The Issue The issues for determination in this proceeding are whether Respondent committed the acts alleged in the Amended Notice And Order To Show Cause and, if so, what, if any, penalty should be imposed.
Findings Of Fact Parties Petitioner is the state agency responsible for regulating insurance and insurance related activities in Florida. Petitioner is the agency responsible for regulating any licensed or unlicensed person or entity engaged in unfair insurance trade practices within the meaning of Section 626.951, Florida Statutes. 1/ Respondent, Leroy Preston, is licensed to sell life and health insurance in Florida. The other Respondents are not licensed to transact insurance in Florida and are not otherwise licensed by Petitioner pursuant to Chapters 624 through 632, 634, 635, 637, 638, 641, 648, and 651 (the "Florida Insurance Code"). Respondent, American Family Benefits Group, Incorporated ("AFBG, Inc.") is a Florida corporation wholly owned by the four individual Respondents. Respondent, Roy L. Beach, is an officer and director of AFBG, Inc., and is an attorney licensed to practice law in Florida. Respondents, Preston, Kenneth King, and Robert King, are officers and directors of AFBG, Inc. The individual Respondents comprise American Family Benefits Group ("AFBG") and the board of directors for AFBG, Inc. (the "Board"). Background Respondents designed a marketing program for the sale of memberships in AFBG, Inc. Promotional materials describing the benefits of membership were reviewed and approved by each member of the Board and mailed to thousands of prospective customers in 50 states. Memberships were offered to individuals at a price of $99 per membership. The benefits of membership included: life insurance up to $350,000 at no cost to members; a certificate of deposit of $5,000; a major bank credit card, regardless of credit history, secured by the certificate of deposit; non- qualifying mortgage loans; non-qualifying automobile leases; discounted long distance service; and discounted catalog prices. Respondents received approximately 140,000 applications for membership. Approximately 600 applications included payment of the $99 membership fee. Petitioner issued a Notice And Order To Show Cause on February 10, 1994. The marketing program for the sale of memberships in AFBG, Inc. was terminated by Respondents. Respondents returned the membership fee paid by approximately 300 applicants. On May 6, 1994, Petitioner issued an Amended Notice And Order To Show Cause ("Amended Notice"). The Amended Notice charges that Respondents violated Sections 626.9521, 626.9541(1)(a), (b), (h), (l), and (n). The Amended Notice charges that Respondents violated Section 626.9541(1)(a) by making misrepresentations for the purpose of effecting an assignment or pledge of insurance policies to secure a loan. Respondents allegedly violated Section 626.9541(1)(b) by representing that insurance policies obtained on the life of members would be used to secure a loan that would fund membership benefits. Respondents allegedly violated Section 626.9541(1)(h) by offering the payment of money to induce customers to enter into an insurance contract. The Amended Notice charges that Respondents violated Section 626.9541(1)(l) by inducing customers to pledge, assign, borrow on insurance policies, convert insurance policies, or to take out an insurance policy with another insurer ("twisting"). Finally, the Amended Notice charges that Respondents violated Section 626.9541(1)(n) by offering free insurance as an inducement for the purchase or sale or services directly or indirectly connected with real or personal property. Pledge Or Assignment To Effect A Loan: Section 626.9541(1)(a) Respondents knowingly issued and circulated a statement or sales presentation (the "promotional materials") that was a misrepresentation. The misrepresentation was made for the purposes of: effecting a pledge or assignment of an insurance policy; and effecting a loan against an insurance policy. Payment of the $99 membership fee did not entitle a new member to any of the benefits of membership. A new member was not required to elect any membership benefit, including the insurance benefits. Such a member could simply pay Respondents $99 and choose to receive none of the benefits of membership. A new member who wished to elect any of the benefits of membership was in substantially the same position as a new member who chose to receive no benefits. A new member who desired any one of the benefits of membership was first required to elect the insurance benefits. Insurance benefits entitled a new member to five universal life insurance policies on the life of the new member. Each policy was to be issued for $70,000. 2/ No life insurance policies were available unless a new member applied for and obtained all five policies and assigned four of the five policies to a bank. The bank must then make a loan in an amount and terms that were sufficient to fund all of the benefits of membership. 3/ A loan in the gross amount of $84,000 was needed to fund the benefits of membership. The net loan proceeds were to be used to purchase an annuity, a certificate of deposit to secure the credit card for the new member, pay Respondents a profit of $5,000, pay commissions and referral fees to independent parties up to $3,000, pay administrative costs, and fund the other benefits of membership. 