister was listed as the person paying the premiums on the policy. The file also reflected that the applicant was single and that she was supported by her husband. This inconsistent information legitimately needed to be clarified in order for the underwriting process to continue. The underwriter requested an IBU. The request for the IBU was sent to a company that performs such interviews for LNL. The application file does not reflect whether the company attempted to perform the interview. However, information from that request was never submitted to LNL and processing of the applicant’s file was stopped, resulting in the cancellation of the application. As with other cancellations, terminating the processing of a file and cancellation of the application for lack of legitimate underwriting information was not a refusal by LNL to insure the applicant. The process simply could not move forward without the requested information. OIR offered no competent evidence that LNL either refused to insure this applicant or that such alleged refusal was solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 12 Count 12 alleged that, in February 2004, LNL refused to issue a $50,000 life insurance policy to a 47-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. However, the evidence demonstrated that this application was declined due to the applicant’s announced foreign travel plans. At the time of this application, Florida’s “Freedom to Travel Act,” Subsection 626.9541(1)(dd), Florida Statutes, had not been passed and would not be enacted until July 1, 2006, some two years later. The Act has no retroactive effect. Therefore, declining to insure a Florida applicant for such plans before the effective date of the “Freedom to Travel Act” was not prohibited at the time of the underwriting action on this application. OIR argues that the absence of a specific notation in the file that it was declined based on foreign travel plans demonstrated that LNL refused to issue insurance based solely on national origin. However, this argument ignores OIR’s burden of proof in this case. The lack of such notation demonstrates nothing and does not provide either a clear or convincing basis to draw any inferences from the absence of such notations. Additionally, such an inference ignores the unrefuted testimony in this case that the application was declined based on the applicant’s foreign travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 13 Count 13 alleged that, in January 2004, LNL refused to issue a $100,000 life insurance policy to a 45-year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. Information in the file reflected that the applicant was a United States citizen. The evidence demonstrated that this application was declined because the applicant did not furnish proof of her United States citizenship. Additionally, the required telephonic interview was not completed. Again, OIR argues that the absence of specific notations in the file that the application was cancelled based on the missing information demonstrates that LNL refused to issue insurance based solely on national origin. As noted above, this argument ignores OIR’s burden of proof in this case. The lack of such notations does not provide a clear or convincing basis to draw any inferences to support OIR’s position. Additionally, OIR’s argument ignores the unrefuted testimony in this case that the application was cancelled based on the fact that required information was not supplied. Finally, the evidence demonstrated that this application was cancelled, not declined. As with other cancelled applications, such cancellations do not constitute a refusal to insure and OIR offered no other competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 14 Count 14 alleged that, in January 2004, LNL refused to issue a $50,000 life insurance policy to a 31-year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had not resided in the United States for more than 10 years. The applicant had also recently had a baby and was unemployed. As a consequence, the applicant’s mother was the person who would be paying the premium on the policy. The evidence demonstrated that LNL declined to issue insurance on this application because the applicant was not employed and had no income. As discussed earlier, LNL’s underwriting rules limit the amount of coverage that may be issued to an amount equal to the applicant’s annual income for the preceding year. Since the applicant reported no income, LNL’s underwriting rules did not permit the issuance of coverage. However, on April 10, 2006, the applicant submitted a second application (A007241169) that met OIR’s underwriting rules and LNL issued insurance to the applicant. Clearly, LNL did not refuse to issue insurance solely based on national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 15 Count 15 alleged that, in February 2004, LNL refused to issue a $25,000 life insurance policy to a 41-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence showed that a telephonic interview was required to be completed under LNL’s underwriting rules. Handwritten notes in the file state, “IBU ordered due to client being Haitian. Canceled-IBU not received.” Again, the writer of these handwritten notes did not testify at the hearing and they do not support a conclusion that LNL refused to issue insurance based on national origin. The evidence did demonstrate that because the telephonic interview was not completed as required, the application could not be processed further and the application was cancelled. Such a cancellation is not a refusal to insure. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. There was no evidence that the IBU request was a ruse by LNL to cover up its alleged desire to refuse insurance based on national origin. Even in some of the Counts contained in this case, the evidence showed that LNL issued insurance to Haitian applicants when they met its underwriting rules. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 16 Count 16 alleged that, in February 2004, LNL refused to issue a $25,000 life insurance policy to a 63-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that processing of this application was canceled because the applicant had not completed a required telephonic underwriting interview. A handwritten notation on the file stated, “Find a way to cancel/decline.” The note was from the person who reviewed pending files that had not been handled within the timeframe established by LNL for life insurance applications. This application had exceeded those timeframes since it had been pending for six weeks. The note was intended to finalize the processing of the file and remove it from the pending files list. There was no evidence that the note demonstrated an intention to refuse to issue insurance based solely on the applicant’s national origin. Moreover, the evidence demonstrated that LNL reinstated a life insurance policy previously issued to this applicant after that policy had lapsed. Clearly, LNL did not refuse to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 19 Count 19 alleged that, in June 2004, LNL refused to issue a $100,000 life insurance policy to a 26-year-old male born in Colombia and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. Colombia was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. A residency questionnaire was also submitted with the application. The questionnaire revealed that the applicant was employed and had an annual income of $40,000. The application also indicated that the applicant was a permanent resident of the United States, but had lived in the United States for less than 10 years. The residency questionnaire reflected that the applicant was unsure of his VISA number and that it had either expired or was about to expire. The applicant hoped to have it reinstated next year. Additionally, the official Immigration and Naturalization Service residency status documentation that was provided with the application showed that the applicant’s residency status had expired. The applicant, therefore, had not submitted the required documentation that he was a current legal resident of the United States. However, because the application was for a $100,000 policy, LNL’s underwriting rules required that the application be submitted to a re-insurance company to insure the risk. Direct insurance companies often utilize re-insurance companies to shift the risk of an insurance application to the re- insurance company. Such companies follow their own underwriting rules to determine whether they will issue insurance on an application. This application was forwarded to one of the re- insurance companies that LNL utilizes for re-insurance. The re- insurance company declined to issue insurance on the application and returned the application to LNL. Thereafter, LNL declined to issue insurance on this application because the documentation submitted with the application showed that the applicant’s legal residency status in the United States had expired and the re- insurance provider utilized by LNL declined to re-insure the applicant. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 20 Count 20 of the OIR Order alleged that, in May 2004, LNL refused to issue a $25,000 life insurance policy to a 20- year-old female born in South Africa and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, South Africa was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The applicant in this case was the daughter of an LNL insurance agent. At the time of the application, she was a full-time student, unemployed and had no income. The evidence showed that LNL’s underwriting rules limited the amount of coverage to an amount equal to the applicant’s annual income for the preceding year. Since the applicant had no income, LNL’s underwriting rules did not permit the issuance of coverage and the policy was declined. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. Count 21 Count 21 of the OIR Order alleged that, in April 2004, LNL refused to issue a $100,000 life insurance policy to a 42- year-old male born in Colombia and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that the applicant had lived in the United States for less than 10 years, but was a resident because he had received political asylum in the United States. Political asylum is a non-permanent status that could result in the resident being returned to his or her country of origin. Political asylum status was considered by LNL’s underwriters to constitute too tenuous a residency status in the United States to warrant undertaking the risk of issuing insurance to an individual who may at any time be returned to residency in his country of origin, with its attendant severe mortality risks. However, because the application was for a $100,000 policy, LNL sent the application to one of the re-insurance companies that it uses for re-insurance. The re-insurance company declined to issue insurance on the application based on the temporary nature of the applicant’s residency status and returned the application to LNL. Thereafter, LNL declined to issue insurance to this applicant because he had resided in the United States for less than 10 years and his residency in the United States was based on political asylum status. OIR offered no evidence to refute LNL’s position on political asylum and offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. Count 22 Count 22 of the OIR Order alleged that, in April 2004, LNL refused to issue a $25,000 life insurance policy to a 17- year-old male born in Ghana and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. Ghana is listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The evidence showed that the applicant had indicated on his application that he had a work visa which permitted him to remain a resident of the United States. However, the applicant, also, indicated he was a full-time high school student. The file also indicated that his sister, who is a contingent beneficiary, paid the initial application amount. On the other hand, the application indicated that the applicant’s fiancée would be the person responsible for payment of the insurance premium. Because of these inconsistencies, a telephonic interview was requested, but, for unknown reasons, was not completed. Because the interview was not completed, LNL declined to issue insurance on this application because the information that would have been supplied in a telephone interview was not provided before the underwriting decision was made. Again, OIR argues that the absence of specific notations in the file that it was cancelled based on missing documentation demonstrates that LNL refused to issue insurance based solely on national origin. This argument ignores OIR’s burden of proof in this case. The lack of such notations does not provide either a clear or convincing basis to draw any inferences regarding the reason for not issuing a policy. Additionally, OIR’s argument ignores the unrefuted testimony in this case that the application was declined based on the lack of information that would have been supplied if the required telephone interview had been completed. Other than its argument, OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 23 Count 23 of the OIR Order alleged that, in August 2004, LNL refused to issue a $100,000 life insurance policy to a 27-year-old male born in Colombia and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence showed that the applicant was a temporary resident based on a grant of political asylum he received in 2000. As with Count 21, LNL sent the application to one of the re-insurance companies that it uses for re-insurance. The re-insurance company declined to issue insurance on the application based on the temporary nature of the applicant’s residency status and returned the application to LNL. Thereafter, LNL declined to issue insurance to this applicant because he had resided in the United States for less than 10 years and his residency in the United States was based on political asylum status. Again, political asylum status is considered by LNL’s underwriters to constitute too tenuous a residency status in the United States to warrant undertaking the risk of issuing insurance to an individual who may at any time be returned to residency in his country of origin, with its attendant severe mortality risks. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 24 Count 24 of the OIR Order alleged that LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 59-year-old male applicant who was born in Guyana and resided in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsection 626.9541(1)(dd)2., Florida Statutes. Guyana was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The unrefuted evidence demonstrated that underwriting review of this application (A007302898) was postponed because the applicant was going to be out of the country on a mission trip to Liberia and could not complete a required paramedical examination requested by the paramedical examination company until his return to the United States. For unknown reasons, the applicant’s agent submitted a new application (A007313656) when the applicant returned from his trip. Medical tests were completed which revealed the applicant had prostate cancer and abnormal blood lab results. The original application was cancelled and the second application was denied based on the medical risk posed by the applicant. Clearly, neither cancellation of the first application nor denial of the second application was based on the applicant's travel. OIR offered no competent evidence that LNL refused to insure this applicant, or limited the amount, extent, or kind of life insurance coverage available to them, based solely on past lawful foreign travel or future lawful travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1. or 2., Florida Statutes, and the Count should be dismissed. COUNT 25 Count 25 of the OIR Order alleged that in January 2007, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 23-year-old male applicant who was born in Palestine and resided in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Palestine was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The evidence demonstrated that the applicant applied for a $100,000 insurance policy. The applicant indicated that he traveled to Palestine every few years. The insurance policy was issued but contained a policy endorsement excluding coverage for foreign travel. The policy was also issued with a rate above what would be normally charged for the type of insurance issued. Clearly, LNL did not refuse to issue insurance based on this applicant’s past travel or future travel plans. However, LNL did limit the insurance issued because of the applicant’s future travel plans when it issued the policy with a foreign travel endorsement. This underwriting decision was made after the effective date of Florida’s “Freedom to Travel Act.” In this case, the application was submitted to one of the re-insurance companies used by LNL. The re-insurance company only agreed to re-insure the application if the policy included a foreign travel exclusion endorsement. LNL’s underwriting department was under the mistaken belief that LNL’s re-insurers were underwriting their risks according to the same Florida “Freedom to Travel Act” restrictions imposed by Florida on direct insurers such as LNL. Since the re-insurer to whom this application was submitted required a foreign travel exclusion endorsement, LNL assumed the exclusion was consistent with Florida travel underwriting requirements, and issued the policy with the foreign travel exclusion endorsement. The mistake was admitted by LNL and seems to be an underwriting error due to the inexperience of LNL’s underwriter’s in regard to the relatively new “Freedom to Travel Act.” There was no evidence that LNL’s decision was willful. However, LNL's decision was a violation of the Act. COUNT 26 Count 26 of the OIR Order alleges that in February 2007, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 44-year-old male applicant who was born in Haiti and was a citizen of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. The applicant had applied for a $150,000 policy and indicated in his telephone interview that he traveled to Haiti one or two times a year. The evidence demonstrated that Ms. Saxon’s underwriting unit processes approximately 1,500 applications from Florida a week, in addition to applications from other states. Ms. Saxon admitted that, when she processed this application, she missed the fact that this application was from Florida and subject to the “Florida Freedom to Travel Act.” She issued an ALX policy for $15,000. An ALX policy limits benefits to a return of premiums should an insurable event occur during the first three years of the policy. There was no evidence that Ms. Saxon willfully violated Florida’s “Freedom to Travel Act,” but made a mistake in processing this application. However, LNL did limit the kind or extent of insurance based solely on this applicant’s travel plans, contrary to the Florida “Freedom to Travel Act.” COUNTS 27 AND 28 Count 27 and 28 of the OIR Order alleges around July or August 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage on two insureds who were married, filed applications at the same time and were born in Haiti based solely on their past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. The applications were submitted to LNL on June 12, 2006, prior to the effective date of the “Freedom to Travel Act.” The decisions to issue the policies were made on July 6, 2006, five days after the Act's effective date on July 1, 2006. However, the policies were made effective retroactively to July 1, 2006, the same day the Act came into effect. The insurance policies were issued at a reduced face amount of $33,000 due to the underwriting rule that limited the amount of a policy to an applicant's annual income. Additionally, and more importantly for these Travel Act charges, the policies were issued with a foreign travel endorsement required. Once the underwriting decisions were made, the applicants' files were sent to the issuance department of LNL for finalization of the paperwork on the policies. This process is the standard process used by LNL for the insurance policies it writes. No one from the issuance department testified at the hearing and the evidence was not clear whether part of the policy had been finalized or placed with the insured. However, on July 20, 2006, the foreign travel policy endorsements for the policies were sent to the branch office. Again, the evidence was not clear what the branch office was to do with these endorsements, but it appears that the expectation was to have the endorsements signed by the applicants and returned to the issuance department. The travel endorsements were not accepted or returned by the applicants and the policies were eventually cancelled by LNL. Again, the evidence was not clear why the endorsements were not returned. Based on these facts, the evidence was clear that LNL limited the kind or extent of insurance based solely on these applicants’ travel plans contrary to the Florida “Freedom to Travel Act.” However, the evidence did not demonstrate that these violations were willful given the timeframes involved in the files. COUNT 29 Count 29 of the OIR Order alleges that in June 2006, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 54-year-old female applicant who was born in Honduras and was residing in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Honduras was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. In this Count, the applicant applied for a $50,000 policy. Her telephone interview reflected that her most recent annual income was $6,000. She, also, indicated that she might travel to Honduras in the future for Christmas. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $6,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risks posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 30 Count 30 of the OIR Order alleges that in August 2006, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 47-year-old male applicant who was born in Haiti and was residing in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. As found earlier, Haiti is listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $50,000 policy. His most recent (2005) tax return reflected an annual income close to $11,000. His telephone interview reflected a current income of 36,000. However, this income was not in line with either of the applicant's 2003 or 2004 tax returns which reflected income closer to the 2005 tax return. Indeed, the evidence indicates that the $36,000 income reported in the telephone interview reflected business income prior to subtracting any business expenses. The applicant also indicated that he had returned to Haiti for a three-month period approximately four years prior to the date of his application to visit his family, but had no travel plans to visit Haiti in the future. The better evidence demonstrated that this policy was issued at a reduced amount of $17,000 based on the best estimate of the most recent annual income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risks posed by a non-citizen applicant who was born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past or future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 31 Count 31 of the OIR Order alleges that in August 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 30-year-old female applicant who was born in Haiti and residing in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. The applicant had applied for a $100,000 policy. Her W-2 statements reflected an annual income of $42,000. She also indicated that she had traveled to Haiti approximately two years prior to the application, but had no future plans to travel. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $42,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 32 Count 32 of the OIR Order alleges that in September 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 60-year-old female applicant who was born in Colombia and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Colombia was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $35,000 policy. The applicant indicated she had an annual income of $25,000. Her most recent W-2 showed income slightly under $24,000. The applicant also indicated that she traveled to Colombia within the 12 months preceding her application and that she traveled there about every 5 years. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $25,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past travel or future travel plans. In fact, the file contains a specific handwritten note from LNL's legal department on a copy of the OIR's official notification regarding the effective date of the Travel Act that indicated the underwriter could not take adverse actions on the application based on the applicant's travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 33 Count 33 of the OIR Order alleges that in September 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 36-year-old female applicant who was born in Thailand and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Thailand was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant applied for a $75,000 policy. Her most recent income tax return reflects income of $40,000. She also indicated that she regularly travels to Thailand for one week about every five years and intends to continue to travel there. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $40,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past travel or future travel plans. As with Count 32, the file contains a specific handwritten note from LNL's legal department on a copy of the OIR's official notification regarding the effective date of the Travel Act. The note indicated that the underwriter could not take adverse actions on the application based on the applicant's travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 34 Count 34 of the OIR Order alleges that in November 2007, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 41-year-old male applicant who was born in India and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. India was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $100,000 policy. His most recent W-2 showed income of slightly more than $12,000. The applicant, also, indicated that he traveled to India every few years and had plans to travel there in the future. The evidence demonstrated that this application was submitted to one of the re-insurance companies used by LNL because the application was for a $100,000 policy. The re- insurance company declined to re-insure the risk based on the travel plans of the applicant and returned the application to LNL. However, LNL recognized that it could not decline the application for the reason the re-insurance company declined the re-insurance. LNL reviewed the policy based on its underwriting guidelines for applicants from "C" or "D" countries. The policy was issued at a reduced amount of $15,000 based on the income of the applicant and rated for a person with diabetes. This reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. Additionally, the rating for diabetes was in line with LNL's underwriting guidelines for medical conditions. There was no competent evidence that either the reduction or rating were related to the applicant's past travel or future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1. or 2., Florida Statutes, and the Count should be dismissed. COUNT 35 Count 35 of the OIR Order alleges that in March 2007, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 34-year-old male applicant who was born in Nepal and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Nepal was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $200,000 policy. His most recent W-2 showed income around $10,000. The telephone interview reflected annual income of about $30,000 since he was self-employed. The applicant, also, indicated that he traveled to Nepal about every two years and had plans to travel there in the future. The evidence demonstrated that this application was submitted to one of the re-insurance companies used by LNL because the application was for over $100,000 policy. The re- insurance company declined to re-insure the risk based on the travel plans of the applicant and returned the application to LNL. Again, LNL recognized that it could not decline the application for the reason the re-insurance company declined the re-insurance. The policy was issued at a reduced amount of $30,000 based on the income of the applicant. This reduction was in compliance with LNL's underwriting rules for the risk posed by a non-citizen applicant who was born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past travel or future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541 (1)(dd)1. or 2., Florida Statutes, and the Count should be dismissed.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that Counts 1 through 24 and 29 through 35 of OIR’s June 3, 2009, Order be dismissed. As to Counts 25, 26, 27, and 28 of OIR’s June 3, 2009, Order it is further RECOMMENDED that OIR enter a Final Order finding four violations of Section 626.9541(1)(dd), Florida Statutes, imposing an administrative fine of $1,000 per violation and ordering Respondent to underwrite the applications of the four affected individuals, and to offer to issue coverage to them from the date the policies were declined in such amount as is consistent with LNL’s underwriting guidelines, in compliance with the underwriting restrictions in Section 626.9541(1)(dd), Florida Statutes. It is further RECOMMENDED that OIR issue a cease and desist order to LNL regarding violations of Section 626.9541, Florida Statutes. DONE AND ENTERED this 9th day of November, 2010, in Tallahassee, Leon County, Florida. S DIANE CLEAVINGER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 9th day of November, 2010. COPIES FURNISHED Amanda Allen, Esquire Elenita Gomez, Esquire Office of Insurance Regulation Larson Building 200 East Gaines Street Tallahassee, Florida 32399 Daniel C. Brown, Esquire Carlton Fields, P.A. Post Office Drawer 190 Tallahassee, Florida 32302-0190 Kevin M. McCarty, Commissioner Office of Insurance Regulation Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0305 Steve Parton, General Counsel Office of Insurance Regulation Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0305
The Issue The issue to be determined is whether Respondent, Gary L. McKinley (Respondent or McKinley), violated sections 626.611(5), (7), (8), (9), or (13); 626.621(2) or (6); 626.9521; 626.9541(1)(e)1.; or 627.4554, Florida Statutes (2007-2010), or Florida Administrative Code Rules 69B-215.210 or 69B-215.230 as alleged in the Administrative Complaint. If it is found that Respondent violated any or all of these provisions as alleged, then it must be determined what penalty should be imposed.
Findings Of Fact At all times relevant to these proceedings, Respondent was licensed as an insurance agent in the State of Florida. Respondent has served as the president, owner, managing member, and agent in charge of McKinley and Associates, LLC, 6622 Southpoint Drive South, Suite 350, Jacksonville, Florida 32216-6188. Respondent has been licensed as a life insurance agent, variable annuity and health agent, variable annuity agent, and a life and health agent, since April of 1988 and at all times relevant to this proceeding. McKinley was at one time registered with the Financial Industry Regulatory Authority (FINRA) as a broker representative with Intervest International Equities Corporation (Intervest) from May 2008 until November 2010, and was an associated person with other entities including The Leaders Group, Inc., from November 2006 through February 2008. Prior to the incidents giving rise to this case, Respondent was the subject of a complaint of misconduct related to the purchase of an annuity. As a result, and without admitting the allegations in that case, he agreed to a 30-day suspension of his FINRA credentials and a fine. Thereafter, he signed agreements with the Office of Financial Regulation (OFR) on March 8, 2007, September 24, 2007, and October 21, 2007, agreeing to strict supervision with respect to the sale of securities. During the period relevant to these proceedings, the brokers who filled the role as supervisor were Bill Beck and David Arnold. Neither gentleman supervised any of Respondent’s insurance responsibilities except with respect to the sale of variable annuities. Mr. McKinley has been appointed as an agent for various insurance companies, including John Hancock Life Insurance Company (Hancock), ING USA Annuity and Life Insurance Company (ING), Pacific Life Insurance Company (Pacific Life), Lincoln National Life Insurance Company (Lincoln), Reliastar Life Insurance Company (Reliastar), Government Personnel Mutual Life Insurance Company (GPM), Aviva Life and Annuity Company (Aviva), Nationwide Life and Annuity Insurance Company (Nationwide), West Coast Life Insurance Company (West Coast), Transamerica Life Insurance Company (Transamerica), and Metropolitan Life Insurance Company (Metlife). The Vaughn Family Merie Vaughn is a widow with two married sons and five grandchildren. She was born November 18, 1934, and is currently 81 years old. Mrs. Vaughn grew up in and lived in Jackson County, Florida, where she met and married her husband, Rufus Vaughn. She graduated from high school in Jackson County, took some post-secondary business courses, and worked in a variety of places while Mr. Vaughn attended college. Mr. Vaughn worked in the banking industry, and by his retirement had risen to the position of bank president of the Regions Bank in Marianna, Florida. During Mr. Vaughn’s banking career, Mrs. Vaughn sometimes worked as a teller at various banks that he managed. Mr. Vaughn retired in the ‘90s and died in 1997. Mr. Vaughn was a financially-savvy gentleman and believed in saving. During his lifetime, he and Mrs. Vaughn set up several trusts for the management of the funds they had accumulated during their life together. At the time of his death, there was a family trust and a marital trust, as well as an IRA. The trusts were administered by Regions Bank out of Birmingham, Alabama. At the time of Rufus Vaughn’s death in 1997, Ms. Vaughn’s assets were worth approximately $2 million. They were heavily invested in bank stocks. Mrs. Vaughn has two sons, David and Terry. David is approximately ten years older than Terry, is married to Yvette (Lori) Day, and they have four children: Avery, Carly, Chloe, and Dawson, who are 25, 22, 14, and 9 years old, respectively. David and his family live in the Jacksonville area. Terry Vaughn is married to Stephanie Vaughn, and they have one son, Connor, born February 1, 2008. The family lives in Tallahassee, Florida. Toward the end of 2008, Connor was diagnosed with mild autism. Terry has a congenital heart condition that may require valve replacement in the future. In approximately October 2001, Ms. Vaughn moved from Marianna to the Jacksonville area because it was easier for her to receive treatment at Mayo Clinic for an ongoing health problem. Her funds, however, remained with Regions Bank in Birmingham, which served as trustee for the trusts in effect at that time. By 2007, approximately 10 years after her husband’s death, Mrs. Vaughn’s assets had grown to between $7 million and $8 million. In addition to the trusts and an IRA, Mrs. Vaughn’s holdings included a lake-side home in Jackson County, 135 acres of undeveloped land, her home in the Jacksonville area, a car, and a boat. Mrs. Vaughn monitored her holdings on a computer software system purchased for her by one of her sons. At some time in 2007, Mrs. Vaughn became dissatisfied with the trustee at Regions Bank, because she wanted to buy a new car and he would not permit her to withdraw enough funds to do so. In addition, having the trusts handled in Birmingham while she was living in the Jacksonville area was cumbersome for her. She decided that moving the trusts to somewhere closer to her made sense. Around this time, Mrs. Vaughn’s son David introduced her to Respondent. David had met McKinley through his daughter Avery’s soccer team, for which McKinley was a coach. David had talked with McKinley about rolling over some IRAs after an employment change, and had purchased two annuities from him as a result. David met John Crawford, a well-respected, board- certified, estate planning attorney who worked with the law firm Marks Gray. The parties stipulated that Mr. Crawford is a well- respected expert in the field who works with one of Jacksonville’s pre-eminent and well established law firms. Mrs. Vaughn first met with both McKinley and John Crawford in approximately May of 2007. There were a series of meetings with Mrs. Vaughn beginning in May or June 2007, through the end of Mr. McKinley’s relationship with her in October 2010.3/ These meetings were, according to Mrs. Vaughn, generally 30 to 40 minutes long. Among the initial suggestions made to Mrs. Vaughn by Mr. McKinley, with the concurrence of investment planner Bill Beck and attorney John Crawford, was that Mrs. Vaughn diversify her investments. At the time of their initial meetings, Mrs. Vaughn was almost exclusively invested in banking stocks. Mrs. Vaughn followed this advice, which was timely, given the downturn in the stock market and damage to the banking industry that occurred the following year. With each meeting Mr. McKinley prepared an agenda for discussion purposes that he shared with Mrs. Vaughn or whoever attended the meeting. The handwritten notes on the agendas admitted into evidence have been disregarded, as no evidence was presented to demonstrate who made the notations and whether they were made in preparation of the meeting, during the meeting, or in an effort to summarize what was actually discussed. While Mrs. Vaughn did not remember some of the specific details reflected on the meeting agendas, she acknowledged that McKinley discussed in detail many of the specific items that were referenced in the agendas. Moreover, she acknowledged that there was ample opportunity to ask questions about any item mentioned on an agenda that was not initially covered. The