The Issue The issue is whether Respondent complied with Sections and 440.38, Florida Statutes, with regard to workers' compensation insurance for his subcontractors, and if not, the appropriate amount of penalty that should be assessed.
Findings Of Fact Hernandez, Inc., is a contractor based in the Jacksonville, Florida area, and is in the business of installing dry wall, among other construction related activities. The Department of Financial Services is the state agency responsible for enforcing the Workers' Compensation Law. This duty is delegated to the Division of Workers' Compensation. On February 5, 2004, Hernandez, Inc., was engaged in installing drywall in the Bennett Federal Building in Jacksonville, Florida. Hernandez, Inc., was a subcontractor for Skanska, Inc., who was the general contractor for the building. Hernandez, Inc., was accomplishing the installation of drywall by using two subcontractors, GIO & Sons (GIO), of Norfolk, Virginia, and U&M Contractors, Inc., (U&M), of Charlotte, North Carolina. Hernandez, Inc., was also using its own personnel, who were leased from Matrix, Inc., an employee leasing company. Prior to contracting with GIO and U&M, Hernandez, Inc., asked for and received ACORD certificates of insurance, which on their face indicated that the subcontractors had both liability coverage and workers' compensation coverage. It is the practice of Hernandez, Inc., to ensure that certificates of insurance are provided by subcontractors and the office staff of Hernandez, Inc., tracks the certificates so that they are kept current. Since the beginning of 2001, Hernandez, Inc., has received approximately 310 certificates of insurance from subcontractors. These certificates listed Hernandez, Inc., as the certificate holder. Though most of the producers and insureds on these certificates are from Florida, a substantial number are from other states. Hernandez, Inc., relied on the certificates as evidence that the subcontractor's workers were covered by workers' compensation insurance. Hernandez, Inc., has relied on certificates of insurance for more than twenty years and, with the exception of this case, has never known an instance where the underlying policy was invalid. On February 5, 2004, Katina Johnson, an investigator with the Division, made a routine visit to the Bennett Federal Building with another investigator. She observed personnel from Hernandez, Inc., and its subcontractors, installing dry wall. On February 5, 2004, Ms. Johnson determined that Hernandez, Inc., also had a contract to install dry wall as a subcontractor participating in the construction of the Mayport BEQ. L. C. Gaskins Company was the general contractor engaged in the construction of the Mayport BEQ. U&M worked at both the Bennett Federal Building site and the Mayport BEQ site as a subcontractor of Hernandez, Inc. Ms. Johnson issued a Stop Work Order on February 26, 2004, to Hernandez, Inc., GIO, and U&M. By the Stop Work Order, Hernandez, Inc., was charged with failure to ensure that workers' compensation meeting the requirements of Chapter 440, Florida Statutes, and the Florida Insurance Code, was in place for GIO and U&M. The Stop Work Order indicated that the penalty amount assessed against Respondent would be subject to amendment based on further information provided by Hernandez, Inc., including the provision of business records. An Amended Order of Penalty Assessment dated March 19, 2004, was served on Hernandez, Inc., which referenced the Stop Work Order of February 26, 2004. The Amended Order of Penalty Assessment was in the amount of $157,794.49. The Amended Order of Penalty Assessment reached back to September 29, 2003. An Amended Order of Penalty Assessment dated March 22, 2004, was served on GIO. This Amended Order of Penalty Assessment was in the amount of $107,885.71. An Amended Order of Penalty Assessment with a March 2004 date (the day is obscured on the document by a "filed" stamp), was served on U&M. This Amended Order of Penalty Assessment was in the amount of $51,779.50. The sum of these numbers is $159,665.21. However, the parties agreed at the hearing that the amount being sought by the Division was $157,794.49, which represented the total for GIO and U&M. Hernandez, Inc.'s, employees leased from Matrix were covered by workers' compensation insurance through a policy held by Matrix. The Matrix policy did not cover the employees of GIO and U&M. Although Skanska, Inc., and L. C. Gaskins Company had workers' compensation insurance in force, their policies did not cover the workers used by Hernandez, Inc., or the employees of GIO or U&M. GIO and U&M employees were considered by the Division to be "statutory employees" of Hernandez, Inc., for purposes of the Workers' Compensation Law. This meant, according to the Division, that Hernandez, Inc., was required to ensure that the employees of GIO and U&M would receive benefits under the Workers' Compensation Law if a qualifying event occurred, unless the subcontractors had workers' compensation insurance policies in force that satisfied the Division. GIO had a policy of workers' compensation insurance evidenced by an ACORD certificate of liability insurance for the period December 3, 2002, until December 3, 2003. The policy was produced by Salzberg Insurance Agency in Norfolk, Virginia. It listed Hernandez as the certificate holder. The policy was issued by Maryland Casualty Company, a subsidiary of the Zurich American Insurance Company. These companies are admitted carriers in Florida. The Classification of Operations page of this policy indicated class code 5022, masonry work. GIO employers were installing drywall during times pertinent. Rates for drywall installation are substantially higher than for masonry work. In the policy section titled "Other States Insurance," Florida is not mentioned. William D. Hager, an expert witness, reviewed the certificate of insurance and the policy supporting the certificate. Mr. Hager is a highly qualified expert in insurance and workers' compensation coverage. Among other qualifications, he is an attorney and a former member of the National Association of Insurance Commissioners by virtue of his position as Insurance Commissioner for the State of Iowa. He concluded that this policy did not conform to the requirements of Chapter 440 because the policy was Virginia based and did not apply Florida rates, rules, and class codes. Mr. Sapourn, testified as an expert witness. Mr. Sapourn has a degree from the University of Virginia in economics with high distinction and a juris doctorate from Georgetown. He is a certified insurance counselor and owned an insurance agency in the District of Columbia area. As an insurance agent he has issued tens of thousands certificates of insurance and written hundreds of workers' compensation policies. Mr. Sapourn, opined that this certificate represented workers' compensation coverage that complied with Chapter 440, Florida Statutes. Upon consideration of the testimony of the experts, and upon an examination of the documents, it is concluded that the policy represented by the certificate of insurance for the period December 3, 2002, to December 3, 2003, did not comply with the requirements of Chapter 440. Subsequently, someone forged an ACORD certificate of liability insurance, which indicated that it was produced by Salzberg Insurance Agency, and that indicated that GIO was covered from December 4, 2003, until December 4, 2004. The forged certificate was presented to Hernandez, Inc., upon the expiration of the policy addressed above. It was accepted by Hernandez, Inc., and considered to be a valid certificate. Both of the experts pointed out that with their practiced eye they could easily determine that the certificate was a forgery. However, there was no evidence that Mr. Hernandez, or his employees, had training in forgery detection. Accordingly, it was reasonable for them to accept the certificate as valid. U&M presented Hernandez, Inc., with an ACORD certificate which indicated insurance coverage from October 24, 2003, until October 24, 2004. The producer was Insur-A-Car Commercial Division of Charlotte, North Carolina. The insurer was The St. Paul, an admitted carrier in Florida. The insured was U &M. The certificate holder was Hernandez Enterprises, Inc. William D. Hager reviewed the certificate of insurance and the policy supporting the certificate. He noted that The St. Paul policy upon which the certificate was based did not apply in Florida because U&M was not working temporarily in Florida and because it included a policy endorsement that stated: "The policy does not cover work conducted at or from 3952 Atlantic BLVD #D-12 Jacksonville, FL 32207." U&M's mailing address in Jacksonville was 3952 Atlantic Boulevard, Suite D-12. The information page of the policy, at Part 3.A. states that Part One applies to North Carolina. Part 3.C., Other States Insurance states that Part 3 of the policy applies to the states listed, and then refers to the "residual market limited other states insurance." Mr. Hager testified that the policy did not indicate compliance with Chapter 440, because the policy is North Carolina based, applies only North Carolina rates, and does not provide Florida coverage. Mr. Sapourn, on the other hand, opined that the policy provided workers' compensation that complied with Chapter 440. Although it is possible that a worker who was injured during times pertinent may have received benefits, it is clear that the policy did not comply with the requirements of Chapter 440. The Division instituted a Stop Work Order against U&M and sought to impose penalties upon it for failure to comply with Chapter 440 for offenses committed at the exact times and places alleged in this case. U&M demanded a hearing and was provided one. In a Recommended Order entered April 7, 2005, an Administrative Law Judge recommended that the Division enter a final order affirming the Stop Work Order and assessing a penalty in the amount of $51,779.50. See Department of Financial Services, Division of Workers' Compensation vs. U and M Contractors, Inc., Case No. 04-3041 (DOAH April 7, 2005). The recommendation was adopted in toto by the Department of Financial Services on April 27, 2005. See In the Matter of: U and M Contractors, Inc., Case No. 75537-05 WC (DFS April 27, 2005). The evidence taken as a whole demonstrates that U&M did not have workers' compensation coverage in Florida that complied with the requirements of Chapter 440, during times pertinent. Mr. Sapourn testified that the theory behind ACORD certificates of insurance is that they provide a uniform document upon which business people may rely. This testimony is accepted as credible. In order to continue working on a project not addressed by the Stop Work Order, Hernandez, Inc., entered into and agreement with the Division which provided for partial payments of the penalty in the amount of $46,694.03. This payment was made with the understanding of both parties that payment was not an admission of liability.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Respondent Michael Quintana is currently licensed as a general lines agent in Florida. On or about January 18, 1983, respondent went to the home of Shirley W. McLaughlin for the purpose of soliciting insurance. Mrs. McLaughlin agreed to purchase a homeowners insurance policy and "mortgage" insurance was also discussed. She supplied the necessary information and signed the applications for both the homeowner insurance and the "mortgage" insurance. While she did not desire to purchase what she understood to be strictly "life" insurance, she did understand that what she "was getting at that particular time was protection for the house, period." (TR. 32) She further understood that she was applying for coverage that would pay something if either she or her husband died, and that such would be payable to the beneficiaries. While she was given the opportunity to review all the papers she signed on January 18, 1983, Mrs. McLaughlin apparently did not understand that the premium payments for the "mortgage" insurance would be automatically withdrawn from her bank account. Sometime after her application for homeowners insurance was refused because of a space heater in her home, Mrs. McLaughlin learned from her bank of the automatic withdrawal of premium payments for the "mortgage" insurance. She thereafter cancelled such insurance and all monies were refunded to her. The cover sheet for the "mortgage" insurance policy identifies the policy as a "joint reducing term life insurance policy." The inserted printout setting forth the costs and benefits describes the basic policy as "joint reducing term life (20-year mortgage term) with disability waiver benefit." Agents within the company with which respondent was employed on January 18, 1983, typically refer to such a policy as a "mortgage insurance policy" or a "mortgage cancellation policy," as opposed to a "life insurance policy." The term "mortgage" is used to delineate that a specific policy has been purchased for a specific loss. The beneficiary of such a policy has the option of either paying off the mortgage or using the money for any other purpose.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Administrative Complaint filed on June 11, 1984, be DISMISSED. Respectfully submitted and entered this 25th day of January, 1985, in Tallahassee, Florida. DIANE D. TREMOR 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 28th day of January, 1985. COPIES FURNISHED: William W. Tharpe, Jr. 413-B Larson Building Tallahassee, Fla. 32301 Timothy G. Anderson 620 E. Twigg Street Tampa, Fla. 33602 Bill Gunter Insurance Commissioner The Capitol Tallahassee, Fla. 32301
The Issue The issues for determination in this case are whether Respondent violated the law as charged by Petitioner in its Administrative Complaint, and, if so, what discipline is appropriate.