4/ Respondents' pro forma projections of economic feasibility for the membership program showed an annual interest rate of six per cent, an amortization period of 20 years, and level periodic payments of principal and interest. Respondents' pro formal projections were based, in relevant part, on three assumptions. First, the insurance policies would be used as part of the collateral securing the loan needed to fund the benefits of membership. Second, Respondents were to be personally liable for each loan. Third, an annuity would secure the loan, pay the debt service on the loan, and pay the premiums for the insurance policies assigned to the lender. The insurance policies that new members were required to assign to the lender to secure the purported loan had no loan value. Respondents represented to prospective members that the life insurance policies were universal life policies. However, the policies were "skeleton" universal life policies that had de minimis cash value and no loan value. The loan to value ratio of any loan secured by the insurance policies would necessarily exceed 100 percent. Respondents' personal liability for loans to new members lacked economic substance. Capital contributions to AFBG, Inc. and Respondents' individual assets were inadequate to secure individual loans of $84,000 to 140,000 members. The annuity needed to pay the debt service on the loan and the insurance premiums on the policies securing the loan was not economically feasible. 5/ The membership fee of $99 was inadequate to pay the first year insurance premium on one $70,000 policy, much less the other four policies required to fund any of the benefits of membership. The economic reality of the membership program required a new member to pay Respondents $99 and to apply for and obtain five insurance policies from independent insurance agents. There was little or no probability of receiving any of the benefits of membership because the loan needed to fund those benefits had little or no economic reality. Thus, the membership program required a new member to pay $99 to Respondents for no benefits of membership. If $99 had been paid by all 140,000 applicants, Respondents would have received $13,860,000 in return for illusory promises of membership benefits. Insurance Policies To Secure Loan: Section 626.9541(1)(b) Respondents knowingly published, circulated, disseminated, and placed before the public an untrue statement concerning the business of insurance. Respondents represented that the universal life insurance policies obtained by individual members would be used as collateral to secure the loan needed to fund their insurance benefits. Respondents knew that the insurance policies were skeleton policies with little or no cash value and no loan value. The untrue statements issued by Respondents concerned the business of insurance. Respondents used economic incentives to induce prospective members to obtain life insurance policies. Without life insurance policies, new members were not entitled to any of the other benefits of membership including, a certificate of deposit, a credit card, non-qualifying mortgages, and non- qualifying car leases. The purchase and assignment of life insurance policies was an integral part of the business conducted by Respondents. The economic incentives used by Respondents were designed to effectuate a contract of insurance. Respondents effectuated approximately five contracts of insurance. The subsequent assignment of insurance policies to a lender also constituted the business of insurance. Those assignments constituted the transaction of matters subsequent to the insurance contract and arising out of the insurance contract. Unlawful Rebates: Section 626.9541(1)(h) 27. Respondents knowingly offered an indirect rebate of an insurance premium to prospective members as an inducement to enter into an insurance contract. Respondents' offer to pay the insurance premiums on members' insurance policies was a valuable consideration intended to induce new members to enter into insurance contracts. Twisting: Section 626.9541(1)(l) 28. Respondents knowingly made misleading representations with respect to insurance policies for the purpose of inducing or tending to induce new members to pledge, assign, borrow on, or convert an insurance policy or to take out a policy of insurance in another insurer. Respondents representations were misleading. 29. Respondents' representations led prospective members to believe that a pledge, assignment, or conversion of their insurance policies could be used to secure a loan needed to fund other membership benefits. The representation that a loan could be obtained by new members upon assignment of their insurance policies had no economic reality. Free Insurance: Section 626.9541(1)(n) Respondents offered to provide free insurance as an inducement for new members to purchase real or personal property. The benefits of membership included non-qualifying mortgages in real property, non-qualifying car leases, and non-qualifying bank credit cards. None of those benefits were available to new members unless they obtained life insurance policies and assigned those policies to a lender. The insurance policies were free to new members. There was no cost to new members. The insurance premiums were to be paid out of the annuity to be purchased from the net loan proceeds.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents guilty of all of the charges in the Amended Notice and ordering Respondents to permanently cease and desist the marketing of memberships in AFBG, Inc. It is further recommended that a fine of $4,000 should be imposed on each of the Respondents, not to exceed the aggregate amount of $20,000, and that the license of Respondent, Leroy Preston, should be suspended for 30 days. RECOMMENDED this 28th day of March, 1995, in Tallahassee, Florida. DANIEL MANRY 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 28th day of March, 1995.