focus of many of these meetings, especially the early ones, was creating an estate plan for Mrs. Vaughn that would meet her stated goals: to provide for herself during her lifetime; to provide for her children and grandchildren, and possibly future generations; and to reduce any estate taxes that might be due at her passing. Mr. Crawford’s role in these early meetings was as Mrs. Vaughn’s attorney. As is discussed in more detail below, Mr. McKinley, John Crawford, and Mrs. Vaughn agreed to an investment and estate planning strategy that involved the creation of several Irrevocable Life Insurance Trusts (ILITs), with John Crawford acting as trustee for them. Mr. McKinley assisted with the purchase of life insurance policies on the lives of Mrs. Vaughn, David Vaughn and Yvette Day, Terry and Stephanie Vaughn, and Avery, Carly, Chloe, and Dawson Vaughn. An educational trust fund was also created, as well as a special needs trust for the benefit of Connor Vaughn. Over the course of 2007 through 2010, a number of life insurance policies were purchased, and some of the policies originally purchased were either surrendered or allowed to lapse as other policies were purchased to replace them. At some point late in 2010, Mrs. Vaughn became dissatisfied with the amount of funds being used to purchase life insurance, and she terminated Mr. McKinley’s services. She voiced some of her concerns to David Arnold, who advised her to get an attorney.4/ She has since directed that several of the policies that were in place be terminated, and has filed a civil suit against Mr. McKinley. It is the propriety of the creation of the insurance trusts and the purchase of the life insurance policies contained in those trusts that gives rise to these disciplinary proceedings. Factors to Consider with the Purchase of Life Insurance Generally, the purchase of life insurance requires consideration of several factors, including but not limited to the purchaser’s financial goals, insurability, capacity, and the sustainability of the planned purchase. Life insurance can be used for a variety of purposes, including the traditional goal of providing for one’s family in the event of the one’s death. In addition, life insurance can be used to provide a source for the payment of estate taxes, to create capital and to create liquidity for one’s estate. For purposes of both estate planning and the purchase of insurance in general, it is imperative that all professionals in the process consider which of these uses are consistent with the client’s goals. Here, as stated above, Mrs. Vaughn’s goals were to provide for herself during her lifetime; to provide for her children and grandchildren, and perhaps future generations; and to reduce any estate taxes that might be due at her passing. In 2007, when Mrs. Vaughn began meeting with Gary McKinley and John Crawford, the exemption for estate taxes was $2 million, leaving approximately $5 million of her assets subject to a 45 percent tax rate, which would result in a tax bill estimated at anywhere from $1.8 to $2.25 million upon her death. There have been some dramatic changes in the tax law from 2007 to 2015: in 2011, Congress increased the estate tax exemption to $5 million, but the increase was originally only for two years, when it was scheduled to sunset. As of 2015, the exemption is $5,430,000, and indexed for inflation. However, at the time of most of the events in this case, the exemption remained at $2 million. Accordingly, during the time at issue in this proceeding, reduction of estate taxes for Mrs. Vaughn was an acceptable, realistic goal, in addition to the goals of providing for herself and her family. The insurability of the proposed insured must also be considered. There are many factors that can affect a person’s insurability, such as one’s age; health; habits, such as smoking or alcohol use; and lifestyle or potentially dangerous hobbies, such as skydiving, international travel, reckless driving, or other activities that increase the risk of death or injury. Questions about one’s health history and lifestyle are included on insurance applications, and usually a medical exam, including blood work, is required by underwriting. The questions regarding one’s health can be pretty extensive, and most insurance companies will not issue a policy without a physical given by a physician or a paramedic. There are some instances where an insurance company will insure a person with health problems or a riskier lifestyle, but the policy will be “rated,” meaning that the premium will be higher than the standard premium for the same coverage. With respect to some of the policies in this case, rating is reflected as, for example, 1.75 while others reflect the same rating as 175 percent. Both indicate that the premium would be 1.75 times the standard premium for the same coverage. In this case, two of the insureds had issues that caused a higher rating with respect to insurance premiums: Merie Vaughn was in her early 70s when she started meeting with McKinley and purchasing life insurance. She also had some health conditions, such as high cholesterol and blood sugar issues that caused some of her policies to be rated. Similarly, as noted above, Terry Vaughn has a congenital heart condition that resulted in higher-rated policies. Also to be considered is the insured’s capacity to buy the proposed insurance: in other words, how much insurance can the insured afford to purchase? According to Mike Saunders, while each carrier has different rules, most insurance companies will insure someone for 20 times the person’s income, or up to the person’s net worth. If a policy is a replacement policy, that can expand the person’s capacity. Insurance companies will not generally issue life insurance for more than they think is financially reasonable, unless there are special circumstances that are disclosed. Using Mr. Saunders’ numbers, Mrs. Vaughn’s capacity in terms of coverage would have been approximately $6-7 million. Mr. Saunders did not believe that Mrs. Vaughn was over-insured, and saw no indication that any carrier considering a policy application ever indicated that she was over-insured. Finally, an important consideration is whether the person seeking to purchase life insurance can realistically afford the premiums. Common sense dictates that one should only consider buying something that they can continue to afford to pay. There are allegations in the Administrative Complaint contending that McKinley’s purpose in purchasing so many life insurance policies was to waste Mrs. Vaughn’s estate and earn more commissions for himself. However, it does not appear, from the evidence presented, that it was the purchase of life insurance that caused the wasting of Mrs. Vaughn’s estate. Count I: Creation of the ILITs After numerous discussions over the course of several months with Mr. McKinley, John Crawford, and Tim McFarland, an estate planning attorney with John Hancock, Mrs. Vaughn agreed to the proposed strategy of creating a series of ILITs. An ILIT is an accepted estate planning strategy used to shield income from creditors and to reduce estate taxes upon a client’s passing. It is an irrevocable trust designed to hold life insurance policies, and is a common strategy used with the idea of removing the death benefit of an insurance policy from someone’s taxable estate. The ILIT must be set up so that the settlor has no incidents of ownership over the trust, or the proceeds will not be removed from the estate. ILITs are a commonly used and entirely appropriate vehicle in an estate plan in order to shift the client’s wealth from what the client owns to irrevocable trusts for the benefit of the settlor’s family. They are a management vehicle for wealth that protects that wealth from creditors, and allows assets to pass from the settlor to the trust, outside the estate, straight to the beneficiaries without being subject to estate tax. For a client with assets such as Mrs. Vaughn, the use of ILITs was an appropriate and beneficial estate planning tool. An essential element of an ILIT is the removal of the incidents of ownership from the settlor to the trustee. With respect to each of the ILITs discussed below, Merie Vaughn agreed to appoint John Crawford as the trustee. What this meant in practical terms, is that while Merie Vaughn funded each of the ILITs by paying the premiums for the life insurance policies purchased for the ILITs out of her assets (or those of the trusts for which she was the beneficiary), she relinquished ownership and control of the trust (and its contents) to John Crawford, as the trustee. Moreover, as trustee, John Crawford was considered the owner of the life insurance policies in each ILIT that was created, regardless of whose life was insured. As trustee, it was his responsibility to make the decisions regarding the purchase of insurance policies, and the payment of the premiums on those policies. Before the creation of the ILITs, McKinley showed Merie Vaughn multiple estate planning diagrams to illustrate the overall plan. He also made Mr. Crawford available for any questions she might have. When asked, Merie Vaughn acknowledged that she had multiple opportunities to ask questions, and that did not believe that McKinley was trying to hide anything from her. As a result of the estate planning strategy presented to Merie Vaughn, with which she agreed, the Rufus C. Vaughn Revocable Trust and the Merie M. Vaughn Revocable Trust from Birmingham, with Regions Bank as the trustee, were moved to Jacksonville, and John Crawford was appointed as the successor trustee. In addition, several ILITs were created between September 2007 and March 2010, also naming John Crawford as trustee. Mr. Crawford explained the various trust documents to Merie Vaughn during this process. The trusts created for Merie Vaughn’s estate plan are as follows: the Merie M. Vaughn Irrevocable Insurance Trust, executed September 25, 2007; the Merie Vaughn Retained Annuity Trust, executed October 23, 2007; the David C. Vaughn Irrevocable Insurance Trust, executed October 31, 2007; the Terry R. Vaughn Irrevocable Insurance Trust, executed October 20, 2007; the Stephanie Eller Vaughn Irrevocable Insurance Trust, executed May 21, 2009; the Yvette L. Day Irrevocable Insurance Trust, executed April 18, 2009; the Merie M. Vaughn Trust F/B/O Connor E. Vaughn, executed March 30, 2010; and the Vaughn Family Education Trust, executed March 30, 2010. With the exception of the Merie Vaughn Retained Annuity Trust, for which Merie Vaughn is the trustee, all of the other trusts, i.e., all of the ILITs, name John Crawford as trustee. With respect to each ILIT, the following provision, or one substantially similar to the following provision, is found at Article II, Section 2, of the trusts: I anticipate, but do not require, that the Trustees will purchase one or more policies of insurance on my life with any cash amount contributed to this trust, and I authorize the Trustees to so apply for insurance on my life (or on the life of anyone else other than a Trustee), in amounts and under terms that the Trustees, in their sole discretion, deem advisable and proper. All incidents of ownership in and to all insurance policies transferred to or purchased by the Trustees shall be vested in the Trustees, and the insured under any such policy shall not participate in any right or benefit respecting such policies or any other right under this trust, including a power of withdrawal hereunder, either individually, as guardian, custodian, trustee or in any other capacity.[5/] Likewise, all of the ILITs contained a provision at Article II, Section 1, providing, I, the undersigned Grantor, have this day absolutely and irrevocably transferred, assigned and delivered to the Trustees, and to their successors and assigns as Trustees hereunder (all being hereinafter referred to as the “Trustees”), in trust, certain policies of insurance as set forth in a receipt signed by the Trustees. Those policies, as well as any other cash or property that may be received by the Trustees from me or any other source, shall be administered by the Trustees under this agreement. Stephanie Vaughn and Yvette Day did not testify at hearing. Gary McKinley and John Crawford also did not testify. Both David and Terry Vaughn testified that they fully understood the terms of the trust agreements. Merie Vaughn testified that she did not understand the effect of the trust, but she acknowledged that she had ample opportunity to ask questions of both McKinley, and of John Crawford, the attorney she retained. She also acknowledged that she never told John Crawford that she did not understand the ILITs, and while McKinley offered to take as much time as she needed to review the estate plan, including the ILITs, with her, she did not take advantage of his offer. Count I of the Administrative Complaint, at paragraph 29, alleges that “[y]ou, Gary L. McKinley, completed a new account form on behalf of Mrs. Vaughn for the Leaders Group. On that form, you listed Mrs. Vaughn as being an experienced investor, her net worth as $8 million, her liquid net worth as $3 million and her annual income as $250,000. You knew or should have known that these representations were false.” While the investment application was shown to Mrs. Vaughn at hearing, she did not testify regarding the completion of the form, and did not identify who was responsible for the estimation of her net worth. There is simply no evidence as to who completed the form. Moreover, the estimation of her assets at $8 million, considering both her securities and her real property, is a reasonable estimate. The record does not include evidence as to what amount of her income is considered liquid.6/ However, Mrs. Vaughn testified that at the beginning of this process with Gary McKinley, she decided to take a monthly withdrawal of $12,500 to meet her expenses. She also received a minimum distribution on her IRA account, according to David Arnold, of approximately $80,000 a year. A monthly withdrawal of $12,500, plus her Social Security benefit of $1,204 monthly, and the minimum distribution provides annual income along the lines listed in the application. Ironically, there was similar information on a form David Arnold had Mrs. Vaughn complete. He testified that he did not ask her where the liquid assets were, he simply had Mrs. Vaughn complete the form. The more persuasive and compelling evidence presented did not establish that the trusts established as a part of Mrs. Vaughn’s estate plan, and the resultant sales of life insurance policies, were beyond Mrs. Vaughn’s estate planning needs. Likewise, the evidence did not demonstrate that the life insurance policies were not in her best interests or the best interests of her family members. The evidence also did not demonstrate that the insurance policies were sold for the sole purpose of obtaining fees and commissions. Contrary to the allegations in the Administrative Complaint, the evidence did not demonstrate that McKinley engaged in willful misrepresentations or deceptive acts and practices. In fact, Mrs. Vaughn testified that she did not believe that McKinley was trying to hide anything from her, and consistently offered to spend more time if necessary to explain anything she did not understand. The Administrative Complaint also alleges at paragraph 33 that McKinley wrote a total of 10 life insurance policies on Mrs. Vaughn with death benefits totaling $10,111,052 and premiums totaling $467,024.97. What the Administrative Complaint omits is that some of these policies replaced other policies, resulting in lower overall premium costs to Mrs. Vaughn at higher benefits. The annual cost of the premiums on the life of Mrs. Vaughn was significantly lower than that alleged in the Administrative Complaint. Mike Saunders, the only person represented as an expert in the practice of selling life insurance,7/ testified credibly that replacing policies with more “efficient” policies is an acceptable practice that benefits the client. Count II: ING Policies on the Life of Merie Vaughn Count II of the Administrative Complaint deals with the purchase of ING policy number 1624559 (ING 59). Mrs. Vaughn applied for this policy on August 17, 2007, and it was issued on or about November 7, 2007, with a death benefit of $375,323 and an annual premium of $20,000. The owner of the policy is the Merie Vaughn ILIT. This policy is one of the first policies purchased as part of the estate plan, and contains a signed acknowledgment that the premium is higher than usual, as the insured is rated at 1.75. There is a policy delivery receipt signed by John Crawford dated November 20, 2007, as well as an amendment changing the death benefit to $452,000. However, Respondent is correct that the policy contained in evidence appears to be incomplete: for example, the revised illustration delivered with the policy indicates that it is 16 pages long, but only six of those pages are included. While the Department alleges in the Administrative Complaint, and asserts in its PRO, that Gary McKinley earned a commission of $14,997.80 for the sale of ING 59, it points to no exhibit or testimony to support this proposed finding. Even assuming that this amount is correct, the credible, competent evidence at hearing established that the commissions received by McKinley were not improper. Competent, credible evidence at hearing established that the ING 59 policy was a good policy from a good company. Petitioner asserts that, had Mrs. Vaughn lived to her life expectancy of approximately 14 years, she would have paid $280,000 in premiums. Under those circumstances, the trust would have received a death benefit of $452,000, meaning that the trust would have received $152,000 more than it paid. An amendment to the policy application indicates that the original application was submitted on September 28, 2007, while the application itself reflects the August 17, 2007, date. In any event, Mrs. Vaughn met with McKinley on August 14, September 17, and September 25, 2007. Insurance applications are listed as agenda items for two of these meetings, and the ING application is specifically listed for the September 17, meeting. Mrs. Vaughn was and is a competent adult who had exhibited the capacity to track her investments and understand her assets. There is no competent, credible testimony to support the notion that Mr. McKinley used undue influence to convince her to purchase this policy. Count III: John Hancock Policies on the Life of Merie Vaughn Count III of the Administrative Complaint addresses the purchase of two John Hancock policies. Petitioner’s Exhibit 27 is the application for Hancock policy number 93541373 (Hancock 73), but the actual policy, including the receipt for the policy, is not included in the exhibits for this hearing.8/ The policy specifications at Petitioner’s Exhibit 28 indicate that Hancock 73 had a death benefit of $578,000, an annual premium of $20,000, and was owned by the Merie Vaughn ILIT. The application was also submitted August 17, 2007, and the policy issued November 16, 2007. There is no indication that