Findings Of Fact Petitioner is the state agency with the statutory authority and duty to license and regulate insurance agents in Florida. Respondent has been licensed as a life including variable annuity and health agent, life insurance agent, and life and health insurance agent. At the time of the events which are the subject of this case, Respondent held the aforementioned licenses and was the president of Seniors Financial International, Inc., an insurance agency located in Vero Beach. Storfer is licensed to sell fixed annuities for most of the insurance companies licensed to transact business in the State of Florida, including Allianz, IMG, Aviva, North American, Old Mutual, and American Equity. Storfer keeps himself abreast of the suitability requirements and features of annuities by regularly attending and participating in the quarterly, if not monthly, training presented by insurance companies. The companies also provide seminars at Storfer's office. He goes to their offices or views webinars that can last two-to-three hours. The companies also offer assistance by providing people in-house to answer questions about their products. Even though Storfer could have the option for each client to submit cases to the companies for the company to help prepare and work to find a suitable product for each customer/individual, there was no testimony he did so with the individuals in this case. He also testified that he understood and was knowledgeable about all the products sold, relating to the three clients, from which the AC stems. Storfer regularly holds luncheon/dinner workshops and seminars at restaurants in and around Vero Beach that focus on financial issues. He invites the attendees by mailing them a flier. Each attendee receives a free meal while listening to Storfer's financial presentation. During the luncheons, Storfer does not offer any investment products for sale. However, attendees are asked to complete a "Senior Financial Survival Workshop Evaluation Form" and are invited to request an in- office appointment if they are interested in discussing specific investment products. The form elicits information including family background, financial history, current expenses, and tax liabilities. The attendees are asked to put "yes" or "no" at the top of the form. If an attendee puts yes, then a follow-up appointment is scheduled in Storfer's office. Storfer's wife picks up the forms and sets the appointment. Storfer's procedures at the appointment typically start by filling out a client profile. He goes through the form with the client and asks the client questions to obtain the details regarding age, contact information, beneficiaries, health, estate, plans for money, rate of return, percentage of life saving willing to lose, risk tolerance, liquidity, income needed form investment accounts, what needs to be fixed, income, assets and liability inventory, life insurance, and long-term care insurance/disability insurance. After completing the profile, Storfer reviews the documents that he has requested the client bring in to the appointment. This includes tax returns, an investment portfolio, and list of how much money they have and where it is, including life insurance or long-term care. There is no fee for the appointment. Typically, after the first meeting, Storfer reviews the documents and the client returns for a second appointment. At the client's next appointment, Storfer has reviewed everything and put together a product that he wants to sell the client. He also provides an illustration of the product demonstrating the product's growth and how it would work. If the client decides to go forward and invest in one of the products Storfer has recommended, Storfer gets an application for the product and his wife fills it out.2 After the application has been completed, Storfer's office procedure is to submit it to the company the same day to await approval. Once the application has been approved, then the policy is funded either by transferring from another type of product (direct transfer rollover) or by a 1035 exchange. The policy can not be issued if not funded. Once the policy is funded and issued, the company mails the policy and the documents for the client to sign to Storfer, as the agent to deliver. Storfer's operating procedure is to call the client to set an appointment for policy delivery. The appointment's purpose is to go over the policy with the client, including the amount of money that went into the policy, where the funds came from and what the policy will do for them, including liquidation and charges. Storfer keeps documents which he refers to as client notes in each client's file. After client meetings, he uses a service to dictate what he wants as a summary of the client meeting. The service types up what he says and emails it back to him. It is printed, reviewed, and scanned into his system. Alberto and Celina Grubicy Celina Grubicy ("C.G."), a native of Argentina, was born on April 6, 1940. She was married at age 19 to Alberto Grubicy ("A.G."), who was also born and raised in Argentina. They moved to the United States in 1965; English is their second language. The Grubicys opened a repair shop in New York in 1964. Then, they went in the construction business in Connecticut for about ten years before retiring to Florida. In both successful businesses, C.G. handled the paper work and kept the books. The Grubicys retired in the early 90's and purchased a condominium in Florida, where they now reside. On February 5, 2007, the Grubicys attended Respondent's luncheon seminar at Carrabbas Italian Grill in Vero Beach. At the seminar, the Grubicys listened to the presentation and completed the seminar evaluation form confirming an estate in excess of one million dollars. At the time, A.G. was 65 years old and C.G. was 66 years old. The Grubicys thought the presentation sounded good, so they made an appointment to see Storfer in his office. Prior to any interaction with Storfer, C.G. was the owner of a Transamerica variable annuity with a contract date of September 23, 2002, an AXA Equitable variable annuity with a contract date of June 17, 2005, and a Hartford variable annuity with a contract date of July 25, 2005. Each of the annuities was doing well and approaching dates when surrender charges would no longer apply. The Grubicys met with Storfer on February 7, 2007. At the meeting, the Grubicys informed Respondent that their investment goals were two-fold. They explained that their primary financial goal was safety. Their plan included selling their residential building complex from which they were currently collecting rental payments for income.3 Their goal in five years was to have an investment that would provide their income after they sold the property.4 The Grubicys wanted an investment to replace the rental money that they would no longer receive after the sale of their building. The Grubicys also stressed to Storfer that the security of the investment was a paramount concern. C.G. wanted out of variable annuities because she was concerned about the stock market risk and did not want annuitization to take place. At their second meeting on February 12, 2007, knowing the Grubicys' goals, Storfer misrepresented the advantages for the product he recommended with a graphic illustration on a blackboard. He showed the MasterDex annuity with Allianz in such a fashion, that, when the market advanced in relation to a base line, the return on the annuity would also advance, up to a three percent cap per month on the gain, but that when the market fell below the base line, there would be a zero percent return, but never a loss of the gain made in the previous months, or a loss of invested capital. Storfer recommended and proceeded to sell the Grubicys the Allianz MasterDex 10 ("MasterDex") policy, being fully aware of the Grubicys' goals. He insisted that was the way for the Grubicys to invest because they would never lose their principal compared to the other annuities that have high risk plus excess fees. Storfer did not provide the Grubicys any other investment option. The annuity was a long-term investment that provided for surrender penalties on a declining scale for fifteen years even though Storfer told the Grubicys that the Allianz annuity would mature in five years from the day it started.5 Storfer assured the Grubicys that they were not going to lose anything by investing in the MasterDex annuity with Allianz. They were not accurately informed of the provisions in the contract by Storfer during the meeting nor did Storfer fully review the relevant terms and conditions, including the length of the policy.6 The Grubicys knew that when they surrendered the three variable annuities there would be surrender charges. However, Storfer told them that the product he was selling them had a 12 percent bonus that would offset the monetary lost from surrender penalties of the transferring funds.7 The Grubicys decided to follow Storfer's recommendation with his assurances that they wouldn't lose money, and they surrendered their three annuities to purchase two MasterDex annuities in excess of about one million dollars. After Storfer completed the numerous forms and documents, the Grubicys authorized the transfers of money to Allianz by way of assignment on or about March 2, 2007, and authorized him to buy the new policies. Storfer allocated 100 percent to the Standard & Poors ("S&P") 500 instead of allocating the total investment among three possible choices in smaller increments. Respondent's 100 percent allocation choice on the Supplemental Application contravenes both of the Grubicys' requests on each of their Liquidation Decision forms, which specifically state "the decision to liquidate . . . based solely on . . . desire to eliminate market risk and fees " The annuity product Storfer sold the Grubicys provided for three different values: annuitization value, cash surrender value, and guaranteed minimum value. The Statement of Understanding provided: * * * Annuitization value The annuitization value equals the premium you pay into the contract, plus a 10% premium bonus and any annual indexed increases (which we call indexed interest) and/or fixed interest earned. This will usually be your contract's highest value. Withdrawals will decrease your contract's annuitization value. Cash surrender value The cash surrender value is equal to 87.5% of premium paid (minus any withdrawals) accumulated at 1.5 percent interest compounded annually. The cash surrender value does not receive premium bonuses or indexed interest. The cash surrender value will never be less than the guaranteed minimum value (which we define below). The cash surrender value will be paid if you choose to receive a) annuity payments over a period of less than 10 years for Annuity Option D and five years for Alternate Annuity option IV, or over a period of less than 10 years for all other annuity options, b) annuity payments before the end of the first year for Alternate Annuity Option IV or before the end of the fifth policy year for all other annuity options, or c) a full surrender at any time. Guaranteed minimum value. The guaranteed minimum value will generally be your lowest contract value. The guaranteed minimum value equals 87 5% of premium submitted, minus any withdrawals. The guaranteed minimum value grows at an annual interest rate that will be no less than 1% and no greater than 3%. (emphasis in original) The Grubicys signed the numerous forms and documents without reading them because they trusted Storfer and he sounded as if he knew what he was talking about. They relied on his advice. Storfer sold the Grubicys a policy completely different from what he had described.8 The monthly cap was opposite of the way Storfer explained it. A description of the "monthly cap" stated: Although there is a monthly cap on positive monthly returns, there is no established limit on negative monthly returns. This means that a large decrease in one month could negate several monthly increases. Actual annual indexed interest may be lower (or zero) if the market index declines from one month anniversary to the next, even if the market index experienced an overall gain for the year. (emphasis in original) The Grubicys later learned that the advice Storfer provided them regarding how the MasterDex annuity worked was erroneous. Respondent provided them misleading representations regarding the sale of the annuity products. On April 5, 2007, C.G. received her annuity contract for a MasterDex annuity for approximately $1,123,000, and she executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. On April 12, 2007, A.G.'s annuity contract for a MasterDex annuity for approximately $35,000 was delivered and he executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. The sale of the Allianz annuities generated commissions of approximately $95,000.00 for Storfer or his agency, Senior Financial International, Inc. The Grubicys became concerned about