The Issue This case concerns the issue of whether Respondent's license as an Ordinary Life including Disability agent should be suspended, revoked, or otherwise disciplined for making certain misrepresentations to a Mr. Roger L. Robert in connection with the sale of a life insurance policy to Mr. Robert. A second issue relating to such disciplinary action is whether the Respondent improperly applied to become an insured under a group insurance policy. At the formal hearing, the Petitioner called as witnesses John E. Riley, Roger L. Robert, Angela Stackler, Marie Ellena Mullins, Frederick P. Quinn. The Respondent called as witnesses Baron Kramer, and the Respondent, Stanford J. Sabarsky. The Petitioner offered and had admitted into evidence Petitioner's Exhibits 1 through 7. Counsel for the Petitioner and counsel for the Respondent submitted proposed findings of fact and conclusions of law to the Hearing Officer for consideration. To the extent that the findings of fact herein are consistent with those proposed findings, the proposed findings were adopted by the Hearing Officer. To the extent that the findings herein are inconsistent with the proposed findings the proposed findings were considered by the Hearing Officer and rejected as having been unsupported by the evidence or as being unnecessary to the resolution of this cause.
Findings Of Fact COUNT I As to Count I of the Administrative Complaint, the parties stipulated to certain facts alleged in the Administrative Complaint, and those facts are found as facts in Paragraphs 1 through 9 below: Respondent, Stanford J. Sabarsky, at all times material herein, represented the All American Life Insurance Company as a licensed Ordinary Life, including Disability Agent. Stanford J. Sabarsky did on or about September 16, 1980, contact one Roger L. Robert, President of Freight Sales Centers, Inc. of Tampa, Florida for the purpose of soliciting an application for life insurance from Mr. Robert. At that time and place, Respondent represented to Mr. Robert that he could purchase a seven hundred fifty thousand dollar ($750,000.00) life insurance policy to be issued by the All American Life Insurance Company with an initial annual premium payment of fourteen thousand two hundred and eighty-five dollars ($14,285.00) As a result of said application, the All American Life Insurance Company subsequently issued to Mr. Robert policy number L1124920 effective November 11, 1980, in the face amount of seven hundred fifty thousand dollars ($750,000.00). Premium payments on policy number L1124920 were made by Mr. Robert on a monthly basis from October, 1980, to November, 1981. On or about November, 1981, Mr. Robert received notice from the All American Life Insurance Company that the second annual renewal premium on policy number L1124920 was due. On or about December 4, 1981, Mr. Robert requested that the renewal premium be paid from the cash value of his policy. As a result of the request, the second year annual renewal premium on policy number L1124920 was paid for by a policy loan against said policy, thereby reducing the net insurance protection of that policy. That Respondent, Stanford J. Sabarsky, earned a sales commission due to the issuance of policy L1124920. Prior to purchasing policy L1124920, Mr. Robert was given a sales presentation in his office by the Respondent. It was represented to Mr. Robert, by Mr. Sabarsky, that after the first year's premium was paid, the premium would thereafter be paid by the cash value and he would not have to make any more premium payments. Mr. Sabarsky also explained to him that the cash value could be borrowed out of the policy at approximately seven percent interest. It was Mr. Robert's understanding that after he paid the first year's premium, he would never have to pay out any more money for the life insurance coverage. He expressed this understanding to Angela Stackler, an employee, in the presence of Respondent, and Respondent did not inform him that his understanding was incorrect. In approximately November, 1981, Mr. Sabarsky returned to Mr. Robert's office. At that time, Mr. Sabarsky was questioned by Mr. Robert and his employee Ellena Mullins about the fact that they had received a bill for the next year's premium. In response to the inquiry, Mr. Sabarsky related that the first year's premium would carry the policy and that Mr. Robert wouldn't have to pay any more money. Mr. Sabarsky did not explain to Mr. Robert in November, 1980, or in November, 1981, the out-of-pocket expense which Mr. Robert would have to pay each year in order to borrow the cash value to pay the premium. In order to obtain those loans annually, Mr. Robert, within six years of the policy, would have out-of-pocket interest expense of $3,779.00, and in ten years, would pay interest of $10,163.00 in order to maintain the policy in effect. On April 1, 1982, Mr. Robert, after making inquiry to All American Life Insurance Company, received a letter setting forth the out-of-pocket expenses which would be required of him in order to maintain the life insurance policy in effect. COUNT II As to the allegations of Count II of the Administrative Complaint, the parties stipulated to those facts found in Paragraphs 14 through 16 below. That at all times pertinent to the dates and occurrences referred to in this Administrative Complaint, Respondent, Stanford J. Sabarsky, was qualified and licensed as an insurance agent in this state. On or about January 29, 1979, Stanford J. Sabarsky, while licensed as an insurance agent for Home Security Life Insurance Company, did solicit and sell to Roger L. Robert, President of Freight Sales Center, Inc. of Tampa, Florida, a group disability insurance plan for the employees of Freight Sales Center, Inc. That on or about February 