the policy is rated higher than standard, non-smoking rates. It is difficult to tell if a complete copy of the second policy, John Hancock policy number 94331410 (Hancock 10), is in evidence. However, from the information presented, this policy had a death benefit of $828,518, required an annual premium of $30,000, and the policy was in force beginning in January 1, 2009. It also appears to be issued at the standard non-smoking rate. The policy receipt was signed by John Crawford on December 31, 2008, and the owner of the policy was the Rufus Vaughn Family Trust, with John Crawford as trustee. Both policies enjoyed very respectable rates of return and were considered to be good policies. The more persuasive and compelling evidence established that the policies were part of an acceptable and appropriate estate plan for Mrs. Vaughn. No evidence was presented to establish that the policies were purchased for the sole purpose of generating commissions for McKinley. The two policies lapsed in June and July 2010, respectively. Contrary to the allegations in the Administrative Complaint, however, absolutely no evidence was presented to support the allegation that “you, Gary McKinley, knew the importance of maintaining life insurance policies and not allowing them to lapse, but you allowed them to lapse because you desired to generate larger commissions on new replacement sales rather than settle for receiving smaller residual commissions on extent policies.” Under the express terms of the Merie Vaughn ILIT, the ultimate decision with respect to purchasing, paying for, or surrendering life insurance policies was to be made by the trustee, John Crawford, not by McKinley. Respondent did not have the authority to pay the premiums. Neither John Crawford nor Respondent testified in this proceeding, so little if anything is included in the record of this case regarding the decision-making related to allowing these policies to lapse. However, the record indicates that these two policies were meant to be replaced by Transamerica policies in 2010. The application for Transamerica 65140389 (Transamerica 89) specifically lists the John Hancock 73 policy, the ING 59 policy, and the Lincoln 09 and 28 policies as policies that may be replaced, while the application for Transamerica 65144360 (Transamerica 60) lists the John Hancock 10 policy as intended for replacement. While the John Hancock policies had a respectable rate of return, the rate for the Transamerica policies was better. The more compelling and persuasive testimony established that allowing a policy to lapse is the proper method for dealing with the policy when it is going to be replaced by a more efficient policy. No competent, persuasive evidence of any willful misrepresentations or deceptive acts or practices was presented. Count IV: GPM Policies on the Life of Merie Vaughn Count IV deals with the application process and issuance of three GPM policies, referred to as GPM 25, GPM 30, and GPM 39. On October 21, 2007, McKinley submitted an application for a GPM universal life insurance policy which would become GPM policy 758825 (GPM 25). The illustration for the policy indicates a death benefit of $500,000, with an annual premium of $20,000. The actual application lists under the plan for insurance a benefit of $330,123. The Administrative Complaint alleges that the application for GPM 25 was filled out by Gary McKinley, but no evidence was actually presented with respect to this allegation. The application is signed by both Mrs. Vaughn and Mr. McKinley. The application asks GPM to contact the agent with an offer, and lists the insured as Merie Vaughn, and the owner as a trust, with the trustee as payor.9/ The Administrative Complaint alleges that the application was incomplete in that none of the general information (pages 3 and 4) was completed, and that the application indicated that no other life insurance was in force on Mrs. Vaughn. With respect to the general information on pages 3 and 4 of the application, those pages are in fact blank in the initial submission. However, the Amendment of Application and Policy Delivery Receipt found at Petitioner’s Exhibit 45, page 258, states that “the answers on pages 3 and 4 were given by the proposed insured(s), age 15 and older, by telephone to GPM’s tele-underwriter, who typed in the answers.”10/ Further, contrary to the allegations in the Administrative Complaint, at page 238 of Petitioner’s Exhibit 43, the application amendment contains a listing of three insurance policies for Merie Vaughn. While the application listed the proposed owner as a trust, the policy was issued listing Merie Vaughn as both the owner and insured. All of this becomes irrelevant because, according to the records supplied to the Department by GPM, Mrs. Vaughn decided she did not want a universal life policy, but wanted a whole life policy. The documentation from GPM states: Policy No. 758825 was a universal life policy issued on the life of Merie Vaughn with an effective date of January 1, 2009, and a planned premium of $30,000 annually. Mrs. Vaughn did not accept this policy as issued, having decided she wanted whole life coverage instead. Our administrative system builds multiple screens for universal life policies that we are unable to change to accommodate a different plan of insurance. For administrative purposes only, we terminated the records for Policy No. 758825 as “not taken” and issued a new Policy No. 760030 for the whole life plan with an effective date of January 1, 2009. The $30,000 premium for Policy No. 788525 was reversed, along with all associated commissions, and re-applied as the initial premium of $29,999.97 for the whole life Policy No. 760030. As noted, GPM 30 was issued January 1, 2009, based on an application dated October 21, 2008, with a death benefit of $348,819 and a planned annual premium of $29,999.97. The policy was rated at 150 percent. Mrs. Vaughn did not remember a discussion related to whole life as opposed to universal life. However, whether such a discussion actually took place is also irrelevant. GPM 30 was owned by the Rufus Vaughn Family Trust, for which John Crawford was serving as trustee. The application for GPM 25 also listed the proposed owner of the policy as a trust, not as Merie Vaughn. Article XI, paragraph (k)(1) and (2) of the trust document specified: (k)(1) Unless the Grantor has been declared incapacitated (either legally or by the terms of this agreement), the Grantor may contribute or direct the Trustee to purchase insurance policies on the life of the Grantor and hold each such policy of insurance purchased by or contributed to the Trustee. . . . The Trustee shall be under no obligation to invest any cash value accumulated in any life insurance policy owned by the Trust regardless of investment yield on such value within the policy as compared to the net investment yield which could be obtained outside the policy. (2) The Trustee shall be under no obligation to pay the premiums which may become due and payable under the provisions of any policies of insurance that may be held in this trust, or to make certain that the premiums are paid by the Grantor or others, or to notify any persons of the non- payment of premiums. Upon notice at any time during the continuance of this trust that the premiums due upon any policy are in default, or that premiums to become due will not be paid, the Trustee, in its sole discretion, may apply any dividends or cash values attributable to the policy to the purchase of paid-up insurance or of extended insurance, or may borrow upon the policy for the payment of premiums, or may accept the cash values of the policy upon its forfeiture, with notice to the Grantor or beneficiaries of the trust or any other person . . . . Clearly, the decision-maker with regard to the purchase of and continued vitality of these policies was John Crawford, who did not testify in this proceeding. There was no evidence presented as to his thought process or any actions taken by him with respect to these policies. Further, the only person who testified at any length as to the standard process for submitting life insurance applications was Mike Saunders. Mr. Saunders described the process in detail, and stated that it is not at all uncommon to submit incomplete applications in order to get the process started. Applications are “scrubbed,” both by the insurance agent’s office and by the insurance company, and there are often amendments to the applications during the process. Mr. Saunders also testified that it was not uncommon to have a client just sign the signature page on an application (something done with several of the policies in this case), because there are going to be multiple “looks” at the application and multiple opportunities to amend as additional information is garnered. In fact, many of the amendment forms in evidence actually include a statement that information included in the amendment will be treated as if it was included on the original application. The failure to have the policy application completely filled out when first submitted is not clear and convincing evidence of a false statement. Mr. Saunders’ testimony, which is unrebutted, is accepted. There is no credible, persuasive evidence that demonstrates that the termination of GPM 25 and issuance of GPM 30 was as a result of McKinley’s “lack of reasonably adequate knowledge and technical competence.” Moreover, no evidence was presented to establish what standard represents “adequate knowledge and technical competence,” or how Respondent may have violated that standard. GPM 30 was terminated as of January 1, 2010, for non- payment of premium. As noted above, payment of premium was in the sole discretion of the Trustee. No testimony was presented as to why the premium was not paid, but it was not within McKinley’s authority to pay it. In any event, McKinley assisted in the process of having the policy reinstated. The application for reinstatement of GPM 30 contained information on all of the outstanding policies on the life of Mrs. Vaughn, which was, at this time, at or near the highest point in terms of both death benefit and premium costs. Clearly, the insurance company made the decision to reinstate the policy with full knowledge of the amount of life insurance held on her life at that time. As found above, life insurance “capacity” is a measure used by insurance companies to determine the maximum amount of insurance a company is willing to write on an individual. If Merie Vaughn was over-insured at this point, it is unlikely that the insurance company would have reinstated the policy. Indeed, at no point during the purchase of any of the policies does it appear that any insurance company refused to issue a policy based on lack of capacity. Paragraphs 61 through 65 of the Administrative Complaint reference events that occurred after McKinley’s services were terminated by Mrs. Vaughn. While the exact date of this termination is not in the record, testimony by Mrs. Vaughn and Mr. Arnold place it at late September or early October 2010. Moreover, these paragraphs allege actions by John Crawford as trustee, not actions by McKinley. Paragraph 64 of the Administrative Complaint alleges that John Crawford requested Michael Halloran to replace McKinley “due to your multiple failures to assist in the maintenance of GPM 30.” No evidence was presented regarding John Crawford’s rationale for requesting Mr. Halloran to be reflected as agent of record, although it can be inferred that he was honoring Mrs. Vaughn’s wishes to no longer do business with McKinley. The Department did not present evidence of multiple failures by McKinley regarding the maintenance of GPM 30. The Administrative Complaint also takes issue with the application, issuance, and monitoring of GPM Policy 751339 (GPM 39). The application was originally submitted for GPM 39 in June of 2007, very early in Mrs. Vaughn’s relationship with McKinley.12/ A letter from McKinley dated June 21, 2007, referencing the policy number, states: Please find the enclosed application for Merie Vaughn. As we discussed, trusts will be executed over the next 2-6 weeks and ownership, beneficiaries and FEIN tax ID’s will be re-faxed upon completion. We may place some or all of this premium and death benefit with a standard offer from GPM. Likewise, the Agent’s Report found with the application indicated that McKinley planned to submit the case to other companies, and named John Hancock or best offer. As found above, the fact that the application is not complete is not clear and convincing evidence of a false statement. Moreover, when all of the documents are read together, it is clear that this application was a work in progress. There is no evidence to support the allegation that the policy was “sold” as a million dollar policy but only issued for $221,440. The reference to one million dollars is a reference to the insurance plan. At the point the application was completed, that was the target amount, and McKinley’s letter clearly states that they would place “some or all” of the death benefit with the company, depending on the offer. GPM 39 was issued October 16, 2007, listing Merie Vaughn as the owner, with a death benefit of $221,440 and an annual premium of $19,999.18. The policy was rated at 150 percent. While the portion of the policy included in Exhibit 39 indicates that the policy has 29 pages, only six pages are included in the exhibit. There is an amendment and policy receipt signed by John Crawford as trustee and by McKinley as agent on October 23, 2007, with a second amendment and policy receipt signed by Merie Vaughn as owner on October 29, 2007. The policy receipt showed the beneficiary of the policy to be the trust. However, without the entire policy with all amendments being included in the exhibits, no finding can be made that any type of material error occurred with respect to this policy. Finally, paragraph 58 of the Administrative Complaint alleges that in November 2009, Gary McKinley directed that GPM change GPM 30, GPM 39, and GPM 84, which will be discussed in more detail below, to paid-up policies with no further premiums to be paid. While this is so, the Administrative Complaint does not allege, and the evidence did not demonstrate, why this action was not in Mrs. Vaughn’s best interests. Further, the Administrative Complaint did not allege and the evidence did not demonstrate whether McKinley made these instructions independently, in consultation with others, or solely at the behest of John Crawford or Mrs. Vaughn. The more persuasive and compelling evidence established that the policies were part of an acceptable and appropriate estate plan for Mrs. Vaughn. No evidence was presented to establish that the policies were purchased for the sole purpose of generating commissions for McKinley. Count V: Lincoln Policies on the Life of Merie Vaughn Count V of the Administrative Complaint addresses the purchase of three policies from Lincoln: Lincoln Policy JJ7061061 (Lincoln 61); Lincoln Policy JJ7085909 (Lincoln 09); and Lincoln Policy JJ7085928 (Lincoln 28). The exhibits related to these three policies are Petitioner’s Exhibits 59 through 69. They are, however, incomplete and somewhat confusing. Petitioner’s Exhibit 59 is a copy of the application for Lincoln 28. However, it appears to be a reiteration of Petitioner’s Exhibit 60, with the word MODIFIED stamped on several of its pages. The application is dated April 26, 2009, but the fax legend for this modified document is dated April 28, 2009. With respect to question 50, no policy is listed, but the box to answer “no” is not checked. The exhibit also includes a Lincoln “appropriateness verification form,” used when the policy applied for is going to be used as a replacement policy. It appears that the document is incomplete, however: the fax legend indicates that there were 36 pages faxed, but the exhibit only includes pages 7-16, with one page bearing no legend. Petitioner’s Exhibit 60 also purports to be an application submitted April 26, 2009. The application also appears to be incomplete. For example, the fax legend at the top of the page reflects that there were 17 pages faxed. The exhibit only contains pages 2, 7-10, 13, 14, and 15. Similarly, the numbering on the application pages are 1 of 5, 2 of 5, 3 of 5, 3A of 5, 3D of 5, 4 of 5, and 5 of 5. For question 10 of the health summary, the application says “see attached,” but no attachment is included in the exhibit. Petitioner’s Exhibit 61 is part, but not all, of Lincoln Policy 28, issued July 28, 2009. The policy is owned by the Rufus Vaughn Family Trust, has a death benefit of $1,250,028, with a premium of $13,000, and is rated at 1.75 for the first 20 years. The exhibit includes a July 15, 2009, amendment to the application, but references an application date of May 7, 2009, as opposed to April 26, 2009, referenced above. The amendment supplies the identifying features of six policies in force for Mrs. Vaughn at that time. Petitioner’s Exhibit 62 is a mixture of documents related to Lincoln Policies 61 and 28. The first part of the exhibit appears to be an application for insurance for Lincoln 61, signed November 21, 2008. Like the application at Petitioner’s Exhibit 60, there are references in the application that say, “see attached,” with no attachments included. Following the application there is what appears to be part of the policy issued for Lincoln 61, listing the schedule of benefits with a death benefit at $912,388, an issue date of January 28, 2009, an annual premium of $30,000, and the use of standard rates. The portion of the policy included begins with page 3, and includes pages 4A-F only. Petitioner’s Exhibit 62 then reverts to documents related to Lincoln 28. It includes a schedule of benefits for that policy, indicating it was issued on July 28, 2009; includes an amendment to the application that references the application as being dated May 7, 2009 (as opposed to April 26, 2009); repeats some of the documents contained in Petitioner’s Exhibit 61; and includes a policy endorsement page and policy receipt for Lincoln 28, reflecting a premium of $60,000 as opposed to $13,000. Petitioner’s Exhibit 64 appears to be a modified application for Lincoln 61, dated January 13, 2009, whereas the original application was dated November 21, 2008. It also refers to attachments that are not included. There is a letter dated January 21, 2008 (although the fax legend reflects January 23, 2009), notifying Lincoln that from the time of application, two additional policies were placed in the Rufus Vaughn Family Trust. There are two copies of an endorsement page for Lincoln 61, identifying the date of coverage as January 28, 2009, and two copies of an amendment to the application, providing additional information for questions 19, 20, and 21. Petitioner’s Exhibit 66 is an application for Lincoln 09, marked as modified, and also dated April 26, 2009. It appears to duplicate the application at Petitioner’s Exhibit 59. Similarly, Petitioner’s Exhibit 67 is also an application dated April 26, 2009, which appears to duplicate Petitioner’s