the MasterDex product Storfer sold them while watching television at home one day, and seeing a class action lawsuit advertisement about their purchased product. They called Storfer immediately to discuss Allianz. He set up an appointment with the Grubicys to meet with him about their concerns. When Storfer met with the Grubicys, he assured them that they didn't need to change anything, their product was fine. He also informed them that their product was six percent up and not to worry because if the S&P 500 went down, they didn't have to worry because they had already made six percent. In May 2007, the Grubicys went to Connecticut and attended another investment seminar. Afterwards, they set up a meeting with the financial advisor, Mr. Ray ("Ray"). The Grubicys took their investment paperwork to Ray and he reviewed it. Ray explained how the MasterDex worked and called an Allianz customer service representative while they were in the office to further explain how the product worked. The Grubicys were informed that there was a monthly cap of three percent when it went up but no monthly cap on stock market losses. Such a description of the cap combined with the description in the contract support a finding that the MasterDex annuity did not meet the Grubicys' financial goals and was not a suitable investment for them. In particular, the Grubicys had been clear that they did not want to have any market risk. Subsequently, the Grubicys contacted Storfer again and questioned his declaration regarding the cap on stock market losses. Respondent continued to describe the crediting method incorrectly and told them Ray was just trying to sell them something. He insisted that the S&P 500 is the way he explained it earlier and that Ray's interpretation was wrong. Ray eventually sent the Grubicys an article from the Wall Street Journal, which they testified reemphasized that the investment worked completely different from what Storfer continued to tell them. The Grubicys requested a refund from Allianz. Approximately one year later, Allianz eventually set the contract aside and refunded the investment principal, surrender charges for the three annuities, and some interest. The evidence convinces the undersigned that Storfer knowingly made false representations of material facts regarding the MasterDex annuity and its downside cap. Kikuko West Kikuko West ("K.W."), a native of Japan, was born in 1933. She marrried a U.S. soldier and moved to the United States when she was 18 years old. Together they had four children. She is now married to Robert West ("R.W."). K.W.'s employment history started with her working in a bakery, then as a waitress in a Chinese restaurant, and her ultimately owning and operating a successful flower shop for over 30 years in West Warwick, Rhode Island. She sold it in 2006. K.W. sold her house in Rhode Island and used the money to invest in a Smith-Barney mutual fund and an AXA Equitable Life Insurance Company (AXA) annuity (contract # 304 649 121), which she purchased in June 30, 2004. West purchased a condominium in Florida and has been a permanent resident for the past five years. On January, 15, 2008, Robert and Kikuko West ("Wests") attended Respondent's seminar. They scheduled an appointment for January 23, 2008, but didn't show. They attended a second workshop on or about June 3, 2008, and scheduled a meeting for July 9, 2008, but didn't show. The Wests rescheduled their appointment with Storfer on August 4, 2008, and met with him in his office for the first time. Even though K.W.'s husband attended the meeting, the focus of the meeting was her finances. K.W. explained that their monthly income was $2,900 and their monthly living expenses were $2,100, but a majority of it came from her husband's pension so she was worried about income if he passed. She only received $600 a month in social security and wanted income in the future. She had $100,000 for emergencies in a money market account. K.W. also informed Storfer that when she dies she wants her four daughters and six grandchildren to inherit her money. K.W. wanted to stop receiving various statements from each of her numerous investment accounts and bundle her assets. She told Storfer that she wanted to keep everything that she had and would be happy with a rate of return of four or five percent. She emphasized she had zero risk tolerance. K.W. provided the following information for her asset/liability inventory: an AXA variable annuity(non- qualified) in the amount of about $119,589.58; mutual fund (non- qualified) of $253,289.55; IRA (qualified) $80,039.33; CDs (nonqualified) for $25,000 and $35,000; a Fidelity and SunTrust (nonqualified) totaling $40,000; and a Vanguard equaling $60,000. West explained that she didn't have life insurance but had prepaid funeral. Her husband had three life insurance policies. K.W. had a second meeting with Storfer on August 6, 2008. At that meeting, K.W. provided income tax and other paperwork to detail the stocks that she wanted consolidated into one statement.9 Storfer went over the financial illustrations and company profiles he had compiled as proposed investments. Unbeknowest to the Wests, Storfer's plan for restructuring K.W.'s reinvestments was to transfer funds from her variable annuity (approximately $215,000) to a fixed annuity and transfer assets from K.W.'s existing brokerage accoung (approximately $80,000) to a new brokerage account, which were both with American Equity. During the meeting, Storfer also introduced the Wests to Kevin Kretzmar, a broker for Summit Brokerage Services, by speakerphone.10 The discussion consisted of how the money would be transferred.11 The Wests thought Kretzmar worked for Storfer as his assistant and were unaware that he brokered for a separate company. Storfer brought Kretzmar into the transaction to handle the brokerage account because he was not a broker, but he did not make this plain to the Wests. In the meeting, Strofer emphasized to the Wests that K.W. was paying too much in income tax and her investments should be set up to reduce the income tax. Storfer also informed the Wests that K.W. would get a guaranteed eight percent interest each year and would be able to withdraw 10 percent a year with no penalty,12 which K.W. relied upon in deciding to follow Storfer's recommendation to purchase the American Equity annuity selected by Storfer. Respondent provided two letters to K.W. on Seniors Financial International, Inc., letterhead that stated: Kikuko: This would replace the Mutual Funds $253, 289.00. You will receive a bonus w[h]ich is added the first day of $25,329.00. Your account will start with $278,618.00. With an 8% guaranteed growth for income. With no risk. Mitchell Kikuko This would replace the AXA Variable Annuity $119,589.00. You will receive a bonus w[h]ich is added the first day of $11, 959.00. Your account will start with $131,548.00. With an 8% guaranteed growth for income. With no risk. Mitchell After the meeting, the Wests decided to go forward with Storfer's recommendation for K.W.'s investments. On August 8, 2008, the Wests returned to Storfer's office and K.W. agreed to transfer the funds. She signed the applications and contracts including 14 documents, which would transfer the money and invest in the annuity. K.W. did not read everything that she was signing because she couldn't understand all the terminology and trusted and relied upon Storfer. Storfer told K.W. that even after she signed, if she didn't like the product, she could call and everything would get put back to the way it was before. K.W. thought she was purchasing one policy. Respondent sold her two policies numbered 693752 ("the SunTrust transfer" or "the 80K contract") and 693755 ("the AXA transfer" or "the 215K contract"). Both applications indicate each is replacing an AXA policy. K.W.'s SunTrust is not mentioned in the 80K application. The documents attached to the applications K.W. signed without reading also detail that the American Equity Bonus Gold (BG) has a 10 percent bonus; Various "values"; and the minimum guaranteed interest rate is only one percent. The Lifetime Income Benefit Rider (LIBR) document states "a lifetime income that you cannot outlive" is tied to the owner's age. On the BG contract, the income account value (IAV), the second option, was checked at a rate of eight percent rider guaranteed income. The cash surrender penalty listed for the BG contract in the application is 80 percent of the first year premiums.13 The BG application also described a nine percent interest crediting method. Out of the nine options listed, Respondent admitted that he chose the S&P monthly Pt. to Pt. w/Cap & AFR for K.W. The option was not defined in the application, and K.W. had to rely solely on Storfer to define and explain the product. Specific terms and conditions of the annuity such as the penalty free withdrawals14 were defined in the policy contracts, which K.W. never received.15 In the car on the way home from the August 8, 2008, meeting, K.W. looked at the back page of the brochure for American Equity Insurance and read that she could only earn one percent a year with the annuity. This caused her some concern. Subsequently, K.W. called her son-in-law, a director at Merrill Lynch on Wall Street, who agreed to review the documents during K.W.'s upcoming visit to New York. K.W. then called Storfer's office back and left a message not to process the applications. The Wests also attempted to fax Storfer a letter that stated, "I do have to hold off on any changes . . . do no process until I review all papers." On Saturday, August 9, 2008, the Wests met briefly with Storfer in his office16 to request the original paperwork back that had been signed on Friday and stop the process. K.W. instructed Storfer to do nothing until her son-in-law approved it. She and her husband were pleased that Storfer agreed not to process the forms until her son looked at them and said that the investment was good.17 Stofer gave K.W. a yellow manila envelope with copies of the paperwork West had signed and a note. At some point, Storfer processed K.W.'s application for the purchase of the American Equity annuity, contrary to his agreeing not to finalize the purchases until the Wests gave the go-ahead.18 The Wests left for North Carolina to start their vacation on Sunday, August 10, 2008. While on vacation, K.W. opened the manila envelope and discovered that it did not contain the originals of the signed forms she had requested. Additionally, a letter was enclosed dated August 11, 2009,19 on Seniors stationary that stated: Dear Kikuko, Attached is transfer paperwork to transfer the brokerage account from Suntrust to us. We will not sell any investments until you approve them. If you and your son in law have any questions please contact me I will be more then happy to assist. Sincerely, K.W. had her son-in-law review the investment paperwork and requested that he talk to Storfer. After K.W. talked to her son, she decided the investment was not good for her. Ultimately, K.W. learned that her money had been transferred out of the Suntrust account without her permission. She called Storfer's office numerous times to get him to cancel the annuity transactions, but was unable to reach him.20 K.W. was eventually provided Kretzmar's contact information and he instructed her how to reverse the transfer of funds. K.W. had communications with Kretzmar and representatives from American Equity that lead to her funds being refunded. The American Equity annuities were ultimately cancelled. Viewing the evidence as a whole, the undersigned determines that Respondent made false promises not to process K.W.'s annuity applications in connection with the investments and did so contrary to K.W.'s instructions, as well as made false misrepresentations to her regarding the details of the annuity. Doris Jorgensen Ms. Doris Jorgensen ("Jorgensen") was born in New York City on December 20, 1921. She grew up in Connecticut. She married William Jorgensen. While married she owned and operated an antique shop out of her house in Connecticut. She started investing with her husband, William, before he passed in 1999. She and her husband would discuss their investments and decide how to invest together. She has no children and lives alone in Sebastian, Florida. Prior to meeting with Storfer, Jorgensen was the owner of an Integrity Life Insurance Company (Integrity) variable annuity with a contract date of July 28, 2003, and Aviva Life and Annuity Company (Aviva; formerly AmerUs) deferred annuity with a contract date of December 26, 2003. Jorgensen's net worth, before meeting Respondent was approximately a million dollars. Jorgensen attended two luncheon seminars presented by Respondent on April 2, 2007, and on October 23, 2007. She was 86 years old at the time. At the first seminar, Jorgensen filled out a Senior Financial Survival Workshop Evaluation Form, indicating she was a widow, had an estate from $25,000-$200,000, and