12, 1981, Stanford J. Sabarsky, signed an application to Home Security Life Insurance Company to have his name added to said group disability insurance plan and indicated on said application that he was an employee of Freight Sales Center, Inc. Prior to signing the application on February 12, 1981, the Respondent had asked Roger L. Robert to allow him to add his name to the group disability insurance plan of Freight Sales Center, Inc. As a result of the February 12, 1981, application, the Respondent was, in fact, added as an insured to the group disability insurance policy. He remained as an insured under the policy until approximately May, 1981. In March, 1981, the Respondent submitted a claim to Home Security Life Insurance Company. The claim was paid. The application signed by the Respondent (Petitioner's Exhibit 6) on February 12, 1981, reflected that he worked a minimum of 30 hours per week for Freight Sales Center, Inc, that his date of employment was 1/30/81, and that his base earnings was $600 per week. These facts were not true. At no time from January 30, 1981, to May, 1981, was the Respondent an employee of Freight Sales Center, Inc. The Respondent was aware at the time that he signed the application that he was not an employee of Freight Sales Center, Inc.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department enter a final order suspending Respondent's license as an Ordinary Life including Disability agent for a period of one (1) year. DONE and ENTERED this 12th day of August, 1983, in Tallahassee, Florida. MARVIN E. CHAVIS, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of August, 1983. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 George W. Greer, Esquire 302 South Garden Avenue Clearwater, Florida 33516 Honorable Bill Gunter Insurance Commissioner and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32301
The Issue The issue to be resolved in this proceeding concerns whether the Respondent violated various provisions of the Florida Insurance Code, as alleged in the Amended Administrative Complaint, and if so, what penalty, if any, is warranted.
Findings Of Fact The Petitioner is an agency of the State of Florida charged with regulating and licensing the entry of insurance agents into the profession of insurance and with regulating the practice of agents and other insurance professionals already licensed by the State of Florida. The Respondent, at all times pertinent hereto, was and is licensed by the State of Florida as a non-resident life and health insurance agent. The Respondent procured applications for life insurance to be issued from Pacific to the 30 named individuals and entities set forth in the Amended Administrative Complaint in its 25 counts. Pacific was not authorized to transact insurance business in the State of Florida because the company was not yet licensed. However, it was in the process of becoming licensed and licensure was imminent. The company Regional Director, C. Manley Denton, and other company officials, when they recruited the Respondent to sell insurance policies in Florida, assured him that licensure was imminent, that there was no impediment to finalization of the licensure procedures in the very near future, and that the Respondent could legally obtain life insurance policy applications and sell policies in Florida if he took the applications and dated them in and from his Tulsa, Oklahoma, office. He was assured that this procedure would render his activities legal. In reliance on these representations by officials of Pacific, the Respondent undertook to and did obtain the applications for, and sell the insurance policies, referenced above and in the Amended Administrative Complaint. The Respondent, for many years, has transacted insurance business as a general agent of life and health insurance in Oklahoma and in Florida. He is a resident of both states, spending part of each year in each state. Many of the policyholders referenced above and in the Amended Administrative Complaint were clients of the Respondent, who had already had other insurance policies issued by him through companies he represents. In the particular instances involved in this proceeding, many of these clients had been policyholders of the First Capital Life Insurance Company, which had experienced financial difficulties and gone into receivership. Because of his policyholders' concern and his own concern about the possibility of the future inability to pay claims by the company in receivership, the affected clients and the Respondent were desirous of replacing those policies with policies in a different and sounder insurance company. This desire dovetailed neatly with the desire by the executives at Pacific to obtain a large block of insurance policy business in Florida and in other states in the mainland United States. This desire by Pacific executives was due to a recent merger of that company with the Hawaiian Life Insurance Company, a company which was owned by Meiji Mutual Life of Tokyo Japan (Meiji). The resulting merged company, Pacific, was owned by Meiji. The executives at Pacific, which had historically been headquartered in San Jose, California, desired to continue to maintain the company domicile and their own personal residences in California and avoid having to relocate to Hawaii. This was the reason they desired to secure a large block of insurance business very rapidly in order to enhance the sales record of the "stateside branch" of the company. They believed that this would insure that their relocation would not have to be accomplished. With this interest in the forefront of their plans, the executives of Pacific began to search for the best insurance agents in the nation who have a record of successfully writing large volumes of life insurance