Exhibit 60. At page 430 of Petitioner’s Exhibit 67 is an endorsement for Lincoln 09 that actually references the April 26, 2009 application, as opposed to the May 7, 2009 application referenced (but not supplied) in Petitioner’s Exhibit 62. There is also a Policy receipt for Lincoln 09 dated and signed July 15, 2009, and an unsigned amendment for the policy. Finally, Petitioner’s Exhibit 69 contains a Schedule of Benefits for Lincoln 09, but not the policy in its entirety. The Schedule of Benefits reflects an issue date of July 29, 2009, for a policy with a death benefit of $832,853, with a premium of $40,000. The policy is rated at 1.75 for the first 20 years, then reverts to standard rates. The Schedule of Benefits is the only part of the policy included, and reflects pages 3, and 4A through 4F only. This mishmash of partial applications and partial policies undermines any confidence that the documents represent the whole of what took place with respect to the application and issuance process for these three policies. All that can be said is that Lincoln 61 was issued on January 28, 2009, with a death benefit of $912,388 and an annual premium of $30,000, with a standard rating. The owner of the policy was the Rufus Vaughn Family Trust. On July 28, 2009, Lincoln 09 and Lincoln 28 were issued. Lincoln 09 was owned by the Merie Vaughn Revocable Trust, had a death benefit of $832,853.00, an annual premium of $40,000, and a 1.75 rating. Lincoln 28 was owned by the Rufus Vaughn Family Trust, had a death benefit of $1,250,028, a $60,000 annual premium, and 1.75 rating. Any initial omissions with respect to the applications appear to have been resolved through amendments to the application, consistent with the process described by Michael Saunders. After issuance of Lincoln 61 and before the issuance of Lincoln 09 and Lincoln 28, Mrs. Vaughn signed a letter to McKinley dated April 1, 2009, confirming the strategy of replacing some of her life insurance policies with policies that had more efficient terms. The letter states in part: Gary: Please take all necessary steps to lower my premiums for the life insurance where I am the insured to consider getting the same insurance for a lower premium or leveraging and lowering my premiums to increase Death Benefits. Please check the financials of each company and do your best to confirm the company is indeed solvent and one of the top companies. I understand John Hancock and Lincoln will be the initial and possibly the carriers of choice. The reason I’m doing this is I have noticed and as you have pointed out, my most recent policy with Lincoln for 30k of premium bought me almost $100,000.00 more of death benefit and with the economical environment, it would be helpful if we can lower premiums by some 30k or 50k total this year and going forward, I would like the opportunity to do this. Even with the over 5 Mil saved, I must be prudent in times like this. I realize the initial calculations are that I might save approximately 30k to 50k annually and still be able to increase my Death Benefit by 500k to 1 mil dollars. This is certainly worth us considering consolidation and savings and I appreciate your monitoring my insurance portfolio regularly looking for these types of arbitrage. As of April 29, 2013, Lincoln 61 remained an active policy. Both Lincoln 09 and Lincoln 28 lapsed on January 3, 2011, several months after Mrs. Vaughn terminated McKinley’s services. The Administrative Complaint charges that McKinley failed to provide information in the applications on all in- force life insurance policies on Mrs. Vaughn’s life, specifically listing ING 59, Hancock 73, GPM 30, and GPM 39. As noted above, the applications were updated through the amendment process, which unrefuted evidence indicates is an accepted practice in the insurance industry. While the documents are incomplete, it appears that all necessary information was supplied. While the Administrative Complaint states that “Lincoln later added amendments to L 61, L 09 and L 28 to add the insurance coverage information that you, Gary McKinley, should have included when the applications were originally submitted to Lincoln,” there was no testimony at hearing to demonstrate who supplied the information for the amendments (McKinley or the insurance company), and with documents as incomplete as these, to make any conclusions regarding the source of the information would be speculative. The responsibility for the lapsing of two of the policies cannot be laid at the feet of McKinley: not only was he not responsible for paying the premiums with respect to these policies, but he was no longer working with Mrs. Vaughn at the time the policies lapsed. Moreover, no persuasive, competent evidence was presented to demonstrate that the purchase of these policies was inappropriate and without demonstrable benefit to Mrs. Vaughn. Rather, the more persuasive evidence indicates that the purchase of these policies was part of an integrated strategy to reduce premiums, increase death benefit, and continue the overall goals of reducing Mrs. Vaughn’s taxable estate while still preserving her wealth. Likewise, no evidence was presented from which it could be found that the policies were sold for the “sole purpose of obtaining a fee, commission, money or other benefit for [McKinley] and for John Crawford,” or for the premise that McKinley’s intention was to generate larger commissions on new replacement sales rather than settle for receiving smaller commissions on existing residual policies. Count VI: Transamerica Policies on the Life of Merie Vaughn Count VI of the Administrative Complaint deals with Transamerica 89 and Transamerica 60. Mrs. Vaughn signed an application for the Transamerica 89 policy on May 26, 2010. The policy issued on August 6, 2010, with a death benefit of $3,882,000 and an annual premium of $130,000. The owner of the policy was the Merie Vaughn ILIT, and the policy was issued at the standard rate. The policy application for Transamerica 89 indicated that four policies would be replaced by Transamerica 89: Hancock 73, with a death benefit of $578,006 and annual premium of $20,000; ING 59, with a death benefit of $452,000 and annual premium of $20,000; Lincoln 09, with a death benefit of $832,853 and annual premium of $40,000; and Lincoln 28, with a death benefit of $1,250,028 and annual premium of $60,000. In other words, the purchase of Transamerica 89 to replace these four other policies meant an increase in death benefit (from $3,112,887 to $3,882,000), with a reduction in annual premium (from $140,000 to $130,000). Transamerica 60 was issued August 13, 2010, with the owner as the Rufus Vaughn Family Trust. The death benefit was $805,000 with a $27,000 annual premium, calculated at the standard rate. It replaced Hancock 10, which had a death benefit of $828,518, and an annual premium of $30,000. McKinley received commissions on the sale of both policies. Mike Saunders described the Transamerica policies as very efficient. According to the rate of return analysis prepared by John Linnehan, whose testimony is accepted as credible and persuasive, the internal rate of return for these policies was excellent, ranging from 17.1 percent should Mrs. Vaughn live to life expectancy, to a return of 207 percent should she die at the third anniversary of the policy.11/ The same rates applied for both policies. These rates of return far exceed what would be expected as an acceptable rate of return on life insurance policies, and was higher than the rate of return for the policies that they replaced. The more persuasive and compelling evidence demonstrated that the purchase of these policies was intended to and did provide a benefit to Mrs. Vaughn and was appropriate, given her financial circumstances and estate planning goals. Paragraphs 81 and 83 of the Administrative Complaint allege details regarding the cancellation of these policies, at a time when McKinley was no longer working with Mrs. Vaughn. Moreover, John Crawford, as trustee, is the person with the discretion and authority to make decisions with respect to the maintenance or surrender of any and all of the life insurance policies held by the various trusts. No evidence was presented to indicate that McKinley participated in any way with respect to the decisions to surrender or cancel these policies. Likewise, no evidence was presented from which it could be found that the policies were sold for the “sole purpose of obtaining a fee, commission, money or other benefit for [McKinley] and for John Crawford,” or for the premise that McKinley’s intention was to generate larger commissions on new replacement sales rather than settle for receiving smaller commissions on existing policies. Count VII: Hancock Long-Term Care Policy In Count VII, the Department takes issue with McKinley’s sale of a Hancock long-term care policy. Merie Vaughn applied for the policy on November 20, 2009, and John Hancock policy 7222784 (Hancock LTC 84) was issued December 29, 2009. Hancock LTC 84 was a policy with a five-year benefit period, and a policy limit of $396,000. The long-term care benefit was for $6,600 per month, and had an annual premium of $12,262.50. Other features of the policy are described in Petitioner’s Exhibit 91, but are not necessary for purposes of this discussion. The Department charges, “[y]ou, Gary McKinley, being both a licensed insurance agent and a securities broker, knew or should have known that the sale of the Hancock long term care policy, in addition to all of the life insurance policies you sold her, was beyond Mrs. Vaughn’s needs, was not in Mrs. Vaughn’s best interests, was neither necessary nor appropriate for a person her age and financial circumstances, was without demonstrable benefit to her, served to waste her estate and was done for the sole purpose of obtaining a fee, commission, money or other benefit for yourself and for John Crawford.” The only factual evidence in the record regarding the purchase of this policy is from Merie Vaughn. She testified that she wanted this policy, and told Gary McKinley that if he could find some long-term care coverage, she would be interested in it. Long-term care coverage was something she wanted. There is no credible, persuasive evidence to demonstrate that McKinley sold this policy just to get a commission. There is no evidence as to what advice McKinley gave Mrs. Vaughn about this type of policy: whether he advised that she obtain it or whether she insisted on buying against his advice. There is no evidence to prove the allegations in the Administrative Complaint. Count VIII: The ING Annuities Count VIII of the Administrative Complaint deals with the purchase of three ING annuities: one purchased with funds from Merie Vaughn’s IRA, one purchased by the Rufus Vaughn Family Trust, and one purchased by the Rufus Vaughn Marital Trust. On September 30, 2007, Mrs. Vaughn’s IRA account was worth approximately $795,972.43. On October 29, 2007, she applied for ING annuity 90275251 (ING Annuity 51), and on December 4, 2007, a one-time premium of $712,037.78 was paid from the assets in Merie Vaughn’s IRA to fund ING Annuity 51. ING Annuity 51 was issued on December 10, 2007, with a five- percent bonus on premium. A bonus is defined in the policy as “an amount equal to a percentage of the Single Premium, as stated on the Contract Data Page, that we add to the Contract’s Accumulation Value on the Contract Date. The Bonus is elected to the Strategies in the same ratio as you elect the Single Premium.” On August 4, 2008, John Crawford, as Trustee of the Rufus Vaughn Family Trust, applied for ING Annuity 90295107 (ING Annuity 07). On August 18, 2008, $500,000 was paid from the assets of the Rufus Vaughn Family Trust for the single premium of $500,000, and on August 19, 2008, ING Annuity 07 was issued with a five-percent bonus on the single premium. On August 4, 2008, John Crawford also applied for ING Annuity 90295108 (ING Annuity 08) as trustee for the Rufus Vaughn Marital Trust.13/ This annuity also had a single premium of $500,000, which was paid from trust proceeds on August 18, 2008. The ING Annuity 08 also issued on August 19, 2008, with a five-percent bonus on the single premium. While the Administrative Complaint alleges that “upon the advice and at the direction of you, Gary McKinley, . . . Ameritrade Clearing issued a check in the amount of $500,000.00 made payable to ING as the single premium” with respect to both annuities purchased by John Crawford as trustee, no evidence was presented to identify who arranged for payment of the annuities. Likewise, the Administrative Complaint alleges with respect to ING Annuities 07 and 08 that “you, Gary McKinley, with the cooperation of lawyer/trustee Crawford, gave your directions or consent . . . to having the [trust] disgorge $500,000.00 for funding the ING annuity,” there is no competent, credible evidence regarding the decision-making with respect to the purchase of these two annuities. Annuities are designed to provide a lifetime income from an initial investment of funds, or can be used to guarantee a certain identified rate of return over a fixed period. There are limitations on how much can be withdrawn from an annuity without incurring surrender fees. In the case of ING Annuity 51, Merie Vaughn withdrew $40,209.19 on December 22, 2008, and $69,675.89 on December 11, 2009. Both amounts were less than the 10 percent allowed annually without incurring surrender fees. From the dates of purchase until March 2012, each of the three annuities earned investment profits of approximately $75,000, for a total profit for the three annuities at $226,206.41. While the annuities have each made a significant profit, as of March 2012, they were not worth as much as they were when they were purchased, because of the amount withdrawn. However, no evidence was presented to identify who made the decision for distributions from the annuities or who decided how much those distributions would be. Moreover, the evidence suggests that with respect to ING Annuity 51, the IRA from which the funds were taken for its purchase was an IRA heavily invested in bank stocks. As noted previously, no one has questioned the advice to diversify those holdings and the testimony was uniform that diversification prior to the recession in 2008 was a positive development for the preservation of Mrs. Vaughn’s assets. There is no evidence as to what the return would have been had the IRA assets been left undisturbed. The returns offered by ING Annuity 51, as well as the other two annuities, were generally higher than that afforded by the market in general, and protected the assets from creditors. The Department did not prove what income would have been generated by the Rufus Vaughn Marital Trust and the Rufus Vaughn Family Trust had the annuities not been purchased for them and the trusts had remained with the mix of assets they each contained prior to the annuity purchases. The Administrative Complaint did not identify and the evidence did not reveal what, if any, willful representations or deceptive acts or practices McKinley committed with respect to the purchase of any of the ING annuities. McKinley earned commissions on the purchase of all three annuities. There was no testimony that the amount of commission was unusual for the products sold. Count IX: Policies on the Life of Terry Vaughn Count IX deals with those policies sold on the life of Terry Vaughn. Three of the policies were held in the Terry Vaughn ILIT, while the fourth was held in the Merie M. Vaughn Trust F/B/O Connor E. Vaughn. The four policies are Hancock 46300489 (Hancock 89), Aviva IL01198680 (Aviva 80), Lincoln 180003841 (Lincoln 41), and Lincoln 180004324 (Lincoln 24). Hancock 89 was taken out on Terry Vaughn’s life and held in the Terry R. Vaughn ILIT. While there was confusion as to when Terry Vaughn signed the application, in all probability he signed it on or about February 25, 2008, and the policy issued on March 6, 2008. The death benefit was $1,694,226, and the policy called for annual premiums of $25,000 for 10 years. The policy appears to be rated at 200 percent. Petitioner’s Exhibit 118, the policy specifications, references supplement dates of October 2, 2007; November 13, 2007; and January 28, 2008, but those supplements are not included in the record. On June 25, 2008, John Crawford, as trustee, applied for additional life insurance on Terry Vaughn’s life through Aviva, which became the basis for the Aviva 80 policy. The application was amended in August 2008, yet the policy reflects that it was issued July 23, 2008, with a death benefit of $1,588,310 and an annual premium of $25,000. The rating is not clearly indicated in the exhibits provided. The application indicates that the Aviva policy would be replacing a West Coast Life policy with a death benefit of $1,298,238. However, Terry Vaughn was unaware of the existence of that policy, which is listed as “personal,” and no other evidence regarding a West Coast Life policy is contained in the record. On October 26, 2009, John Crawford, as trustee of the Terry R. Vaughn ILIT, applied for a policy with Lincoln that became the Lincoln 41 policy. The application was also signed by Terry Vaughn as the insured and by McKinley. The application includes the question, “Please list amounts of all inforce life insurance on your life, including any policies that have been sold. (Please list in the box below.).” The application lists the Aviva policy, but indicates that it was issued in September of 2008 with a death benefit of $1.6 million. The Lincoln application also indicates with respect to the Aviva policy that there will be a replacement or change of policy. At the time of this application, the Hancock 89 policy was still in force, but there is no listing of that policy on the application. The Lincoln 41 policy was issued December 2, 2009, and then its issue date was changed to December 17, 2009. An endorsement to the policy states that Lincoln received all information necessary to issue the policy, but does not specify what information was received, other than the premium of $35,000, and no amendments or medical reports are included in the exhibit. There is also no signed policy receipt. The death benefit for the Lincoln 41 policy is $2,219,885. The policy was rated at two times the standard rate for the first 27 years. If there was certainty that the documents contained in the exhibits with respect to Lincoln 41 were in fact the complete documents submitted with respect to this policy, the undersigned would have no hesitation in finding that by failing to list the Hancock 89 policy as a policy on Terry Vaughn’s life, Respondent had misrepresented the amount of insurance outstanding at that time. However, there is no certainty regarding the completeness of the exhibits. As noted previously, the certification of records from Lincoln is a stand-alone exhibit, not attached to any particular document. (Petitioner’s Exhibit 89). Moreover, that document does not really certify much of anything. The form includes the following language: Pursuant to sections 90.803(6), and/or 90.902(11), Florida