had concerns in the area of Social Security Tax Reduction, Variable Annuity Rescue, and Equity Index Annuity. When Jorgensen attended the second workshop, she filled out the form identical to the previous one, except she also circled Asset Protection from Nursing Home as a concern. On or about November 5, 2007, Jorgensen met Storfer in his office for the first time. Storfer prepared her client profile and Jorgensen described her risk tolerance as "none" and indicated that she was unwilling to lose any of her life savings through investments. She also informed him that she intended to leave her entire estate to numerous charities and had set up a trust for that purpose. Jorgensen provided Storfer income information at the meeting that indicated that she lived off her monthly social security and pension payments, a total monthly income of $1,800.00, and her expenses were $1,100.00. She also had $120,000 cash and a net worth of $900,000.00. At another meeting, Jorgensen provided Storfer her financial portfolio to review. One meeting Jorgensen had with Storfer was attended by her brother, who did not provide her any advice regarding what to do with her investments. Ultimately, Storfer recommended and sold Jorgensen an Allianz Life Insurance Company Equity Indexed Annuity. Upon his advice, Jorgensen surrendered her $208,015.74 Integrity Life Policy #2100073292 issued on July 28, 2003. The transfer resulted in the initial funding of the Allianz MasterDex,21 which became effective November 16, 2007. Jorgensen told Respondent that she had a problem with monetary loss and Storfer said he could make it up with the Allianz Life. The policy provided that she could start withdrawing the money in five years and then must annuitize the policy and withdraw the money over a 10-year period. The Allianz annuity was delivered on December 12, 2007. The Allianz Life contract, a MasterDex, contract #70610993, included a 10 percent bonus. Respondent placed 100 percent of Jorgensen's funds in the S&P 500 index like the Grubicys. Later, on or about January 16, 2008, Storfer also had Jorgesen authorize an additional transfer of $306,507.21 in funds from her Aviva/AmerUS policy purchased December 1, 2003, to Allianz. The policy was $330,137.95. Surrender charges on the AmerUs annuity would have expired December 1, 2014. On February 4, 2008, the money was sent to Allianz into contract #70610993. Together, Jorgensen's transfers totaled over half-a million dollars and she incurred surrender charges totaling in excess of $29,000. Jorgensen was unable to understand the annuity application and contract language. She trusted Storfer and took him at his word and signed a lot of forms without filling them out or asking questions. Jorgensen testified that she always followed the directions of whoever gave her business advice. Jorgensen also testified in this matter that she was "not certain," "I don't really remember," and "I have no idea whether it was or not" regarding numerous questions relating to the transactions and policy receipts. At some point, Jorgensen attended another investment seminar presented by insurance agent, Ms. Jones ("Jones").22 On February 11, 2008, Allianz gave Jorgensen a receipt for her payment of $306,423.03. Jorgensen contacted Allianz and directed the company to return the transferred funds to Aviva. Jorgensen directed Allianz to "rescind this policy in full." On or about February 14, 2008, Jones also helped Jorgensen with a typewritten letter dated February 15, 2009, from Jones' office to Allianz following up the request. Jorgensen ultimately dealt with Storfer instead of Jones regarding rescission of the Aviva/AmerUs to Allianz transaction. Storfer ultimately placed the funds with Old Mutual/OM Financial annuity ("OM"). An application, transfer/1035 exchange, was executed in Jorgensen's name and other documents relating to the OM annuity on or about March 14, 2008. The policy is signed Doris Jorgensen not "Doris R. Jorgensen." Jorgensen testified she typically signs her name to include the middle initial "R" "Doris R. Jorgensen" on official papers.23 Jorgensen discovered the policy when she received the annuity confirmation letters from OM. Respondent earned a commission of nearly $7,000 on the OM transaction. The policy delivery receipt dated May, 1, 2008, six weeks after the purchase date of the OM policy, also has a signature without a "R" initial and Jorgensen denies the signature is hers. Storfer's signature is not on OM's required policy delivery certification form. The Delivery Receipt for the OM policy is dated May 1, 2008. Jorgensen still has the OM annuity. The undersigned finds that the evidence fails to show that Storfer misrepresented the sale of the two annuities or made false representations regarding the annuities sold to Jorgensen.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED the final order be entered by the Department (1) finding that Mitchell Storfer violated the provisions of Chapter 626, Florida Statutes, described, supra, and (2) revoking his licensure. DONE AND ENTERED this 31st day of December, 2009, in Tallahassee, Leon County, Florida. JUNE C. McKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of December, 2009.
Findings Of Fact On January 7, 1981, the Petitioner notified the Respondent that an action was being commenced to revoke the Respondent's self-insurance privilege pertaining to employee compensation insurance coverage in the State of Florida. That notification stated as grounds that the Respondent, having had its self- insurer's surety bond terminated, the revocation proceeding would take place. The notification letter afforded the Respondent an opportunity for hearing on this revocation question and on January 24, 1981, the Respondent requested a formal hearing. The matter was forwarded to the Division of Administrative Hearings on February 3, 1981. On February 13, 1981, the Petitioner acknowledged receipt of the request for formal hearing and the Petitioner identified the steps that it deemed to be necessary before the Respondent could continue as a self-insured employer, to include the necessity to provide an excess loss insurance policy. The formal hearing de novo was conducted on March 27, 1991. The Respondent has employees working in the State of Florida and it has been operating as a self-insured employer in the State of Florida from 1977, through January, 1981, by the process of posting a $25,000 surety bond. On December 11, 1980, the Petitioner received a termination notice related to the Respondent's self-insurer's bond. The bond issued by the Underwriters Insurance Company of North America was officially cancelled February 3, 1981. The Respondent, subsequent to the time of the bond cancellation, has failed to purchase a further bond, which bond at present must be a minimum amount of $380,000 or to provide other sufficient security. In lieu of the opportunity for self-insurance, the Respondent could purchase a workers' compensation insurance policy; however, at the time of the hearing, in addition to not having an appropriate bond or other security, the Respondent had not purchased such an insurance policy. The Respondent has no cash and negotiable instruments filed with the Florida Bureau of Self Insurance as surety for workers' compensation coverage. The Respondent also is without an acceptable excess loss insurance policy for purposes of workers' compensation.
The Issue Whether Highlands has standing to challenge the Department's Emergency Rule 4ER93-20, Florida Administrative Code, and if so, whether Sections 2(d) and 6(a) should be invalidated because they constitute invalid exercise of delegated legislative authority?
Findings Of Fact The Moratorium Statute During Special Session B of 1993 the Florida Legislature passed HB 89- B. The Governor signed the bill into law on June 8, 1993. Now codified as Section 1 of Chapter 93-401, Laws of Florida, the law, in pertinent part, provides as follows: Section 1. Moratorium on cancellation and nonrenewal of residential property coverages.-- * * * (3) MORATORIUM IMPOSED.--Effective May 19, 1993, no insurer authorized to transact insurance in this state shall, until the expiration of this section pursuant to subsection (6), cancel or nonrenew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrenewals must be substantiated by underwriting rules filed with and accepted for use by the Depart- ment of Insurance, unless inconsistent with the provisions of this section. The Department of Insurance is hereby granted all necessary power to carry out the provisions of this section. Pursuant to the Moratorium Statute, on an emergency basis, the Department promulgated Emergency Rule 20. The Challenged Sections The sections of Emergency Rule 20 Highlands seeks to have invalidated are 2(d) and 6(a): 4ER93-20 Procedures For Applying for Moratorium Exemption and Required Insurer Corrective Action on Previous Notices of Cancellation or Nonrenewal. * * * (2) General Provisions. * * * (d) House Bill 89-B, as enacted at the May 1993 Special Legaislative (sic) Session, revoked all prior approvals issued by the Department, of insurer plans for programs of onrenewals and cancellations, where the non- renewal or cancellation was not effective as of May 19, 1993, notwithstanding that the notice of nonrenewl or cancellation was issued before May 19, 1993. * * * (6) Required Action On Prior Notices of Cancellation. (a) Any insurer which, prior to May 19, 1993, shall have issued any notice of cancellation or nonrenewal, whether approved by the Department or not, upon the basis of risk of hurricane claims, which cancellation or non- renewal was not yet effective as of May 19, 1993, shall revoke said notice and shall not cancel or nonrenew such policy, or if same has been cancelled or non-renewed subsequent to May 19, 1993, shall immediately reinstate coverage without lapse as if there had been no cancellation or nonrenewal. The insurer shall also, by no later than June 10, 1993, mail by first class mail to every policy holder and agent who was sent such notice or whose policy was so cancelled or non-renewed, written advice that the previous notice is withdrawn, and that the coverage will not be cancelled or nonrenewed, or that the coverage is rein- stated, as the case may be. In the event that the renewal premium has not been received because the insured was operating under the impression that the coverage was not renewable, or a premium is due because the insurer has already refunded the unearned premium, the insurer shall allow the insured a reasonable period after receipt of an invoice from the insurer, in which to forward the required premium, and the insurer shall provide coverage during that reasonable period. Insurance and the parties Insurance is defined in Florida as "a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies." Section 624.02, Florida Statutes. A highly regulated business activity, insurance is regulated primarily at the state level. The Department of Insurance, among other powers and duties, enforces the provisions of the Florida Insurance Code against insurers, including Highlands, defined by the Code as, "those persons engaged as indemnitor, surety or contractor in the business of providing insurance." Section 624.02, Florida Statutes. Highlands Insurance Company, domiciled in Texas, is a stock insurance company admitted to transact insurance in Florida as a foreign insurer. After many years of transacting insurance in Florida, Highlands was issued a "new permanent Certificate of Authority" from the Department by letter dated November 22, 1991. The certificate authorized Highlands to write "Homeowner Multi Peril" and "Commercial Multi Peril" lines of business as well as numerous other lines. Pursuant to its Certificate of Authority the standard homeowner's policy issued in Florida by Highlands allowed for cancellation by the homeowner at any time through notice to the company. It allowed for cancellation by Highlands under limited circumstances. And it allowed for non- renewal by written notice within a certain number of days before the policy's expiration date. Reinsurance From the early 1960s through June 30, 1993, Highlands wrote its Florida property and casualty insurance, through a reinsurance facility ("SU Reinsurance Facility") made available by Southern Underwriters, Inc. ("Southern"). Under the terms of the SU Reinsurance Facility, 93.5 percent of homeowners and commercial risks insured by Highlands are reinsured to a large group of reinsurers. Highlands retains only 6.5 percent of its homeowners and commercial lines risks. The SU Reinsurance Facility consists of two principal reinsurance agreements, which, in the aggregate, reinsure 93.5 percent of the liabilities of the homeowners and commercial lines insurance written in Florida by Highlands and its wholly owned subsidiary, Highlands Underwriters Insurance Company ("HUIC"). One agreement is the Quota Share agreement, the other is the Obligatory