policy business. The Respondent is such an insurance agent. He had recently achieved a nationally-recognized ranking as one of the highest volume life insurance producer agents in the country. Because the Respondent was desirous of placing a high-dollar volume of life insurance policies for the clients referenced above, who had had policies in the financially-troubled First Capital Life Insurance Company, the Respondent agreed, at the behest of the officials of Pacific, to attempt to write a large block of life insurance business in the State of Florida. The Respondent is a well-respected general life insurance and health insurance agent. He is widely known throughout the insurance profession and industry, throughout the United States, as an ethical, competent and successful life insurance policy producer. He has no blemish on his licensure and practice record as an agent, throughout the approximate 40 years he has engaged in the profession. When the Respondent obtained the insurance policy applications and policies at issue in this proceeding, he engaged in one course of conduct. That is, he contacted the clients and obtained their applications and arranged for the sale of the insurance policy contracts to them, as either new policies and clients, or as replacement policies for his existing clients, as the case might be. He engaged in this essentially-identical transaction with all 30 of these policyholders, in the genuine, good-faith belief that he was legally writing insurance policy business in the State of Florida based upon the circumstances related to him by officials of Pacific, upon which he relied. He candidly acknowledges, through counsel, that, in so relying, he knew that the company was not actually licensed in the State of Florida, but that that eventuality was imminent in the very near future, and that based upon the method the company assured him of writing the policies through the Tulsa, Oklahoma, office, he would be obtaining and transacting this business in a legally acceptable way. He also candidly acknowledges that, in fact, he understands, from his contact with the Department since that time, this was not the case and that he was writing the business for a company not legally authorized to do business in the State of Florida. The Respondent has freely admitted these above-found facts and does not dispute that he was in violation of the portion of the charges that do not depend on intent. He has established, however, through the exhibits admitted as explanatory hearsay and the agreed-upon proffer of his counsel, that the transactions at issue, all of which were the result of one essentially-identical course of conduct, were accomplished with no intent to defraud the policyholders, the company, or the Florida Department of Insurance. There was no willful, dishonest or deceitful intent by the Respondent during the course of his engagement in these transactions. There was no such willful wrongful intent in the course of his contact and relations with the company, those policyholders, or the Department of Insurance since that time. No policyholder or company suffered any financial detriment as a result of the Respondent's conduct, nor did any insurance coverage lapse at any time. Although there were some 30 policyholders who were sold insurance by the Respondent, as the agent for a company not actually licensed in the State of Florida, that circumstance had no effect on the validity of the policy coverages involved and there were no actual "victims" of the Respondent's conduct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Petitioner, Department of Insurance, finding the Respondent, Wayne Harland Creasy, guilty of a violation of Section 626.901(1), Florida Statutes, in the manner found and concluded above and that a penalty of $3,000.00 be imposed, together with the award of $500.00 in attorney's fees. DONE AND ENTERED this 1st day of April, 1996, in Tallahassee, Florida. P. MICHAEL RUFF, 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 April, 1996. APPENDIX TO RECOMMENDED ORDER Petitioner's Proposed Findings of Fact 1-32. Accepted. Rejected, as constituting a conclusion of law and not a finding of fact. Accepted, in part, but subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted, in a technical sense, but not in the sense that any overt, intentional effort to circumvent Florida law was committed by the Respondent. Rather, it was a negligent failure to act in a legal way due to being misled by Pacific Guardian Life Insurance Company, Ltd. or its officers or employees. Accepted, as to the factual allegations of the Administrative Complaint, but not as to their legal import, and subordinate to the Hearing Officer's findings of fact on this subject matter. Respondent's Proposed Findings of Fact The Respondent's proposed findings of fact are not ruled upon or considered because they were not timely filed, being approximately one month out of time with no motion for extension of time, during the originally-set time period, being filed. Consequently, the Petitioner's motion to strike the Respondent's proposed findings of fact and conclusions of law is granted. COPIES FURNISHED: Willis F. Melvin, Jr., Esquire Department of Insurance and Treasurer Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 C. Rabon Martin, Esquire Martin and Associates 403 South Cheyenne Avenue Tulsa, Oklahoma 74103 Bill Nelson, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner, Acting General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
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 in this case is whether the Respondent's license as a viatical settlement provider in Florida should be disciplined because of the matters alleged in the Administrative Complaint dated June 29, 2000.