Statutes, I hereby certify the following: that as part of my regular duties I maintain custody and control of the records of the Company; that the attached documents consisting of pages, reflects entries of information that were made at or near the time of the occurrence of the matters set forth by, or from information transmitted by a person having knowledge of those matters; that it is the regular practice of the Company to make, keep and maintain the attached data and/or records during the course of regular conducted business; that the attached documents were made as a regular practice in the course of the regularly conducted activity; and that the attached documents are a true and correct copy of the original record contained in the Company’s business records. The space to indicate the number of pages supplied with the certification is left blank. There is no assurance that all of the documents received from this, or any insurance company, are included in the exhibits provided. No one at hearing testified that the records provided were complete, and Terry Vaughn testified that he signed a lot of documents, but often did not see the entire application. Given the unrefuted testimony that initial applications are often incomplete and errors and omissions are cleared up through amendments, without some assurance that the information in Petitioner’s Exhibit 122 and 123 comprise the entire application and insurance policy issued as a result, which they clearly do not, there is not clear and convincing evidence that McKinley made misrepresentations with respect to Lincoln 41. On April 1, 2010, John Crawford, as trustee, applied for additional insurance on the life of Terry Vaughn for the Merie M. Vaughn Trust F/B/O Connor E. Vaughn. The amount of the insurance for which he applied was $3 million, with an annual premium of $35,000. Both Terry Vaughn and McKinley also signed the application, which became the basis for Lincoln 24. The application for Lincoln 24 lists the Lincoln 41 policy as being in force on Terry Vaughn’s life. It does not list the Aviva 80 policy, but that omission is consistent with the stated intention in the Lincoln 41 policy application to replace the Aviva policy with the Lincoln 41 policy. The application does not list the Hancock 89 policy, which remained in force at that time, and there is some indication in the record that ultimately the Aviva 80 policy remained in force. Petitioner’s Exhibit 125, which represents those portions of the application in evidence, includes an appropriateness verification statement, which is included when the applied-for insurance is meant to replace some other insurance. The Lincoln 24 policy was issued April 7, 2010. The death benefit was $3 million, the amount for which the trust applied, with an annual premium of $35,000. The premium was rated at 2.5 for the first 27 years. Petitioner’s Exhibits 126 and 127 are parts of the Lincoln 24 policy. Petitioner’s Exhibit 126 includes the schedule of benefits and premiums at pages 3 and 4A-4F. Petitioner’s Exhibit 127 provides what appears to be most of the rest of the policy, but only includes page 17 of 17 of the illustration and, while it includes something called an indexed signature page, it does not include a policy receipt. In short, this policy, like Lincoln 41, does not appear to be complete. Like Lincoln 41, given the unrefuted testimony that initial applications are often incomplete and errors and omissions are cleared up through amendments, and given the incomplete nature of the documents related to Lincoln 41, the evidence is not clear and convincing that Respondent misrepresented information in the application by omitting reference to Hancock 89 and Aviva 80. There was some testimony regarding the appropriateness of establishing the trust fund for the benefit of Connor Vaughn. Merie Vaughn testified that she was very concerned with Connor’s future, and much of her time after his diagnosis in late 2008 was spent working with Connor. A special needs trust permits funds to be used for a disabled individual without jeopardizing the individual’s ability to receive governmental assistance. Even Petitioner’s expert noted that a special needs trust would be an option that he would have wanted Mrs. Vaughn to consider with respect to Connor. The Department has not demonstrated that establishing the special needs trust was not in Mrs. Vaughn’s or her family’s best interest. Clearly, Terry Vaughn did not believe that $3 million dollars was necessary to fund any of Connor’s future needs. He had received assistance through a program at Florida State University at little to no cost to the family. However, he was unaware of what research his mother may have done with respect to programs for autism, and acknowledged that there are many costly programs available for autism should someone want to avail themselves of such a program. The Administrative Complaint alleges that on June 7, 2011, John Crawford, as trustee, directed the cancellation of Hancock 89 and requested the return of any cash value. The policy was canceled and on June 21, 2011, Hancock remitted a check for $35,114.29. The cancellation of this policy was several months after McKinley was no longer providing services to the Vaughn family at Mrs. Vaughn’s behest. Likewise, the Administrative Complaint alleges that Lincoln 41 and Lincoln 24 lapsed and were canceled on January 20, 2011, and September 8, 2011, respectively. Both events occurred several months after Mrs. Vaughn had terminated McKinley’s services. Moreover, as stated previously, it is the trustee, and not McKinley, that is responsible for the payment of insurance policies held by the various trusts. The record in this proceeding contains no evidence regarding what Mr. Crawford considered in making the decisions to retain or cancel various policies owned by the trusts. The Administrative Complaint also charges that McKinley “willfully avoided underwriting protections designed to prevent the wasting of Vaughn family assets.” There is no persuasive evidence to support this allegation. Mr. Saunders testified that there is a master insurance bureau that has a database which includes negative information on insurance applicants. If one company has negative information about an applicant, a second company with which the applicant files an application would have access to that information. Here, Terry Vaughn’s policies were rated because of his health condition. There was no testimony from any insurance company that they issued a policy without sufficient information or based on false information provided by McKinley. Count X: Policies on the Life of David Vaughn Count X of the Administrative Complaint addresses two insurance policies purchased for the David C. Vaughn ILIT: GPM Policy 000753784 (GPM 84), and ING Policy 7218635 (ING 35). On November 2, 2007, an application for insurance was submitted to GPM. The proposed insured was David Vaughn, and the application indicates that a trust was to be established that would be both owner and beneficiary of the policy. The application is signed by Merie Vaughn as trustee, David Vaughn as the insured, and McKinley as the agent.14/ GPM 84 was issued December 1, 2007, as a whole life policy with a death benefit of $1,601,233 and an annual premium of $37,192, calculated at standard rates. While Petitioner’s Exhibit 137 indicates that the policy issued on December 1, 2007, the policy illustration included was prepared February 6, 2008. No policy receipt or amendments are included in the exhibit. On March 25, 2010, John Crawford, as trustee, wrote GPM requesting that the policy be changed to paid-up status. No evidence was presented to explain what Mr. Crawford considered in making the request to change the policy to paid-up status. While the change meant that no more premiums would be paid, it also meant that the death benefit was reduced, effective June 2, 2010, to $22,612. Sometime in late December 2007, McKinley submitted an application for ING 35. While the application has the date December 25, 2007, it is unclear which signature the date purports to signify, and David Vaughn did not execute the document on that day. The insured for this policy application is David Vaughn. The owner and beneficiary is the David C. Vaughn ILIT. A Verification of Coverage document as of December 12, 2010, indicates that ING 35 issued April 10, 2008, with a death benefit of $731,000 and an annual premium of $12,807. The rating is listed as “Super Preferred non smoker.” The documents in Petitioner’s Exhibit 145 include an undated and unsigned policy receipt and a premium notice dated April 11, 2011. On June 7, 2011, John Crawford, as trustee, requested the cancellation of ING 35, with any surrender value to be forwarded to him. No evidence was presented to explain what Mr. Crawford considered in making the request to cancel the policy. His request is copied to Merie Vaughn. As a result of his request, ING forwarded a check to John Crawford for $3,893.57, representing the surrender value of ING 35. While the Administrative Complaint alleges that McKinley violated the public trust by the sale of these two life insurance policies, there is no allegation describing what about the sale of these two policies actually violated that trust. There is no allegation that David Vaughn was over-insured or that the policies were not in his best interest. Count XI: Vaughn Family Education Trust Policies Count XI of the Administrative Complaint deals with policies purchased for the Vaughn Family Education Trust (Education Trust). The Administrative Complaint asserts that there were seven policies originally issued, but applications for and partial copies of only three policies are included in Petitioner’s exhibits. Merie Vaughn testified that the Education Trust was something she agreed to, although she told Gary McKinley to fund it from something other than her IRA. The life insurance purchased was consistent with the plan she agreed to with John Crawford. She also acknowledged at hearing that providing life insurance benefits to her grandchildren is valuable to them. Likewise, Mike Saunders testified that purchasing life insurance on children is “absolutely appropriate,” and is done to plan for the future. His testimony is accepted. Buying life insurance at this age is a good idea because insurability can change quickly, and having a policy in place before any change in insurability occurs is wise. It also allows for the buildup of cash value over time, and the ability to borrow against the policy. Included in Petitioner’s exhibits is an application for life insurance with Metlife on the life of Avery Elizabeth Vaughn, David Vaughn’s oldest daughter. She was 19 years old at the time of the application. The application is for a whole life policy and the amount of insurance listed on the application is $580,650. Avery Vaughn signed the application as the insured, John Crawford signed as trustee for the Education Trust, and McKinley signed as the insurance agent of record. The application was signed on April 22, 2010. While this application is included with a policy numbered 210238538A1 (Metlife 38), it does not appear to be the application that led to the issuance of Metlife 38. For instance, while the application is signed April 22, 2010, Metlife 38 was issued February 7, 2010, two months before the application was submitted. Moreover, while the application referenced $580,650 in death benefits, the issued policy was for $990,000, with a total premium of $8,118.50. No policy receipt or amendments are included. Metlife 38 was surrendered on or about October 14, 2011, after McKinley was no longer acting as Mrs. Vaughn’s insurance agent, and $79.39 was paid to the trust. Similarly, on April 20, 2010, John Crawford, as trustee, applied for life insurance on the life of Chloe Lorraine Vaughn, David Vaughn’s second daughter, who was nine years old at the time. The application was signed by McKinley, John Crawford, and, inexplicably, Terry Vaughn. The amount of requested coverage identified in the application was $946,611. Metlife Policy 210275718A (Metlife 18) was issued September 1, 2010, listing Chloe Vaughn as the insured and the Education Trust as the owner. Metlife 18 had a $9,000 annual premium and a death benefit of $2,528,249. No amendments or policy receipt are included in Petitioner’s exhibits, as well as no explanation of how the death benefit changed so dramatically. The policy was surrendered in June 2011, after McKinley was no longer acting as Mrs. Vaughn’s insurance agent. There is also a Metlife application submitted by John Crawford, as trustee for the Education Trust on the life of Dawson Caldwell Vaughn, David Caldwell’s then-4-year-old son. The application is also signed by Terry Vaughn as opposed to David Vaughn, and is signed by John Crawford as trustee and by McKinley. The application is for a whole life policy with a death benefit of $1,136,250, and a proposed premium of $5,999.83. The policy in Petitioner’s exhibits on the life of Dawson Vaughn is Metlife 210275676A (Metlife 76), a policy issued September 1, 2010, with a death benefit of $2,594,204 and an annual premium of $9,000. The portion of the policy in the record contains no amendments and no policy receipt, and thus no explanation as to how or why the death benefit and premium were changed. No testimony was presented to explain the difference. The policy was surrendered in June 2011, after McKinley was dismissed as Mrs. Vaughn’s insurance agent. Contrary to the allegations in the Administrative Complaint, competent, persuasive evidence was presented to show that purchasing life insurance on children is an accepted practice. While the amounts of the life insurance policies seem extravagant, the only person testifying who regularly sells life insurance did not believe that McKinley encouraged the purchase of too much life insurance. Further, while the Administrative Complaint alleges “by willful misrepresentations and deceptive acts and practices,” Respondent caused the wasting of Vaughn family assets, the Administrative Complaint does not identify just what “willful misrepresentation” or “deceptive act and practices” Respondent committed with respect to the purchase of these policies. Count XII: Policies on the Life of Stephanie Eller Vaughn As noted above, Stephanie Eller Vaughn is married to Terry Vaughn, and they live in Tallahassee, Florida. Terry and Stephanie married on March 31, 2007, and Stephanie gave birth to their son, Connor, on February 1, 2008. At some point in 2008, Terry and Stephanie met with a financial planner who had suggested it would be prudent for Stephanie to have life insurance. Contrary to the allegations in the Administrative Complaint, no evidence was presented to demonstrate that McKinley “convinced” Merie Vaughn and Stephanie Vaughn to buy the Sun Life policy discussed below. Purchasing life insurance was already something contemplated by Terry and Stephanie Vaughn, before meeting with McKinley. Terry and Stephanie met with McKinley to begin discussions regarding a life insurance policy for Stephanie in May of 2008. Stephanie Vaughn applied for a Sun Life policy on January 6, 2009. She is listed as both the insured and the owner of the policy, and Terry Vaughn is listed as the beneficiary. The application proposes a $1.5 million death benefit, with a proposed monthly premium of $712.50. Stephanie Vaughn paid $1,425.00 for two months of premium with the insurance application. Sun Life Policy 003016889 (Sun Life 89) was issued on April 3, 2009, for a $1 million death benefit and a monthly premium of $487.34. The premium appears to be computed using standard rates for a non-smoker. The record includes a revised illustration signed by Stephanie Vaughn on March 10, 2009, and a signed, undated request for alteration of application changing the death benefit to the amount ultimately issued, as well as including a charitable benefits rider, also included in the policy issued. The policy receipt for Sun Life 89 is signed by Stephanie Vaughn on April 9, 2009. Terry Vaughn testified that while he and his wife made the initial premium payment, premiums were taken over by his mother, and Terry and Stephanie were reimbursed for the premiums they originally paid on the policy. In May of 2009, McKinley’s office requested that the premiums be changed from monthly to yearly, and forms were sent to accomplish that. On June 5, 2009, John Crawford made a payment of $4,423.06 from his trust account for the remainder of the annual premium, and in September 2009, a request for the appropriate paperwork was submitted to change the ownership of the policy from Stephanie Vaughn to the Stephanie Vaughn ILIT. However, while payments were made by John Crawford, and McKinley requested that all payment invoices and correspondence be sent to John Crawford, it is unclear whether that change of ownership ever occurred. According to Terry Vaughn, Sun Life 89 is still in force, but currently no payments are being made on the policy. It is paid up to some point, and he understands that it has some value, so they opted not to cancel it. While the Administrative Complaint alleges that McKinley made a commission of $19,269.42, that amount is not clear from the record in this case. There are statements regarding commissions for many of the policies. However, on many of these statements, including the statement for Sun Life, there are columns labeled as commissions and columns labeled as overrides. No one testified as to how these statements are interpreted, and it is not clear on the face of the statements how much of the commission goes to the individual agent and how much goes to the agency for whom he works. It is clear that McKinley did indeed earn a commission (and that is how insurance agents are generally compensated), but it is not clear how much or that the amount was inappropriate. Stephanie Vaughn also applied for a life insurance policy with Nationwide. She submitted an application on March 9, 2009, with herself listed as the insured. The application contains a notation requesting that Nationwide contact the agent when preparing to issue the policy to see if the policy will be owned by Stephanie Vaughn or to a trust. The application contemplated a death benefit of $750,000, and was amended to include a long-term care supplement of $300,000 on June 19, 2009. On June 22, 2009, Nationwide Policy number B500118060 (Nationwide 60) was issued, listing Stephanie Vaughn as the insured and as the owner. The policy had a death benefit of $750,000, as requested, and an annual premium of $5,914, using non-tobacco standard rates. Terry Vaughn wrote a personal check for $1,762.08 for a premium payment on Nationwide 60 on July 15, 2009, and Stephanie Vaughn signed both the policy receipt and an amendment reflecting the long-term care rider that same day. John Crawford also wrote a check from his firm’s trust account for $5,000 on July 21, 2009. McKinley’s office requested that the overpayment of $838.08 be refunded to Stephanie Eller Vaughn at her address in Tallahassee. John Crawford also paid the $5,914 premium