Surplus agreement. For each homeowners or commercial policy, the risks are ceded pro-rata under the two agreements, 25 percent to the Quota Share and 75 percent to the Obligatory Surplus. Highlands and HUIC retain 16 percent and 5.5 percent, respectively of the 25 percent of total risk attributable to the Quota Share agreement for a total of 5.375 percent of total risk. Highlands retains 1.5 percent of the 75 percent of total risk attributable to the Obligatory Surplus agreement or 1.125 percent of total risk. Highlands exposure to total risk, therefore, is 6.5 percent. The total risk for each policy attributable to Quota Share is 19.625 percent and to Obligatory Surplus 73.875 percent which equals, together, 93.5 percent of total risk. Hurricane Andrew and Claims against Highlands Hurricane Andrew struck Florida on August 24, 1992. The most costly civil disaster in the history of the United States, it caused over 16 billion dollars ($16,000,000,000) in insured losses, alone. As a result of the hurricane, Highlands incurred claims totalling approximately 337.3 million dollars ($337,300,000) under its homeowner and commercial lines policies. Highlands' 6.5 percent share of the losses on these claims was 21.9 million dollars ($21,900,000). The reinsurers' 93.5 percent share of the losses on the claims was 315.4 million dollars ($315,400,000). Highland's 1992 year-end policyholder surplus was 255.4 million dollars ($255,400,000). Thus, the claims incurred by Highlands as the result of Andrew exceeded its 1992 surplus by more than 80 million dollars ($80,000,000). Quota Share Reinsurance Cancellation By letter dated January 15, 1993, Highlands was formally notified that its reinsurers had terminated the Quota Share Facility for policies to be written or renewed on and after July 1, 1993. Highlands was unable to secure reinsurance to replace the terminated reinsurance. Highlands Response to Reinsurance Loss Based on the loss of the Quota Share reinsurance, Highlands notified the Department by letter dated January 22, 1993 (one week after the date of the letter by which Highlands received formal notice of the termination of the Quota Share reinsurance) that it would cease to write "Dwelling and Homeowner's insurance effective May 1, 1993 and after," Pet.'s Ex. 4., that is, that it would "discontinue" the writing of the "Multi Peril Homeowner's" line of insurance, one of the many lines authorized by the Certificate of Authority as shown on the certificate face. The January 22 "Discontinuance" letter was sent, in the words of Highlands' Vice-President for Reinsurance Jose Ferrer, because, "the magnitude of our involvement in Florida especially with Hurricane Andrew was such that we were losing our reinsurance protection, we had to take immediate action to protect our company." (Tr. 36) On January 22, 1993, discontinuance by an insurer from transacting any line of insurance in Florida was governed by Section 624.430, Florida Statutes and Emergency Rule 4ER92-11. Section 624.430, F.S., bears the catchline "Withdrawal of insurer or discontinuance of writing certain classes of insurance." With regard to the action taken by the January 22 letter, (notice of discontinuance of a line), the statute provides, in pertinent part: Any insurer desiring to ... discontinue the writing of any one or multiple kinds or lines of insurance in this state shall give 90 days' notice in writing to the department setting forth its reasons for such action. Rule 4ER92-11, (the "Withdrawal" Rule) entitled "Withdrawal of Insurers From the State," includes discontinuances of any line of property insurance as well as the complete cessation of writing any insurance business in an expansive definition of withdrawal: ... to cease substantially all writing of new or renewal business in this state, or to cease writing substantially all new or renewal business in any line of property insurance in this state; or in either of the two preceding instances, to cut back on new or renewal writings so substantially as to have the effects of a withdrawal. Section (2)(b), 18 Fla. Admin. Weekly 7318 (Nov. 25, 1992). The Withdrawal Rule goes on to interpret Section 624.430 as "authorizing the Department to evaluate the sufficiency of the reasons" for withdrawal (or as in the case of Highlands for discontinuance of one or more lines) and to "impose reasonable terms and conditions regarding withdrawal [including discontinuance] as are necessary to prevent or reasonably ameliorate such adverse consequences." Id. Section 3(c). At no time after Highlands' Notice was received by the Department and before May 1, 1993 did the Department provide a written response, request a meeting, impose conditions upon discontinuance, or otherwise object to or deny Highlands' Notice. In addition to mailing a notice that it would cease to write Homeowner's and Dwelling lines effective May 1, 1993, Highlands began sending out non-renewal notices. Some were sent after May 19, 1993, the effective date of the Moratorium Statute. Highlands began sending non-renewal notices because of the loss of reinsurance and because of its position that the moratorium did not apply to Highlands. It did not matter to Highlands whether Andrew had occurred or not. If the reinsurance had been cancelled without a hurricane, Highlands would have taken exactly the same steps. On the other hand, if the reinsurance had remained in place in the wake of Andrew, Highlands would be writing the same lines and policies it did before Andrew. Mr. Ferrer believed the reinsurance was cancelled, not because of the risk of future hurricane loss, but "as the result of the massive loss from Hurricane Andrew." (Tr. 51) While the obvious inference to be drawn from his belief is that the reinsurer fears the risk of future hurricane loss, that is not the only inference that could be drawn. Massive losses could render a reinsurer incapable of providing any reinsurance to any party under any circumstances, regardless of the risk of future hurricane claims. Nonetheless, Mr. Ferrer testified that if there were no risk of future hurricane loss to homeowners, Highland would continue to write policies it is now refusing to renew: Q ... If there were no risk of hurricane loss, would you write the business? A Yes, if we can include wind on all policies. HEARING OFFICER MALONEY: Could you repeat that answer ... ? A The answer is, if there is no windstorm ability, hurricane ability, we will have no problem writing the policies. (Tr. 54) Thus, Highlands began sending 45-day notices of nonrenewals to its homeowners policy holders, on the basis of its position that it had withdrawn the line in Florida and because it had lost its reinsurance. But Highlands is also not renewing policies which expire during the moratorium because of risk of future hurricane loss. Insurance Crisis in the Aftermath of Andrew The immensity of Andrew's impact to insurers doing business in Florida created an extremely serious situation for the Florida property insurance market. The Legislature described the situation this way: Hurricane Andrew ... has reinforced the need of consumers to have reliable homeowner's insurance coverage; however, the enormous monetary impact to insurers of Hurricane Andrew claims has prompted insurers to propose substantial cancellation or non- renewal of their homeowner's policyholders. ... [T]he massive cancellations and non- renewals announced, proposed, or contemplated by certain insurers constitute a significant danger to the public health, safety and welfare, especially in the context of a new hurricane season, and destabilize the insurance market. (Ch. 93-401, Laws of Florida, Section 1., Pet.'s Ex. 15). Between Hurricane Andrew and May 1993, the Department received notices from 38 insurers seeking to withdraw from homeowners insurance or reduce their exposure for homeowners insurance in the state. Twenty of these insurers filed notices of total withdrawal from the homeowners line. Eighteen sought to impose restrictions on new or renewal homeowners' business. Together the 38 insurers comprise approximately 40 percent of the Florida homeowners market. Of the 18 insurers seeking to impose restrictions, the greatest single source of impact on the Florida market came from the changes proposed by Allstate Insurance Company. Allstate proposed to nonrenew 300,000 homeowners policies in certain coastal counties. The Department scheduled two days of public hearing on Allstate's notice of intent to restrict writings. The first was scheduled to take place in Clearwater on May 17. The second, held in Plantation on May 18, was attended by "[p]robably close to a thousand [people] -- in excess of 500 hundred anyway. There was a lot of people." (Testimony of Witness Kummer, Tr. 148). Complaints from citizens were received expressing that "it was inappropriate for Allstate to be able to cancel their policies and that something should be done to assist in that." Id. at 150. The Department's Response On May 19, 1993, the Department promulgated Emergency Rule 4ER93-18, imposing a moratorium on the cancellation and nonrenewal of personal lines policies including homeowners, as follows: (3)90 Day Moratorium Imposed. As of the effective date of this rule, no insurer authorized to transact insurance in this state shall, for a period of 90 days, cancel or non- renew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrewals (sic) must be substantiated by underwriting rules established and in effect on August 23, 1992. The State's Response to the Insurance Crisis a. The Governor's Proclamation and Call for a Special Session. On May 25, 1993, Governor Chiles issued a Proclamation. Addressed "To the Honorable Members of the Florida Senate and Florida House of Representatives," it contains the following pertinent "Whereas" clauses: WHEREAS, the damage resulting from Hurricane Andrew has prompted the insurance industry in Florida to propose substantial cancellation or nonrenewals of homeowner insurance policies, and WHEREAS, it is appropriate to provide a moratorium period to protect Florida's home- owners while a study is conducted to assess the effect of these extraordinary events on the insurance industry which occurred as a result of Hurricane Andrew, and WHEREAS, a study of the commercial viability and competitiveness of the property insurance and re-insurance industry in Florida would provide the Governor and the Legislature with the information needed to assess whether current regulatory statutes should be amended, and WHEREAS, certain additional statutory amend- ments are required to make necessary insurance coverage available to provide fundamental protection to the citizens of this state, and WHEREAS, it is appropriate to amend the pro- clamation of May 13, 1993, to add to the matters considered by the Florida Legislature convened in special session, the implementa- tion of a moratorium on personal lines property insurance cancellations or non- renewals, ... (Pet.'s Ex. 24). The Proclamation convenes the Legislature for the purpose of considering: (a) Legislation to implement and, if necessary extend for [a] period not to exceed 90 additional days, the emergency rule promulgated by the Insurance Commissioner, 4ER93-18. 