Findings Of Fact At all times relevant to the issues herein, the Petitioner, Department of Insurance (Department), was the state agency in Florida responsible for the licensing of viatical settlement providers and the regulation of the viatical settlement industry in this state. The Respondent, Accelerated Benefits Corporation (ABC), was licensed as a viatical settlement provider in Florida. Pursuant to an investigative subpoena issued by the Department, in November and December 1999, investigators of the Department examined the records of the Respondent, as well as other viatical settlement providers operating within the state, looking into the viatical settlement industry's practices in Florida. As a part of the investigation, Janice S. Davis, an examiner/analyst with the Department, copied records of the Respondent relating to at least six individual viatical settlement transactions in which the Respondent was involved. These files relate to Counts 5 through 7 and 9 through 11 of the Administrative complaint. Ms. Davis also obtained from the Respondent the information regarding the location of several other cases, the files for which had been confiscated by the Statewide Prosecutor as a part of an ongoing investigation into the viatical settlement industry, and subsequently obtained copies of those files from the office of the Statewide Prosecutor. Those files relate to Counts 1 through 4 and 8 of the Administrative Complaint. As outlined in Count Five of the Administrative Complaint, in May 1998, D.K. applied to The United States Life Insurance Company (US Life) for a $250,000 life insurance policy. As a part of the policy application, D.K. stated that he had not consulted with any physician or other practitioner within the five years prior to the application. On July 29, 1998, Life Benefit Services (LBS), a viatical settlement broker used by ABC, obtained a "Confidential Application Form" completed by D.K. which revealed that sometime in 1982, D.K. had been diagnosed as HIV positive. LBS prepared a "Policy Summary Sheet" regarding D.K.'s application on which it noted that D.K. had been diagnosed with HIV/AIDS. LBS also had records from D.K.'s physician reflecting that D.K. had been under a doctor's care during the preceding five years. The policy was issued to D.K. on or about August 1, 1998. Notwithstanding the information it had on hand, LBS brokered the sale of the instant policy to ABC. On or about August 25, 1998, D.K. and the Respondent entered into a contract which called for the Respondent to purchase D.K.'s $250,000 life insurance policy for $25,000. At that point, the policy was still contestable. As a part of the transaction, the Respondent gave D.K. written instructions not to contact his insurance company until advised to do so by ABC. The Respondent also had D.K. sign an addendum to the purchase contract in which he agreed to not advise US Life that he had sold his policy and acknowledged his recognition that his life insurance policy was still contestable. D.K. was also asked and agreed to sign an undated change of ownership form for use by ABC at the expiration of the period of contestability. While the policy was still contestable, an employee of the Respondent, Jennifer Grinstead, paid the annual premium on the policy out of her personal checking account. This served to conceal the fact that D.K. had sold the policy to the Respondent. Ms. Grinstead was reimbursed for the premium payment by American Title Company of Orlando. American Title was the Respondent's trustee. The Respondent did not report any of the information it had regarding D.K.'s actual health history to US Life or the Department. A review of the documentation related to this transaction reflected that the Respondent purchased the policy rights from D.K. after it knew, or with the exercise of reasonable diligence should have known, that D.K. had made material misrepresentations regarding his health to US Life, and nonetheless attempted to conceal those misrepresentation from US Life. With regard to Count Six, the evidence of record indicates that on May 4, 1997, W.E. applied for a $45,000 life insurance policy from Life USA Insurance Company (Life USA). On the application form he signed and submitted, W.E. specifically stated he had not received any medical or surgical advice or treatment within the preceding five years, had not been advised by a medical doctor that he had AIDS or ARC, and was not, at the time, taking any medication. Based on the representations made by W.E., the policy was issued on November 12, 1997. Notwithstanding the representations made by W.E. to Life USA, W.E. also advised United Viatical Settlements (UVS), the settlement broker used by the Respondent, on December 17, 1997, through a corollary application form, that he had been diagnosed with HIV "a few years ago," and several different other forms utilized by the Respondent reflect that the Respondent knew W.E. had AIDS or HIV, and was under a doctor's treatment for the condition during the preceding five years. Nonetheless, UVS brokered the sale of this policy to the Respondent. In late December 1997, at which time the policy was still contestable, the Respondent entered into a contract with W.E. for the purchase of the $45,000 