on May 25, 2010, and McKinley had requested earlier that year that John Crawford receive the invoices, as he was the one paying the premiums. As was the case with the Sun Life 89 policy, the premium payment made by Terry and Stephanie Vaughn was reimbursed by Terry’s mother, Merie Vaughn. Stephanie Vaughn requested cancellation of Nationwide 60 on July 5, 2011, because she and her husband did not want to continue paying for it. They did not receive any cash value for the policy. The Administrative Complaint alleges that Nationwide 60 was never placed in the Stephanie Vaughn ILIT. However, there is no allegation, nor proof, that McKinley was ever instructed to arrange for the transfer of the policy to the trust, nor is there any evidence indicating that there was a discussion of any kind regarding its ownership after it was issued. McKinley earned a commission on the sale of the Nationwide 60 policy. No evidence was presented to indicate that there was anything unusual about the commission earned. The Administrative Complaint alleges that by selling these two policies to Stephanie Vaughn, McKinley violated a public trust in violation of Florida Administrative Code Rule 69B-215.210. There is no indication in the Administrative Complaint as to how the sale of these two policies is a violation of the public trust, and no proof of such a violation was presented. Count XII: Policies on the Life of Yvette L. Day Finally, Count XII of the Administrative Complaint deals with the policies sold on the life of Yvette L. Day, the wife of David Vaughn. Those policies are Pacific Life Policy VP65887630 (Pacific Life 30) and John Hancock Policy 82233941 (Hancock 41). On April 15, 2009, Yvette Lori Day applied for a Pacific Life universal life insurance policy, which resulted in the issuance of Pacific Life 30. While the Administrative Complaint alleges that McKinley “convinced” Mrs. Vaughn and Ms. Day to purchase the policy, David Vaughn testified his wife actually insisted on picking the insurance company for the policy. The application lists Yvette Day as the insured, and the Yvette L. Day ILIT as the owner and beneficiary of the policy. The proposed coverage on the application is $137,447, with a planned premium of $5,000. The application is signed by Yvette Day, John Crawford, and McKinley. The policy issued on April 1, 2009, being backdated to take advantage of a lower premium. Pacific Life 30 was issued for the amount applied for and for the suggested premium of $5,000, and Ms. Day was considered a preferred non-smoker for rating purposes. An amendment to the policy was signed by both John Crawford and McKinley on September 14, 2009, as was the delivery receipt. Checks for $5,000 were issued from the Marks Gray trust account by John Crawford for premiums on September 1, 2009, and May 25, 2010. On June 7, 2011, John Crawford requested cancellation of Pacific Life 30, and return of any cash surrender value. Pacific Life responded by outlining the options to consider as alternatives to surrender, and advised that the tax loss upon surrender at this point would be $6,263.23. Mr. Crawford confirmed the intent to seek surrender, and on June 10, 2011, a check representing the surrender value of $3,760.90 was issued to the Yvette Day ILIT. A commission of $5,223.83 related to the policy was paid to Intervest, who in turn paid the premium to McKinley. Yvette Day also applied for a policy with John Hancock on April 15, 2009, with Yvette Day listed as the insured and the Yvette L. Day ILIT as the owner and beneficiary. The policy was issued on October 7, 2009, with a death benefit of $415,959 and a premium of $5,000. Yvette Day was listed as a preferred non-smoker for purposes of rating. John Crawford, as trustee, paid $5,000 in premium from his Marks Gray trust account on October 12, 2009. The policy receipt was signed by John Crawford on October 26, 2009, along with a form documenting that the policy would be backdated to April 17, 2009. Also completed on that day is an amendment answering a series of questions that were not answered on the original application, including questions related to the financing of the policy. The Administrative Complaint alleges that “when you, Gary L. McKinley, were asked by Hancock underwriting to respond to questions 10(a) and (b), you and attorney/trustee Crawford answered by providing Hancock with an application supplement dated October 26, 2009, stating that the premium payments would be coming from the insured’s income and ‘No’ as whether any entity other than the insured would be funding the premiums. Both answers were false.” In fact, however, McKinley did not sign the application supplement at all. The form is signed by Yvette Day and John Crawford. No evidence was presented to show that McKinley even knew about answers contained in the amendment. Moreover, contrary to the Department’s statement in its Proposed Recommended Order, the language on the amendment that “it is agreed that [the additions, corrections and amendments] are to be of the same effect as if contained in the application” does not transform a statement made by Yvette Day and John Crawford into a false statement by McKinley. The most logical meaning of this phrase, consistent with the testimony of Mike Saunders, is that the information provided by amendment is treated as if it was part of the original application. It does not mean that somehow Respondent’s signature on the original application embraces statements he did not make, but were in fact made by others in subsequent amendments. On June 7 and 11, 2011, John Crawford, as trustee, sent letters to Hancock requesting cancellation of Hancock 41 and the return of any cash value. Because of a discrepancy related to the identified date of the trust, a third letter was sent on August 8, 2011, correcting the listing of the trust date and providing a copy of the trust. Accordingly, on August 24, 2011, Hancock forwarded to John Crawford a check for $282.85, representing the unused premium for Hancock 41. McKinley received $5,336.23 in commissions related to the sale of Hancock 41. No person testified that the amount of the premium earned on this policy was unusual. Of the policies discussed above, 15 of them either lapsed or were canceled or surrendered after October 2010, when Respondent was no longer working with the Vaughns at Mrs. Vaughn’s direction. It cannot be determined what cash value would have been created had some or all of the policies remained in place. The most that could be said, based on the evidence that was presented, is that McKinley participated in the creation of an ambitious estate plan with a lot of moving parts. He replaced policies with more efficient policies, and while it may appear at first blush that he did so too quickly, the more persuasive evidence indicates that he did so to take advantage of changes in insurability while the opportunity to do so existed. There is no question that Respondent consulted with Mrs. Vaughn numerous times and made every effort to help her understand not only the overall plan but the specifics of the plan as well. Moreover, McKinley did not act alone. The trusts were established based on the recommendations of the estate planning team, which included Mrs. Vaughn, McKinley, and various other professionals and advisors. Attorney and trustee John Crawford, as well as attorney Tim McFarland, provided legal advice regarding the implications of the creation of the trusts, and the team considered a number of relevant factors in advising Mrs. Vaughn to establish these trusts. Once the decision was made to go forward with the identified estate plan, Respondent worked with Crump and Capitas insurance organizations, as well as representatives from various nationally-recognized and state- certified insurance companies, to obtain appropriate products to effectuate the goals established by the team. It is also clear that, while a significant amount of money was spent on life insurance premiums, the replacement of policies was undertaken with the goal of reducing the amount used for premium and increasing the death benefit, a course of action which Mrs. Vaughn approved in writing. Financial expert John Linnehan testified that the products purchased provided benefits to Mrs. Vaughn and her family, and that there were sufficient assets to sustain the premiums incurred for life insurance, even assuming her stated living expenses. His testimony is credited. Moreover, the reduction in Mrs. Vaughn’s assets was in large part caused by something other than the payment of insurance premiums. When asked where the rest of her money went, she answered, “I don’t know. It’s just gone.”
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order dismissing the Administrative Complaint. DONE AND ENTERED this 4th day of April, 2016, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of April, 2016.
The Issue The issue for consideration is whether Respondent's license or eligibility for licensure as an insurance agent in Florida should be disciplined because of the Administrative Complaint filed herein, and whether Respondent should be denied a resident license to represent various insurance companies in this state because of the misconduct alleged in the Administrative Complaint.
Findings Of Fact At all times pertinent to the allegations contained herein, Michael Eugene Best was either licensed or eligible for licensure as a life insurance agent, a life and health insurance agent, and a health insurance agent in the State of Florida, and was engaged in the sale and brokerage of insurance, doing business as M. E. Best Investments. The Department of Insurance is the state agency responsible for the monitoring and regulation of the insurance business in this state. Ms. Dorothy Clark, a 73 year old woman, has known and done business with Mr. Best in the insurance area for approximately ten years. In August, 1988, she met with him to discuss her possible purchase of some kind of insurance. She cannot recall what kind of insurance it was. She gave him some money to pay for the insurance in question, which was to be procured from some insurance company, the name of which she could not initially remember, but subsequently recalled to be American Sun Life Insurance Company. The premium payment which she gave to Mr. Best was in the amount of $1,200.00, but she cannot recall whether he was obliged to use that money for the purchase of insurance from that particular company, or whether he had the option to place the insurance with another company. To the best of her limited recollection, Mr. Best did get a policy for her from American Sun Life Insurance Company, but she cannot recall if she kept that policy or if it was changed to another company. She does not recall requesting him to change companies, however, but does recall that she ultimately received a policy issued by United American Life Insurance Company and that Mr. Best was the agent who procured it for her. At hearing she denied ever attempting to cancel the United American policy though she claims she did not want it. She claims that she never received a refund check from United American, however, a check payable to her in the amount of $799.90 was issued to her by that company with address shown as her home of record. The check bears what purports to be her endorsement on the back thereof, followed by the endorsement of Mr. Best's company, but at first she claimed she did not place it there. When shown the check at the hearing, however, she admitted the signature on the endorsement was hers and that she most likely signed it. This check was issued as a result of her unremembered direction to Mr. Best to cancel the policy. She claims she did not authorize Mr. Best to take the money it represented and use it for his purposes. She claims that the check was subsequently deposited by her to her account and that Mr. Best never got possession of it or the money. This is patently wrong, however, inasmuch as Mr. Best admits that he did have the check and placed his company's endorsement on it. He subsequently used the check, with her agreement, to apply toward a policy with another company, and to his recollection, she voluntarily endorsed the check to him. Ms. Clark also purchased a $30,000.00 annuity policy through Mr. Best with another company, the name of which she cannot recall, at about the same time as the first policy mentioned herein. To get this policy she issued a check to Mr. Best in the amount of $30,000.00. When the policy was issued, she requested that it be cancel led because by the time she received it, she had reconsidered and determined that she did not want it. She notified Mr. Best of her desires that the policy be cancelled, but claims she never communicated directly with the company. The company has a letter reputedly from her, however, which complains of Respondent's purported trickery and deceit. It is found that this latter letter was prepared for her signature by someone else. When Ms. Clark told Mr. Best she did not want the policy, and requested him to cancel it, he asked her to wait awhile, for some reason which was unclear to her. Instead, she indicated to him then that she did not want to do so but wanted her money back. Some time after this discussion, but before the policy was cancelled, Mr. Best came to see her and though she cannot recall if he got her to sign anything, she identified her signature on a letter to the company which had issued the annuity policy in question , which indicated that she was satisfied with the policy and withdrawing her request to cancel. She recalls Mr. Best requesting that she sign the letter, but cannot recall what he said at the time. As she remembers, he appeared normal when he came to see her, and she voluntarily signed the letter of her own free will. It is obvious, however, that Ms. Clark did not understand what was being said to her or what she was signing because, she claims, she still wanted the policy cancelled. Her recollection of the incident is shaky - and unsure. She cannot recall if Mr. Best made her sign the letter, and she cannot recall where she signed it. It may have been at her home or at some other location, but she does not know for certain. In addition, she cannot recall if the letter was typed when she signed it, or if the paper was blank. Though she contends Mr. Best tried to keep her from cancelling this annuity policy, at this time she cannot recall what he told her; what reasons he gave her; or why he wanted her to wait. Whenever she dealt with Mr. Best, he was not rude to her. She did not feel she was being forced by him to take out any insurance from him or to do any of the things or sign any of the documentation that she did. Ms. Clark filed the complaint against Mr. Best because she was told by someone that he had forged her name on a check. At the time she signed the complaint, and at the time of the hearing, she did not know whether he did it or not, nor does she know which check he is supposed to have forged. In fact, Ms. Clark finds it difficult to recall much of what had happened and is not sure of any of the facts to which she testified. She does know, and it is found, that all the money she paid to Mr. Best was reimbursed to her and she has lost nothing as a result of her dealing with him. Ms. Clark recalls that about this time, upon the advice of her attorney, Mr. Kanetsky, she engaged in dealings with another insurance agent who advised her to cancel the annuity policy and, in fact, wrote the letter of cancellation to the insurance company for her. Mr. Kanetsky, an attorney practicing in Venice, Florida, has worked with Ms. Clark for approximately ten years, primarily in the area of estate planning for her and her sister. Over the years, he has discussed with Ms. Clark various insurance policies and other financial products, and is aware of the insurance dealings involved in this case which he learned about from his discussions with his client. He claims that in August or September, 1988, Ms. Clark called his office and solicited advice from him as to how she could get rid of an insurance policy she did not want. He advised her to come in with all her papers to discuss it and at their first meeting, found that she had purchased the $30,000.00 annuity on the life of a niece, and also a health policy, from Respondent. The annuity policy was a single premium annuity, and the health policy had a $1,200.00 premium, for both of which, she had written checks. During this discussion Ms. Clark was quite sure that she did not want to keep the annuity policy. She was somewhat confused about the health policy, but was also satisfied that she didn't want it, though she could not elaborate why. Due to Ms. Clark's conditions, both financial and otherwise, Mr. Kanetsky felt she would be better off in a liquid position rather than having such a large annuity outstanding, and since she apparently wanted to cancel both policies, he agreed to help her. To do so, he first contacted an individual in the insurance business who was aware of Mr. Best and his operation. Upon advice of this individual, Mr. Kanetsky then contacted the insurance company on which the annuity policy had been written and requested that it be cancelled. Mr. Kanetsky also referred Ms. Clark to another insurance agent to get the health policy cancelled and a new policy issued. He also contacted Mr. Best to have him refund the $400.20 difference between the $1,200.00 which Ms. Clark had paid in as a premium on the health policy, and the $799.80 which had been refunded to her by the company when the first policy was cancelled. There is some misunderstanding as to how that first $799.80 check was handled. On its face, the check reflects it was sent to Ms. Clark who, in turn, endorsed it over to Mr. Best to be applied toward another policy. Mr. Kanetsky, on the other hand, indicates the check, though addressed to Ms. Clark, was actually sent to Mr. Best, who had Ms. Clark endorse it and who applied it to another policy. In any event, since Ms. Clark wanted that policy cancel led and apparently intended to do no further business with Mr. Best, Mr. Kanetsky requested that Best refund all monies paid. Mr. Best immediately issued his check for $400.20. The insurance company, apparently concluding it had sent the first check to Mr. Best by mistake, issued another check to Ms. Clark in the amount of $799.80, which represents the actual premium cost, with the balance being the agent's legitimate commission. Since Mr. Best had already forwarded his check for $799.80, when the second insurance company check was received it was immediately refunded to Mr. Best. The $30,000.00 paid in for the annuity policy was refunded to Ms. Clark directly by the insurance company. Mr. Kanetsky contends that notwithstanding he had written to Mr. Best to advise him to stay away from Ms. Clark, there is some indication that Best thereafter came to Ms. Clark's residence to discuss the annuity policy with her. Mr. Best does not deny having gone to Ms. Clark's home on several occasions; once to talk to her about the health and accident policy, and another time, to talk about