1993 Special Session B Pursuant to the Governor's May 25, 1993 Proclamation and a May 13, 1993 Proclamation, the 1993 Florida Legislature was called into special session, Special Session B. Finding the public necessity for an orderly property insurance market to be overwhelming, the 1993 Legislature imposed, "for a limited time," a moratorium on cancellation or nonrenewal of personal lines residential property insurance policies, beginning May 19, 1993. Id. The moratorium applies to personal lines residential property insurance. It does not apply to commercial coverages or passenger auto coverages, whether commercial or private. The Legislature allowed an exception from the moratorium for those insurers which "affirmatively demonstrate to the department that the proposed cancellation or nonrenewal is necessary for the insurer to avoid an unreasonable risk of insolvency." Section 1(4), Ch. 93-401, Laws of Florida. If the department determines that the exception affects more than 1 percent of any class of business within the personal lines residential property market, then the department may set a schedule for nonrenewals, cancellation or withdrawal that avoids market disruption. Presumably, the moratorium will cover the 1993 hurricane season. The section of Ch. 93-401, Laws of Florida, that imposes the moratorium is repealed on November 14, 1993. Promulgation of Emergency Rule 20 On June 4, 1993, the Department promulgated Emergency Rule 20, effective the same date. According to the testimony of Hugo John Kummer, Deputy Insurance Commissioner, Emergency Rule 20 embodies three aims: first, to set a procedure for applying for a moratorium exemption allowed by the Moratorium Statute, [set forth in the rule outside Sections 2(d) and 6(a)]; second, to require a notice to update consumers who had received notices of cancellation or nonrenewal with the information that the earlier notices had been rendered temporarily ineffective under the moratorium, [Section 6(a)], and; third, to inform insurers who had entered consent orders with the Department governing the method with which the insurers were with- drawing from the State or restricting coverage, that the approvals by the Department found in the consent orders were overridden by the Moratorium Statute, [Section 2(d)]. (Tr. 136) On this last point, Mr. Kummer's testimony is consistent with the testimony of Douglas Shropshire, Director of the Department's Division of Insurer Regulation, one of two drafters of Emergency Rule 20 and the drafter of Section 2(d). Mr. Shropshire testified that the rule "simply reiterates the statute and provides the procedures for implementing [the Moratorium Statute]." Resp.'s Ex. 11, p. 25. With regard to Section 2(d), Mr. Shropshire testified as follows: Q Now, could you please direct your attention specifically to just the words, "Revoked all prior approvals issued by the Department," and explain how this implements the statute. A It simply repeats what the statute provides. It, basically, reiterates the statute. That moratorium statute, 89-B, essentially freezes all cancellation or nonrenewal action during the pendency of the 89-B moratorium. Q What would be the status of the moratorium, subsequent to November 14th, 1993, as you understand it? A Assuming that no other legislation is enacted that affects the subject at the special session, then prior approvals would be, again, effective, and companies could again being (sic) acting -- they could, basically, pick up where they had left off when the moratorium began. Q All right. What, if any, additional restrictions does the language place upon insurers above the requirements of the statute? A Absolutely, none. It is apparent, therefore, that if the Department's silence in response to Highlands' January 22, 1993 "Discontinuance" Letter constituted an "Approval," it was not the intent of the Department through the promulgation of Section 2(d) of Emergency Rule 20 to revoke that approval. The goal of the Department in promulgating the section was simply to inform parties to Consent Orders that any Department approval contained in the Consent Order had been revoked. Moreover, the Department's intent in using the term "revoke" was not "revoke" in the legal sense of rendered null and void and forever ineffective but more akin to "suspend" in a temporal sense. It was the Department's intent that any prior approval by the Department of a withdrawal or imposition of restrictions by an insurer was simply suspended by the Moratorium Statute temporarily, that is, for the life of moratorium - until November 14, 1993. Likewise, if the Department's silence following the January 22 Discontinuance Letter constituted an "approval," it would be the Department's intent that Section 2(d) would have no effect other than suspending the approval until the repeal of the Moratorium Statute on November 14, 1993. The import of the Department's intent in promulgating Emergency Rule 20 is dependent on whether the rule is ambiguous or plain on its face as concluded below in this order's Conclusions of Law.
The Issue The issue in this case is whether the license of James Joseph Sines (Respondent) should be disciplined by the Department of Insurance and Treasurer (Petitioner) based upon actions he is alleged to have taken during July 1987, involving an insured, Eunice Chappell, which would constitute an unlawful misappropriation and conversion of her funds, as more particularly set forth in the Administrative Complaint issued herein on, or about June 22, 1989.
Findings Of Fact At all times material hereto, Respondent has been licensed, and eligible for licensure, in the State of Florida as a life and health debit agent, life and health agent, general lines agent limited to industrial fire insurance, and health insurance agent. From August 1, 1986, through August 28, 1987, Respondent was employed by Union National Life Insurance Company as a life and health debit agent. All funds received by Respondent under his licenses representing premiums, returned premiums, and other funds belonging to insured persons or insurers were trust funds received in a fiduciary capacity. It was Respondent's usual practice to cash checks for his debit policyholders when he visited them to collect their premiums, as many of his policyholders did not have checking or savings accounts, and thus, had some difficulty cashing checks. He did this as a service to policyholders, and as a way of making sure that insurance premiums were paid up to date, since when he cashed a check for a policyholder, he would deduct the amount of any outstanding overdue premiums, and return the balance of the check proceeds to the policyholder. The value of checks which Respondent cashed for policyholders ranged from $1 to $900, with the average check being around $300. Eunice Chappell was a policyholder with Union National Life Insurance Company at all times material hereto. Respondent visited her in her home on a regular basis, usually weekly, to collect the premiums on her debit policies, and to assist with the filing of any claims on her policies. In fact, he assisted her with the filing of a claim under policies with Union National for income replacement and convalescent benefits for a period of hospitalization from June 24, 1987, to July 3, 1987. On or about July 30, 1987, Respondent received Check Number 352955, dated July 28, 1987, issued by Union National Life Insurance Company and made payable to Eunice Chappell, in the amount of $729, representing benefits due her under policies with Union National for her period of hospital confinement in late June and early July 1987. Shortly after receiving this check, Respondent visited Chappell at her home. Since she was a number of weeks behind on her premiums, she asked him to cash this check for her, and to pay her overdue premiums out of the proceeds. However, Respondent did not have sufficient cash on hand. Therefore, he had her endorse the check, and took it to his bank to cash after he also endorsed the check and placed his account number under his endorsement. Due to her frail physical condition, Respondent had to help Chappell sign her name to the back of this check by placing his hand over hers and guiding it as she made her signature. The only person present during this visit in Chappell's home, other than Respondent and Chappell, was Michael Pierazek, a co-worker and fellow agent for Union National. When Respondent presented this check at his bank, it could not be cashed since he did not have sufficient funds in his account to cover it. Therefore, he returned to Chappell's house, accompanied by Pierazek, and told her he was unable to cash the check for her. However, she insisted that Respondent assist her in any way possible in cashing the check because of her severely limited physical abilities. He told her that the only thing he knew to do would be to return to the bank and deposit the check in his personal account, wait for the funds to clear in a few days, and then return with the proceeds. Chappell agreed to this procedure. It is strictly against the policy of Union National for agents to deposit into their own personal account any policyholder's check received in the course of their business. Respondent was aware of this policy, but sought no exemption from this policy. He did deposit Chappell's check in his account on or about August 3, 1987. On August 14, 1987, Eunice Chappell's daughter, Ethel Small, called the district manager for Union National, Donald R. Sanders, to inquire about the status of her mother's insurance claim check. She indicated to Sanders that her mother had never received the check for $729, dated July 28, 1987. From the evidence received, as well as the demeanor of the witnesses who testified, it is found that Small was simply unaware of her mother's arrangement with Respondent, and the fact that Check Number 352955 had been presented to Chappell by Respondent and subsequently deposited into his personal account with the knowledge and agreement of Chappell. Small was not present during this transaction. An affidavit executed by Chappell on August 21, 1987, states that she received no proceeds from Check Number 352955, which is correct. It does not state that she never was presented with said check. A second check was issued by Union National to Eunice Chappell dated August 19, 1987, which was delivered to her by Sanders and the Respondent on August 21, 1987. This second check was numbered 355819. Ethel Small endorsed this second check on behalf of her mother, under a purported power of attorney. However, the document which she claims gave her Eunice Chappell's power of attorney was signed by a notary public on August 6, 1987, at the place provided on the document for the signature of the person giving the power of attorney, and recites that Ethel Small, rather than Eunice Chappell, was known to, and appeared before said notary public acknowledging "the within power of attorney to be her (Ethel Small's) act and deed." Nowhere on this purported power of attorney does Eunice Chappell's signature or mark appear, nor is there any evidence that she even appeared before the notary public who signed this document. Between August 3, 1987, when he deposited Chappell's first check into his personal account, until August 14, 1987, when Ethel Small contacted the district manager of Union National, Respondent was waiting for this check to clear, and therefore, did not give Chappell any proceeds from this check. While it is not clear from the evidence presented exactly when this first check did clear, and funds became available in Respondent's personal account, it was established that Respondent did not give Chappell any proceeds from this first check. He had been instructed by his district manager, Sanders, not to contact Chappell in any way after August 14, except in his presence. Respondent complied with this directive, and awaited the issuance of a second check to accompany Sanders to Chappell's house to deliver this check. Respondent was terminated by Union National as a result of this transaction, and an amount equal to the proceeds from the first check was deducted by Union National from his personal savings account with the company, the balance of which he received at termination, in order to reimburse Union National for the issuance of the second check. There is no evidence that Respondent used the proceeds of the first Chappell check for his own benefit, or that Union National expended funds beyond what they were obligated to pay to Chappell on her claim as a result of Respondent's actions in this transaction. He did violate company policy by depositing Chappell's first check in his personal account, but this was done with her full knowledge and consent, and was, in fact, done at her request. At the time of hearing, Eunice Chappell was deceased, and therefore, the findings set forth herein concerning her arrangement with the Respondent are based upon the demeanor and credibility of witnesses who testified and who were present on July 30, 1987, when Respondent and Chappell met, as well as the demeanor of the one witness who disputes Respondent's account of this transaction, Ethel Small. It is specifically found that Small's testimony lacks credibility because it was conflicting and implausible, and because she had a personal motive to have a second check issued. She testified she was always present with her mother in the home and never left her side during the times in question, but then offered conflicting, vague and uncertain testimony about when she moved into her mother's house, times she had to leave her mother to go to the store, do laundry and cash checks, and about leaving her mother with her sister. She admitted that on two occasions each week she would take a taxi cab to the store and back, and this would take an hour or so, plus the time necessary to wait for the cab. Her testimony that she never left her mother's house when her husband periodically came to visit her from Deland is not credible. Small had a motive for wanting a second check to be issued by Union National after she found out that her mother had a private arrangement with Respondent concerning the first check. Under the purported power of attorney which she had executed only a few days after her mother gave the first check to Respondent, she endorsed and cashed the second check for $729. Ethel Small filed a complaint with the Petitioner concerning this matter in May or June 1988. No evidence was presented in support of the Respondent's affirmative defense of laches, and it was not shown that Petitioner's actions between receipt of this complaint and the filing of the Administrative Complaint in this matter was dilatory or prejudicial to Respondent.