policy for $4,914.25. As a part of the sales procedure, the Respondent issued to W.E. instructions not to contact his insurance company until instructed to do so by the Respondent's representative, and it also had W.E. sign an addendum to the purchase agreement in which W.E. acknowledged that the policy in issue was still contestable. W.E. was also asked to agree not to inform Life USA of the sale of the policy to the Respondent and to sign an undated change of ownership form for use by the Respondent to transfer ownership when the contestability period had expired. The arrangement between the Respondent and W.E. called for Jennifer Grinstead to pay the annual premium on the policy for W.E. from her personal account and to receive reimbursement for those payments from American Title Company, the Respondent's trustee. This arrangement served to conceal from Life USA the fact that W.E. had sold the policy to the Respondent. The Respondent did not report the fact that it had knowledge of W.E.'s medical condition to the Department. The evidence of record reflects that at the time of the purchase of W.E.'s policy, the Respondent knew or should have known that W.E. had made material misrepresentations regarding his medical state to Life USA on his application for life insurance from that company, and it thereafter took actions which served to conceal those material misrepresentations from the company. In the Case of Count Seven, on April 26, 1997, A.T. applied for a life insurance policy from Lincoln Benefit Life (Lincoln) in the amount of $48,000. On the application form, A.T. specifically stated that he had not been under medical observation or treatment within the preceding five years, and that he had not been diagnosed as having AIDS or ARC, or tested positively for HIV. The policy was issued by the company on or about June 2, 1997. Notwithstanding those representations, on January 14, 1998, Medical Escrow Society, a viatical broker used by the Respondent in its dealing with Lincoln, received an application form from A.T. on which A.T. indicated he had tested positive for HIV on August 8, 1989, had been diagnosed with AIDS ON August 10, 1994, and was under the care of a physician. Medical Escrow Society nonetheless brokered the sale of the policy to the Respondent. Shortly after the contestability period on this policy expired. On June 25, 1999, the owner of the policy, Ralph Cahall, entered into a contract with the Respondent whereby the Respondent bought Cahall's interest in the proceeds for $29,238.72. At the Respondent's request, ownership of the policy was changed from Cahall to American Title Company of Orlando, the Respondent's trustee without either Lincoln or the Department being informed of the transfer. The file relating to this policy indicates that the Respondent brought about the transfer from Cahall after it knew or, in the exercise of reasonable diligence should have known, that A.T. had made material misrepresentations regarding his health on the application to Lincoln, and that the Respondent, though it did not report what it knew to the Department, also thereafter undertook a course of action which was designed to conceal that information from Lincoln. With regard to Count Nine, the evidence indicates that on or about September 30, 1996, R.M. submitted an application for a $100,000 life insurance policy to Interstate Assurance Company (Interstate). On the application, R.M. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, and the policy was issued on October 9, 1996. Notwithstanding that representation, on July 18, 1997, R.M. completed an application form for Benefits America, a broker used by the Respondent with regard to this policy, in which he stated he had been tested positive for HIV on February 11, 1994. A "Policy Acquisition Worksheet" utilized by the Respondent on or about July 22, 1997, when R.M. was dealing with Benefits America regarding the viatication of his life insurance policy, reflects that the company was aware at that time that R.M. had been diagnosed with HIV in 1994. Even with that knowledge, the Respondent went through with the viatication, and on July 31, 1997, while the policy was still within the contestability period, bought the policy for $15,430. On August 4, 1997, R.M. executed an addendum to the purchase agreement at the behest of the Respondent, wherein he recognized the policy was still contestable and agreed, among other things, not to contact his insurance company or tell them he had sold the policy to a viatical settlement provider. He also was asked to sign, and signed, an undated change of ownership agreement for use by the Respondent at the end of the contestability period. Jennifer Grinstead, an employee of the Respondent, paid R.M.'s annual premium on the policy during the contestibility period out of her personal checking account. This action, when done in conjunction with R.M.'s failure to advise the insurance company of the sale, served to conceal the transfer of ownership from R.M. to the Respondent. Ms. Grinstead was reimbursed for the premium payments by the Respondent's trustee. The Respondent did not report to Interstate or to the Department that R.M. had made material misrepresentations regarding his health in procuring the issuance of the policy even though it knew or, in the exercise of due diligence, should have known that the material misrepresentations had been made. As to Count Ten, on May 12, 1997, J.R. submitted an application to Interstate for a life insurance policy on his life in the amount of $980,000. On his application, J.R. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, had not been treated by a member of the medical profession in the preceding five years, and was not, at the time, on medication or undergoing treatment or therapy. The policy was issued on May 19, 1997. Notwithstanding those representations, on July 9, 1997, J.R. filled out an application form for the Respondent's broker for this transaction, Life Benefit Services, on which he indicated he had been diagnosed as HIV positive in May 1996. A "Mortality Profile" provided to the Respondent by AVS indicated that J.R. was first diagnosed as being HIV positive in August 1995, nine months or so earlier than he admitted, and that he had been undergoing treatment by a doctor and receiving medications well within the five years preceding the application. On August 20, 1997, J.R. entered into a contract with the Respondent calling for the sale of this insurance policy to ABC for a net sum of $107,800. At this point, the policy was still contestable. At that time, the Respondent instructed J.R. in writing not to contact his insurance company until told to do so by the Respondent's representative. The Respondent also had J.R. sign an addendum to the purchase agreement in which he acknowledged the policy was still contestable, that he would not inform Interstate of the sale, and that he would sign an undated change of ownership form for use by ABC when the contestability period expired. Notwithstanding that the Respondent knew of the material misrepresentations made by J.R. as to his health when he procured the policy, it did not report what it knew to the Department, and took steps to insure Interstate was not informed of what was going on. With regard to Count Eleven, on May 16, 1996, the same J.R. applied to Massachusetts General Life Insurance Company, later, Conseco Life Insurance Company (Conseco), for a $99,900 life insurance policy. On his application, J.R. stated he had never had any medical tests or any known indication of diseases, conditions, or physical disorders which were not mentioned on the form. AIDS, ARC, and HIV positive were not mentioned on the form, and if known to have been present, should have been noted. About a year and three months later, on July 9, 1997, J.R. submitted an application form to Life Benefit Services, the broker used by ABC on this policy, on which he stated he had tested positive for HIV in May of 1996. By letter dated July 28, 1997, Life Benefit Services advised ABC that J.R. was terminally ill and had been on medication and undergoing treatment by a physician within the preceding five years. In addition to this information, the Respondent had available to it the information regarding J.R.'s condition discovered as a result of the purchase of the Interstate policy. Notwithstanding this knowledge, on September 17, 1997, while the policy was still contestable, ABC purchased the Conseco policy from J.R. for the net sum of $13,986. By letter dated September 17, 1997, the Respondent advised J.R. not to contact his insurance company until instructed to do so by Ms. Holman, the Respondent's Director of Contracts, and requested he execute an addendum acknowledging those instructions and that the Conseco policy was still contestable. He was also asked to agree to sign an undated change of ownership assignment for use by ABC after the contestability period had expired. While the policy remained contestable, the annual premiums due from J.R. were paid from her personal checking account by Ms. Grinstead, an ABC employee, who was reimbursed therefor by American Title, ABC's trustee. None of the above information was reported by the Respondent to Conseco or the Department even though it knew or, with the exercise of reasonable diligence should have known that J.R. had made material misrepresentations regarding his physical health in his application for life insurance to Massachusetts General Life Insurance company, and it appears the Respondent attempted to conceal those misrepresentations from Conseco.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance enter a Final Order dismissing Counts One through Four and Eight of the Administrative Complaint, but finding the Respondent guilty of Counts Five though Seven and Nine through Eleven of the Complaint, and both revoking its license and its eligibility for licensure as a viatical settlement provider in Florida. DONE AND ENTERED this 28th day of December, 2000, in Tallahassee, Leon County, Florida. ___________________________________ ARNOLD H. POLLOCK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2000. COPIES FURNISHED: Michael H. Davidson, Esquire Department of Insurance 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Mark K. Logan, Esquire Smith, Ballard & Logan, P.A. 403 East Park Avenue Tallahassee, Florida 32301 The Honorable Bill Nelson State Treasurer/Insurance Commissioner The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