the annuity. In both cases, however, this is a standard practice in the insurance industry, suggested by the company, to attempt to "conserve" the business by making a follow-up call in an effort to dissuade a policy holder from cancelling. It is found that no improper pressure was applied by Mr. Best in his efforts to conserve his sales. Over his years of experience with Ms. Clark, Mr. Kanetsky has found that she confuses easily, and though she is competent, she is extremely limited in business experience and understanding. She does not have a guardian of her property, but is clearly not equipped emotionally to handle many of her financial affairs. It is found that her recollection of the incidents in question here is so poor as to render her testimony almost irrelevant and without merit, and though she is quite sure she did not want the insurance she bought, and attempted to cancel it, she is totally unsure of the circumstances surrounding her relationship with Respondent and the details of any conversations and transactions she may have had with him. Consequently, her testimony, the only direct testimony regarding the issue of what transpired between her and Mr. Best, is, for all purposes here, worthless. Mr. Best denies threatening Ms. Clark or attempting to coerce her into purchasing insurance from him. When he saw her in August, 1988, it was the first time he had seen her for a while and had, in fact, forgotten about her until she came into his office to file a claim. At that point, he made an appointment with her for a review of her policy status. At that time Ms. Clark had no Medicare coverage, (she does now), and he offered to attempt to get her medical coverage, to which she agreed. She wrote a check for a policy to be issued by American Sun Life Insurance Company which, subsequently, rejected her. When the rejection came through, Mr. Best immediately notified her of that fact and told her then he would convert to another company, to which she agreed. Mr. Best is satisfied Ms. Clark understood he would apply the refund check he received from American Sun to the second policy issued by United American Life, and he did this. She thereafter cancelled that policy. After Mr. Best received notice of the cancellation, he went to her home to explain everything to her. At no time, however, did he threaten her, a fact to which she agrees. He claims she had received the initial refund from united American for $799.80, which she agreed he could apply toward a policy with another company, and she voluntarily endorsed the check over to him. She also cancelled this second policy. With regard to the annuity policy, when she notified the company that she was cancelling it, he received notice of this from the home office which suggested he do what he could to conserve the business. When he went to see her about it, she agreed, he claims, that she would keep the policy. At that time he wrote out, by hand, a note to be signed by her indicating her satisfaction with the policy and her desire it be maintained. When the company thereafter indicated it preferred a typed statement to that effect, he went to her with a typed notice which said the same thing, and which Ms. Clark signed. No threats were made, and Ms. Clark agrees to this. Mr. Best also sold an insurance policy to an Ann Ward, which she cancelled for a reason totally unrelated to the Respondent. When Mr. Best found out she had cancelled the policy, he went to see her to inquire as to her reasons. At that time, as in all her dealings with him over a period of time, he was not, and she has never found him to be, overbearing, unprofessional, or coercive. In all their transactions together, he has always fully explained his product, and on the basis of their relationship, she would be happy to deal with him again. When Ms. Ward cancelled her policy, the company wrote to Mr. Best and advised him of this fact and that he must refund a portion of the premium which it had paid to him as a commission. When he received this letter, he called the company and authorized it to withhold from the amount owed to him for renewal commissions, any amount the company claimed as reimbursement. He claims to have believed this procedure, a standard action within the industry, satisfied his obligation to the company. He was, therefore, quite surprised when the company complained and he immediately wrote a check to the company to cover the balance due it which is now paid in full. However, the evidence of record shows he was sent several notices of delinquency, even several for the balance after he authorized the company to take his earned commissions, without his taking any action and the company ultimately, on December 22, 1988, terminated his agency. His failure to pay over is found to be more negligent than willful, however. Mr. Best has been in the insurance business since 1979 and claims he has had no prior administrative complaints filed against him since that time. The Department showed none.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Counts I and II of the Administrative Complaint relating to the Respondent, Michael Eugene Best, be dismissed; and that as to Count III, he pay an administrative fine of $500.00. It is further RECOMMENDED that Mr. Best's applications to represent World Insurance Company, Travellers Life Insurance Company, and American Integrity Insurance Company be denied, such denial to be without prejudice to re-filing of the applications at a later time to be set by the Department. RECOMMENDED this 15th day of February, 1990, in Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of February, 1990. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to S 120.59(2), Florida Statutes, as to all of the Proposed Findings of Fact submitted in this case. FOR THE PETITIONER; 1. - 3. Accepted and incorporated herein. Accepted and incorporated herein. -10. Accepted and incorporated herein. 11.-14. Accepted and incorporated herein. 15.&16. Accepted and incorporated herein. 17. Accepted and incorporated herein, with the understanding that the failure to deal with American Sun Life was not due to any misconduct of Respondent but because of the Company's rejection of Ms. Clark. 18.-20. Rejected as not supported by the evidence. 21.-24. Accepted and incorporated herein. 25.-27. Rejected as not supported by the evidence. 28.-31. Accepted and incorporated herein. 32.&34. Accepted and incorporated herein. 35. Accepted and incorporated herein. COPIES FURNISHED: C. Christopher Anderson, III, Esquire Office of Legal Services Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 Michael E. Sweeting, Esquire Pflaum, Dannheisser and Sweeting, P. A. 100 Wallace Avenue, Suite 210 Sarasota, Florida 34237 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and if so, what penalty should be imposed.
Findings Of Fact At all times material to this case, Respondent is licensed as a life insurance agent and as a life and health insurance agent. Respondent operated through his agency listed as Tax Saving Concepts, Inc., 1003 10th Lane, Lake Worth, Florida 33463-4354. Petitioner is the agency of the State of Florida vested with the statutory authority to administer the disciplinary provisions of Chapter 626. This case was initiated by an anonymous complaint submitted by fax on August 23, 1999, to a Department office. The anonymous complainer faxed a copy of a newspaper ad from that day's edition of The Palm Beach Post. The ad reads as follows: “85% OFF TERM LIFE INSUANCE COMMISSIONS! LEGAL SAVINGS per Florida Statute 626.572 PERSAVE (sic) $1,000’s. Call 800-2-save-75. www.lifeinsurancediscounts .com Tax Saving Concepts Since 1986” The web page advertisement reads: 90% OFF 2ND-TO-DIE LIFE INSURANCE COMMISSIONS LEGALLY! YOU CAN SAVE $100,000+ IN YOUR POCKET! Save 90% off your 2nd-to-die life insurance commission costs legally when you sign your application in Florida with Tax Saving Concepts, Inc., a registered legal rebating broker since 1986. Our tax-free rebates can save you $100,000+. References from our happy clients will prove to you that you too will save thousands of dollars on your 2nd-to-die life insurance commission costs. We also offer deep discounts on term life insurance. Tax Saving Concepts, Inc. Of Florida America’s Oldest & Deepest Discount Life Insurance Broker Since 1986™ Registered Legal Rebating Broker Since 1986 We have never had a consumer complaint Email us: since 86@gate.net 561-439-6974 “Palm Beach agent Barry H. Small offers a 90% commission rebate. ” The Wall Street Journal March 25, 1993 By letter dated August 31, 1999, the Department, through an authorized representative, requested that Respondent get in touch to discuss the newspaper ad and website. Respondent answered by letter dated September 9, 1999, wherein he stated, “ABSOLUTELY NO life insurance companies are mentioned at my seminar.” He further stated, “I have not and do not intend to run this Palm Beach Post listing again.” After receiving this non-response, the case was referred to William Darryl May (May) of the Department’s Bureau of Agent and Agency Investigations for follow-up. May initiated the Department's investigation with a call to Small on January 26, 2000. May was successful in making telephone contact, but the conversation was unproductive due to Small's distrust of the Department's staff and unwillingness to provide information. Small believes himself to be the victim of a conspiracy between the Commissioner of Insurance and insurance agents who do not rebate commissions; he therefore felt justified in refusing to cooperate with May in answering questions concerning whether and to whom he had rebated commissions to customers, saying only, “You know the companies I am licensed with.” More specifically, Small would not provide the names of any customers he had rebated commissions to. Small feared adverse impacts upon his relationship with any customers state investigators might choose to contact. Small elaborated on his fears in a letter to May dated October 15, 1999 which states in part: I am writing the following facts from a consciousness that I can be killed at any moment. There is a contract on my life to have me killed, taken out by business competitors. On 6 occasions in the last 3 years, mafia hitmen, paid for by these business competitors have tried to kill me. Taking Small up on his implicit suggestion that the state deal directly with companies with whom Small had contractual relationships, May sent identical letters to the insurance companies for which Small was then authorized, or appointed, to sell insurance. May later received responses from companies, as follows: Banner Life Insurance Company, responded on January 26, 2000, through its legal department, with a letter to Small, which stated in pertinent part: We are in receipt of the enclosed newspaper advertisement and Internet website advertisement from the Florida Department of Insurance. Since these advertisements could potentially result in the sale of Banner Life Insurance Company products, they should have been submitted to our company for prior approval. We have thoroughly reviewed our records and advertising logs, and have determined that you never received permission from us to use the enclosed advertisements. Furthermore, if these advertisements had been submitted, they would not have been approved for use. First Colony Life Insurance Company, through its law department, wrote to May on December 15, 1999, and stated that it did not approve of the newspaper and website advertisements; did not authorize Small to rebate commissions; and had no record of a rebate schedule filed by Small. Unum Life Insurance company, through its customer relations manager, wrote to May on December 14, 1999, and stated that it did not approve of the newspaper and website advertisements; did not authorize Small to rebate commissions, and had no record of a rebate schedule filed by Small. Lincoln Benefit Life Company, through its Vice President and Assistant General Counsel, by letter to May dated December 14, 1999, stated that it did not approve of the newspaper and website advertisements and did not authorize Small to rebate commissions. The letter also stated that Lincoln Benefit's file research revealed a letter from Small to a general agent for Lincoln Benefit detailing his rebating schedule, but did not supply any details regarding that document. Transamerica Life Companies, through a compliance officer, wrote to the Insurance Commissioner on December 7, 1999, stating that it had not approved the newspaper or web site advertisements, and further noting that ". . . when Mr. Small was recontracted as a producer in June 1999, the company had him sign a document acknowledging [its strict anti- rebating policy].” Midland National Life Insurance Company, through its Consumer Affairs Associate, wrote to May on February 2, 2000. The letter stated that Small had produced little business for the company and that the company was in the process of terminating Small's appointment. It further stated that the company had not approved either of the advertisements. Finally, the letter made reference to its cooperation in a prior investigation of Small arising out a 1993 advertisement, and noted that it had been informed by the Department in August 1996 that that investigation was being closed. Sun Life of Canada, through its markets [sic] compliance office, wrote to May on November 2, 1999, stating that the company affirmatively requires that ads "used to promote Sun Life products" are subject to review and approval, and that the company does not permit rebating. Hartford Life, through its legal office, addressed a December 17, 1999, letter to May which stated that neither Respondent individually, nor through the Tax Savings Concepts entity, ever sought permission to rebate commissions with that company and no such authorization was ever granted. At a minimum, the language of the advertisements published by Small to readers of The Palm Beach Post and to the entire world via the Internet, demonstrates that Small promotes his business by advertising to the public his willingness to grant rebates. Yet, he feels well justified in his unwillingness to cooperate with regulatory authorities by providing information which would facilitate a determination as to the bona fides of his advertisements, and the details of his rebating practices. Rather, Small insists that the regulators find out what they can from the companies with whom he is authorized. In this case, that procedure compels the conclusion that with the possible exception of Lincoln Benefit, Small has not filed rebate schedules at any time material to this case. AS TO THE COUNT I ALLEGATIONS Respondent’s newspaper advertisement is, when viewed in the light most generous to Small, unclear, ambiguous, and misleading. "85% off commissions" in the context of the entire advertisement doesn't tell the prospective purchasers what he is saving, if anything. Small's representation that the prospective customer will enjoy “Legal Savings per Florida Statute 626.572” is false with respect to at least eight of the companies he represented at all times material to this case. As to these companies, clear and convincing evidence establishes that he was not authorized to rebate pursuant to that statute. In his untimely and unauthorized Motion to Quash, Small asserts that the baffling expression “PERSAVE $1,000’s” is there due to an error by The Palm Beach Post. It should have read, he contends, "You Save $1,000's." Thus, by Small's own admission, the suggestion to readers was intended to be that they stood to realize thousands of dollars in savings by doing business with Small. AS TO THE COUNT II ALLEGATIONS The web site advertisement is similarly unclear to the point of being intentionally misleading. Small is not a "Palm Beach agent." His office is located within his home in Lake Worth, a municipality within the greater Palm Beaches area. Palm Beach is one of the best known playgrounds of some of the world's wealthiest people, and carries a cachet which the truth--that Small never leaves his home in Lake Worth--does not. It suggests to readers that Small's clientele includes the rich residents of Palm Beach, whom he makes richer. The "85% off insurance commissions" advertised in the newspaper is upped to 90% off for Internet readers, and again begs the question, “90% off of what?” In this advertisement, the phrase “$100,000+” of savings “in your pocket,” made without any factual predicate, convincingly suggests an intent to mislead. Beyond self-serving and often incoherent testimony, Respondent's only effort to rebut the Department's case was through testimony that he had once “discussed” with Richard Scalesse (Scalesse), a Hartford Life account executive, “a large insurance case of about $120,000 of annual premium.” Scalesse could not remember details of the case. Assuming the accuracy of Small's testimony, in particular the claim that this case was “a very, very large case,” it does not rebut any element of the administrative charges nor does it support any element of an affirmative defense. The last statement in the web page ad reads: “We also offer deep discounts on term life insurance.” What other type of insurance is being offered? Did the other discounts apply only to whole life? Annuities? Universal life? The advertisement offers no concrete information upon which a consumer could make a rational decision to consider doing business with the advertising agent. Respondent's claims that the newspaper advertisement was placed by mistake and will never be repeated is too little, too late. The advertisement is not benign in that it simply advertises a "seminar," as Small contends. The advertisement says nothing about a seminar, and even if it did, Small, when attempting to attract customers to his insurance business, is at all times bound by the statutes and rules governing the conduct and business practices of state- licensed insurance agents, no matter what he thinks of their constitutionality, or the people whose jobs it is to enforce those statutes and rules. Each of the false and misleading statements contained in The Palm Beach Post ad, as well as on Small's website, was, at all times material to this case, authorized by Small.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order finding the Respondent, Barry Howard Small, guilty of violating Subsections 626.572(1), 626.611(7); 626.611(9); 626.611(13); 626.621(2); 626.621(3); 626.621(6); 626.9541(1)(a)1., and 626.9541(1)(e)1., and Rules 4-150.101; 4-150.105(1)-(4); 4-150.107(1)(a); and 4-150.114(10), and suspending his license for a period of one year. DONE AND ENTERED this 9th day of September, 2002, in Tallahassee, Leon County, Florida. __________________________________ FLORENCE SNYDER RIVAS 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 9th day of September, 2002. COPIES FURNISHED: David J. Busch, Esquire Department of Insurance 200 East Gaines Street Tallahassee, Florida 32399-0333 Barry Howard Small 3200 South Ocean Boulevard Apartment 103D Palm Beach, Florida 33480 Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