Recommendation Based upon the foregoing, it is recommended that Petitioner enter a Final Order dismissing all charges against Respondent contained in the Administrative Complaint filed in this matter. DONE AND ENTERED this 18th of December, 1989 in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 Filed with the Clerk of the Division of Administrative Hearings this 18th day of December, 1989. APPENDIX (DOAH CASE NO. 89-3999) Rulings on the Petitioner's Proposed Findings of Fact: Adopted in Finding 1. Adopted in Finding 2. Adopted in Finding 5. Rejected in Finding 14. Adopted in Findings 5, 6. Rejected as irrelevant and immaterial. Adopted in Finding 9. 8-9. Adopted and Rejected in part in Findings 9, 10. Rejected in Findings 6-10. Rejected in Findings 6, 14. Adopted in part in Finding 11, but otherwise rejected in Finding 14 and as not based on competent substantial evidence. Adopted and Rejected in part in Finding 10. Adopted in Finding 12. Adopted in Finding 15. Rulings on the Respondents Proposed Findings of Fact: Adopted in Findings 6 - 10, 14. Rejected in Finding 15. COPIES FURNISHED: John C. Jordan, Esquire 412 Larson Building Tallahassee, FL 32399-0300 Terry M. Brocklehurst, Esquire Countryside Place, Suite 110 2605 Enterprise Road East Clearwater, FL 34619 Don Dowdell, Esquire General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300
The Issue The issue is whether Respondent is liable for a penalty of $44,794.51 for the alleged failure to maintain workers' compensation insurance for two employees in violation of Chapter 440, Florida Statutes (2008).1
Findings Of Fact Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers' compensation insurance for the benefit of their employees in accordance with Section 440.107. Respondent is a Florida corporation engaged in the construction business. Respondent utilizes a payroll service company, identified in the record as Frank Crum Leasing (Frank Crum). Frank Crum pays Respondent's employees and collects premiums for workers' compensation insurance based on payroll and employee hours that Respondent reports to Frank Crum each week. Frank Crum maintains a list of the reported employees that is updated weekly (the weekly Frank Crum list). Respondent reports payroll and employee hours to Frank Crum in arrears. On Wednesday afternoon of each week, Respondent reports payroll and employee hours to Frank Crum for the preceding Wednesday through Tuesday. Frank Crum publishes a weekly Frank Crum list each Thursday. New employees that begin work on Wednesday through Tuesday appear on the next weekly Frank Crum list. For example, new employees that began work anytime from Wednesday, February 18, 2009, through Tuesday, February 24, 2009, are reported on February 25, 2009, and appear on the weekly Frank Crum list dated February 26, 2009. New employees that began work anytime from Wednesday, February 25, 2009, through Tuesday, March 3, 2009, are reported on March 4, 2009, and appear on the weekly Frank Crum list dated March 5, 2009.2 Frank Crum collects workers' compensation insurance premiums from Respondent in arrears based on the payroll and employee hours reported each Wednesday for the previous week. The reporting of payroll and employee hours and the payment of insurance premiums in arrears has been Respondent's customary business practice for the past 13 years. On February 26, 2009, one of Petitioner's investigators conducted a random construction site visit at 6417 Grand Island Road, Apollo Beach, Florida. Four workers, who are identified by name in exhibits of record, were laying a concrete sidewalk at the site. The four workers laying the sidewalk were employees of Respondent. Two of the workers were on the weekly Frank Crum list dated February 26, 2006. The other two workers were not on the same list. The two workers who were not on the Frank Crum list dated February 26, 2006, are identified in the record as Mr. Ricardo Hurtado and Mr. Evelio Bueno. On February 26, 2009, Petitioner issued a Stop-Work Order and Penalty Assessment and requested business records from Respondent. Petitioner reviewed the business records and, on April 10, 2009, issued an Amended Order of Penalty Assessment in the amount of $44,794.51 for failure to maintain workers' compensation insurance coverage for the two workers who were not listed on the weekly Frank Crum list dated February 26, 2009, and identified in record as Mr. Hurtado and Mr. Bueno. Respondent does not dispute the accuracy of the penalty calculation. However, Respondent does dispute that Respondent is liable for the penalty assessment. Respondent maintains that the two unlisted workers were covered by workers' compensation insurance on February 26, 2009. The two unlisted workers began their employment with Respondent on February 25, 2009. On March 4, 2009, Respondent reported the new employees to Frank Crum. Respondent paid premiums to Frank Crum for workers' compensation insurance covering the two workers for the dates of employment on February 25 and 26, 2009. The two unlisted workers were covered by workers' compensation insurance on February 25 and 26, 2009. The weekly Frank Crum lists in Petitioner's exhibits are not clear and convincing evidence of the effective date of workers' compensation insurance coverage. The testimony of Respondent's witness at the hearing was clear and convincing that the two workers were covered by workers' compensation insurance in accordance with the customary business practice of Respondent and Frank Crum for the last 16 years. The terms of the workers' compensation insurance policies would have assisted the fact-finder in resolving any evidential conflicts concerning the effective date of workers' compensation insurance coverage. However, Petitioner did not submit copies of the insurance policies and did not submit the testimony of a representative of the workers' compensation insurance company. In support of Petitioner's assertion that Mr. Hurtado and Mr. Bueno were not covered by workers' compensation insurance, Petitioner cites, in paragraph number 13 of its PRO, the testimony of the general counsel of Frank Crum. Petitioner points to the deposition testimony of the general counsel which, in relevant part, states that she did not know whether the insurance company covered the two unlisted workers. The general counsel explained that such a determination would be up to the insurance company and not the general counsel for Frank Crum. The general counsel is correct. Petitioner submitted no evidence to show that the general counsel of Frank Crum is competent to testify for the insurance company. The evidence is clear that Respondent paid insurance premiums in arrears. The evidence is less than clear that insurance coverage was not in effect before the payment of the premium.3 The pretermitted insurance policy or competent testimony from an insurance representative may have clarified the issue. However, the only testimony concerning the effective date of workers' compensation coverage for the two unlisted workers comes from Respondent's live witness. The fact-finder finds her testimony to be credible and persuasive.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner issue a final order dismissing the Stop-Work Order and Amended Order of Penalty Assessment. DONE AND ENTERED this 4th day of August, 2009, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 August, 2009.
The Issue Whether Respondent violated the provisions of chapter 440, Florida Statutes (2017), by failing to secure the payment of workers’ compensation coverage as alleged in the Stop-Work Order and Second Amended Order of Penalty Assessment and, if so, what penalty is appropriate.1/
Findings Of Fact The Department is the state agency responsible for the enforcement of the workers’ compensation insurance coverage requirements established in chapter 440. On September 14, 2017, Investigator Murvin conducted a random workers’ compensation compliance check at a residential construction site at 8256 Lake James Drive in Lakeland, Florida. During the course of the compliance check, Investigator Murvin observed two individuals--Donald Steven Paul, Jr. and Dean Wayne Paul--painting the home. It is undisputed that Respondent had been subcontracted to perform painting services at this site; and that these two individuals were, at the time of Investigator Murvin’s visit, employed by Respondent. After speaking to Donald and Dean Paul, Investigator Murvin used the Department’s database to verify that Respondent did not have workers’ compensation insurance coverage, nor did Donald or Dean Paul have an exemption from the coverage requirements. Donald Paul admitted to Investigator Murvin at the hearing that he did not have workers’ compensation coverage for himself or Dean Paul. Donald Paul explained that he believed that his incorporation with the state and securing of liability insurance provided compliance of all insurance requirements. Based on the information provided by Dean and Donald Paul, and from the database, Investigator Murvin issued a SWO to Respondent on the same day as the site visit. A Request for Production of Business Records was also issued to Respondent. In response to the request for documentation, Respondent provided bank statements that indicated the business began in August 1, 2016. The bank statements also established that there was money being deposited and being paid out, but there was no indication what the money was for or how it was allocated. In other words, there was no way to discern whether the money paid out of the bank account was for employee salaries or other business expenses. In support of its Second Amended Order of Penalty Assessment, the Department prepared a penalty calculation worksheet showing a total penalty owed of $2,090.14. At the hearing, Respondent did not challenge the accuracy or method of calculating the assessed penalty, but only asserted that it believed it had the appropriate coverage and that the penalty was “too high.” Based on the evidence, it is clear Respondent provides construction services and has at least one employee; therefore, it was required to secure workers’ compensation insurance. The Department established by clear and convincing evidence that Respondent failed to secure the payment of workers’ compensation as required by chapter 440. The Department has established through the records submitted and testimony of Auditor Murcia, the appropriate penalty for Respondent’s failure to obtain workers’ compensation coverage is $2,090.14 for the audit period of August 1, 2016, to August 14, 2017.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, enter a final order finding that Respondent, Donald Steven Paul d/b/a/ D. P. Painting of Lakeland, violated the provisions of chapter 440 by failing to secure the payment of workers’ compensation and assessing against Respondent a penalty in the amount of $2,090.14. DONE AND ENTERED this 20th day of April, 2018, in Tallahassee, Leon County, Florida. S HETAL DESAI 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 20th day of April, 2018.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. At all times material to this proceeding, Respondent has been licensed and eligible for appointment in Florida as a life and variable annuities agent, a life, health, and variable annuities agent, and a general lines agent. The City of Port St. Lucie (the "City") has had a City-funded pension plan in effect for its employees since October 1, 1977 (the "plan"). The City funds the plan with a contribution of 10.5 percent of the gross income of each employee who is enrolled in the plan (the "participant"). The monthly contributions by the City are sent directly to The Prudential Insurance Company ("Prudential"). The plan is participant directed. It allows each participant to direct the investment of his or her share of the City's contribution into either an investment account or a split investment account. If a participant elects an investment account, all of the City's contributions for that participant are used to purchase an annuity contract. If a participant elects the split investment account, a portion of the City's contribution for that participant is invested in an annuity contract and a portion is invested in whole life insurance issued by Prudential. Each whole life policy builds a cash value and provides benefits not available in the annuity contract, including disability benefits. Each participant is completely vested in the plan after he or she has been enrolled in the plan for five years. Prudential issues annuity contracts and insurance policies on participants and provides plan services to the administrator and trustees of the plan. 1/ The City is the owner of both the annuity contracts and the insurance policies. Both the annuity contracts and insurance policies are maintained in the City offices of the plan administrator. Participants do not receive copies of either annuity or insurance contracts and do not receive certificates of insurance. Beginning in 1984, each participant has received monthly Confirmation Statements in their paycheck envelopes. The Confirmation Statements are prepared by Prudential and disclose the net investment activity for the annuity contract. From the inception of the plan, each participant has received an annual Employee Benefit Statement which is prepared by Prudential and discloses the amount of the employer contributions that were allocated to the annuity contract and the amount that was allocated to insurance. Participants are eligible to enroll in the pension plan after six months of service. Biannual enrollment dates are scheduled in April and October each year. Prior to each biannual enrollment date, the City conducts an orientation meeting to explain the pension plan to prospective participants. The City sends a notice to each eligible employee in his or her payroll envelope. The notice informs the employee of his eligibility and the date and time of the orientation meeting. At the City-run orientation meeting, eligible employees are told that the pension plan is a participant directed plan in which each of them must elect either a straight annuity investment or a split investment involving an annuity and life insurance. Thirty to forty percent of the prospective participants do not attend the City-run orientation meeting. Subsequent to the orientation meeting, Respondent meets individually with each eligible employee in a room located on the premises of the City. The enrollment sessions are scheduled by the City so that Respondent has approximately 30 minutes to meet individually with each prospective participant. During that 30 minutes, Respondent provides each eligible employee who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. 2/ Respondent explains the investment options, answers questions, asks the participants for the information contained in the applications and has the participants sign the appropriate applications. 3/ Each participant elects his or her investment option during the 30 minute enrollment session with Respondent. 4/ There is no separate written form evidencing the participant's election. The only written evidence of the election made by the participant is the application for annuity contract and, if the participant elects the split investment option, the application for insurance. If a participant elects the straight annuity investment option, Respondent completes and has the participant sign only one application. That application is for an annuity contract. If the split investment option is elected, Respondent completes and has the participant sign a second application. The second application is for life insurance. An application for an annuity contract is completed by Respondent and signed by the participant regardless of the investment option elected by the individual participant. 5/ An application for an annuity contract is clearly and unambiguously labeled as such. The top center of the application contains the following caption in bold print: Application For An Annuity Contract [] Prudential's Variable Investment Plan Series or [] Prudential's Fixed Interest Plan Series The participant must determine as a threshold matter whether he or she wishes to apply for a variable investment or fixedinterest annuity contract. Respondent then checks the appropriate box. The front page of the application for annuity contract contains an unnumbered box on the face of the application that requires a participant who applies for a variable investment annuity contract to select among seven investment alternatives. The unnumbered box is labeled in bold, capital letters "Investment Selection." The instructions to the box provide: Complete only if you are applying for a variable annuity contract of Prudential's Variable Investment Plan Series Select one or more: (All % allocations must be expressed in whole numbers) [] Bond [] Money Market [] Common Stock [] Aggressively Managed Flexible [] Conservatively Managed Flexible [] Fixed Account [] Other TOTAL INVESTED 100 % The application for annuity contract is two pages long. Question 1a is entitled "Proposed Annuitant's name (Please Print)." Question 4 is entitled "Proposed Annuitant's home address." Question 10, in bold, capital letters, is entitled "Annuity Commencement Date," and then states "Annuity Contract to begin on the first day of." There is an unnumbered box on the application relating to tax deferred annuities. Question 12 asks, "Will the annuity applied for replace or change any existing annuity or life insurance?" (emphasis added) The caption above the signature line for the participant is entitled "Signature of Proposed Annuitant." An application for insurance is also completed by Respondent and signed by the participant if the split investment option is elected. The application for insurance is clearly and unambiguously labeled as such. The upper right corner of the application for insurance contains the following caption in bold print: Part 1 Application for Life Insurance Pension Series to [] The Prudential Insurance Company of America [] Pruco Life Insurance Company A Subsidiary of The Prudential Insurance Company of America The term "proposed insured" also appears in bold print in the instructions at the top of the application for insurance. The application for insurance is approximately five pages long. 6/ It contains questions concerning the participant's treating physician, medical condition, driving record, and hazardous sports and job activities. 7/ Question 1a is entitled "Proposed Insured's name - first, initial, last (Print)." Question 7 asks for the kind of policy for which the participant is applying. Question 9 asks if the waiver of premium benefit is desired. Question 12 asks, "Will this insurance replace or change any existing insurance or annuity in any company?" (emphasis added) Question 21 asks, "Has the proposed insured smoked cigarettes within the past twelve months?" The caption under the signature line for the participant is entitled "Signature of Proposed Insured," as is the signature line for the Authorization For The Release of Information attached to the application for insurance. Respondent met with each of the participants in this proceeding during the time allowed by the City for the enrollment sessions. Mr. Robert Riccio, Respondent's sales manager, was present at approximately 70 percent of those enrollment sessions. Respondent provided each participant who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. Respondent explained the investment options, and answered any questions the participants had. The name, occupation, and date of the enrollment session of the participants involved in this proceeding are: (a) Edmund Kelleher Police Officer 3-16-88 (b) Raymond Steele Police Officer 9-29-88 (c) Mark Hoffman Police Officer 10-29-86 (d) Joseph D'Agostino Police Officer 3-12-88 (e) Charles Johnson Police Officer 9-24-84 (f) Donna Rhoden Admin. Sec. 3-26-87 (g) John Gojkovich Police Officer 10-2-84 (h) John Skinner Police Officer 9-14-84 (i) John Sickler Planner 3-14-90 (j) James Lydon Bldg. Inspect. 9-13-89 (k) Robert McGhee Police Officer 9-18-84 (l) Richard Wilson Police Officer 3-21-89 (m) Lorraine Prussing Admin. Sec. 9-6-84 (n) Helen Ridsdale Anml. Cntrl. Off. 9-14-84 (o) Sandra Steele Admin. Sec. 4-3-85 (p) Linda Kimsey Computer Op. 3-18-89 (q) Jane Kenney Planner 3-13-85 (r) Alane Johnston Buyer 3-18-89 (s) Paula Laughlin Plans Exam. 3-18-89 Helen Ridsdale Anml. Cntrl. Super. 9-14-84 Jerry Adams Engineer 3-16-88 Cheryl John Records Super. for the Police Dept. 9-14-84 Each participant in this proceeding elected the split investment option during his or her enrollment session with Respondent and signed applications for both an annuity contract and an insurance policy. Each participant signed the application for insurance in his or her capacity as the proposed insured. The City paid 10.5 percent of each participant's salary to Prudential on a monthly basis. The payments were sent to Prudential with a form showing the amount to be invested in annuities and the amount to be used to purchase insurance. Each participant who enrolled in 1987 and thereafter received with his or her paycheck a monthly Confirmation Statement and all participants received an annual Employee Benefit Statement disclosing the value of the investment in annuities and the value of the investment in life insurance. The participants in this proceeding, like all participants, did not receive copies of annuity contracts and insurance policies and did not receive certificates of insurance. The annuity and insurance contracts were delivered to the City, as the owner, and maintained in the offices of the City's finance department. The participants in this proceeding had no actual knowledge that they had applied for insurance during the enrollment session with Respondent. Most of the participants had other insurance and did not need more insurance. Each participant left the enrollment session with Respondent with the impression that they had enrolled in the pension plan and had not applied for insurance. The lack of knowledge or misapprehension suffered by the participants in this proceeding was not caused by any act or omission committed by Respondent. Respondent did not, either personally or through the dissemination of information or advertising: wilfully misrepresent the application for insurance; wilfully deceive the participants with respect to the application for insurance; demonstrate a lack of fitness or trustworthiness; commit fraud or dishonest practices; wilfully fail to comply with any statute, rule, or order; engage in any unfair method of competition or unfair deceptive acts or practices; knowingly make false or fraudulent statements or representations relative to the application for insurance; or misrepresent the terms of the application for insurance. No clear and convincing evidence was presented that Respondent committed any act or omission during the enrollment sessions which caused the participants to believe that they were not applying for insurance. 8/ None of the participants testified that Respondent prevented them or induced them not to read the applications they signed. 9/ All of the participants affirmed their signatures on the application for insurance, but most of the participants did not recognize the application for insurance signed by them. Some participants could not recall having signed the application. The participants could not recall being hurried or harassed by Respondent and could not recall if Respondent refused to answer any of their questions. 10/ None of the participants provided a clear and convincing explanation of how Respondent caused them to sign an application for insurance without their knowledge or described in a clear and convincing fashion the method by which Respondent prevented them or induced them not to read or understand the contents of the documents they were signing. 11/ Eleven of the 22 participants cancelled their insurance policies after "learning" that they had insurance policies. Eight participants cancelled their policies on August 23, 1990. Two cancelled their policies on February 5, 1991, and one cancelled her policy on April 18, 1991. Financial adjustments required by the cancellations have been made and any remaining contributions have been invested in annuity contracts. Since 1983, Respondent has assisted Prudential and the City in the administration of the pension plan, including the enrollment of all participants. Prior to 1990, there was only one incident in which a participant complained of having been issued an insurance policy without knowing that she had applied for an insurance policy. The policy was cancelled and the appropriate refund made. Respondent has a long and successful relationship with the City and has no prior disciplinary history with Petitioner. Respondent is the agent for Prudential. The pension plan was intended by Prudential and the City to provide eligible employees with investment opportunities for annuities and life insurance. Respondent generally makes higher commissions from the sale of insurance than he does from the sale of annuities. 12/ Mr. Riccio receives 14 percent of the commissions earned by Respondent. Respondent encourages all participants to elect the split investment option by purchasing both annuities and insurance. If a participant states that he or she does not want life insurance, Respondent asks them for their reasons and explains the advantages of life insurance. If the participant then rejects life insurance, Respondent enrolls the participant in a straight annuity investment. Such practices do not constitute fraud, deceit, duress, unfair competition, misrepresentations, false statements, or any other act or omission alleged in the one count Administrative Complaint.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent not guilty of the allegations in the Administrative Complaint and imposing no fines or penalties. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14th day of January 1992. 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 14th day of January 1992.
