The Issue The issues to be resolved in this consolidated proceeding concern whether the Petitioner, Abraham Maida's applications to represent certain life insurance companies should be denied based upon his alleged unlawful failure to forward premium funds from insureds to the insurers during the applicable regular course of business. Also at issue are the charges in the Administrative Complaint in the related penal proceeding which concerns the same factual conduct involving the Respondent's alleged failure to forward premiums to the insurers involved in the policy contracts at issue.
Findings Of Fact The Petitioner, Abraham George Maida, is licensed in Florida as a life insurance agent, a life and health insurance agent and a dental health care contract salesman. The Department is an agency of the State of Florida charged with licensing life, health and other types of insurance agents, with regulating their licensure and practice and with enforcing the licensure and practice standards embodied in the statutes cited hereinbelow. Abraham Maida engaged in the business of selling insurance coverage to various employees of the City of Jacksonville. The premium payments for this coverage were collected by payroll deduction from the employees, and lump sum premium checks were remitted over to the Petitioner/Respondent, Mr. Maida, by the appropriate personnel of the City of Jacksonville. Mr. Maida, in turn, was required by his contractual arrangements with the underwriting insurance companies involved and by the Florida Insurance Code, Chapter 626, Florida Statutes, with timely remitting those premium funds over to the insurers who underwrote the risk for the employees in question. Mr. Maida failed to timely remit the premium funds which he collected from the City of Jacksonville to the relevant insurers for the months of February, March and April of 1990, in the case of policy contracts written on behalf of Loyal American Life Insurance Company. Additionally, Mr. Maida failed to timely remit the premium funds received from the City of Jacksonville, after it received them by payroll deduction from its employees, for the months of March, April and May of 1990, with regard to the premium funds due in contracts involving the ITT Life Insurance Company, in accordance with his contract with that company. Mr. Maida failed to timely remit the insurance premiums of James E. Daniels to the ITT Life Insurance Company, as well. The Petitioner/Respondent's contracts with these insurance companies required him to remit premium funds which he received from insureds, within thirty (30) days of receipt, to the insurance company underwriting the risk involved. This the Petitioner/Respondent failed to do for the companies involved in the above Findings of Fact and for those months of 1990 delineated above. In the case of most of the delinquent premium funds due these companies, Mr. Maida authorized them to debit his commission and/or renewal accounts with those companies, which were monies due and owing to him from the companies, in order to make up the premiums which he had not remitted over to the companies involved at that point. That procedure did not defray all of the delinquent premium amounts, however. in the case of ITT Life Insurance Company and the monies owed that company by Mr. Maida, it was established that $10,554.21 of delinquent premium amounts were owing to that company and not timely paid by Mr. Maida. Although he paid the portion of that figure representing the March premium funds due the company for March of 1990, he did not directly pay the premium funds due for April and May of 1990 but, rather, suffered the company to charge those delinquencies, for those months, to his agent's commission account. This procedure still left $4,877.54 unpaid, as of the time of hearing. It was established by witness, Steven Heinicke of that company, that Mr. Maida is their most consistently delinquent agent, in terms of timely remission of premium funds due the company for insurance business which Mr. Maida has written. It has also been established however, that Mr. Maida made a practice of always paying premium funds due the companies for which he wrote insurance in the precise amounts owing, regardless of whether the billing statements to him from those companies had inadvertently understated the amounts which they were due. It was also established that his failure to timely remit the insurance premium funds in question was not due to any intent to defraud those companies of the funds involved or to permanently convert the funds to his own use. Rather, it was established that Mr. Maida's difficulty in timely payment of the premium funds was due to misappropriation of the funds because of financial problems which he was suffering at tee times in question, due at least in part to federal income tax difficulties he was experiencing. There has been no shoring in this record that Mr. Maida is not a competent insurance agent in terms of his abilities and qualifications to fairly and effectively obtain and contract for insurance business with insureds on behalf of the insurance companies he represents. There was no showing that he lacks reasonably adequate knowledge and technical competence to engage in the transactions authorized by the licenses or permits which he presently holds or which he seeks in the licensure application involved in this proceeding.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the candor and demeanor of the witnesses, it is, therefore RECOMMENDED: That the Petitioner be found guilty of the violations found to have been proven in the above Conclusions of Law portion of this Recommended Order and that his licenses and eligibility for licensure with the insurers for which license application was made be suspended for a period of three (3) months. DONE and ENTERED this 5th day of June, 1991, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk the Division of Administrative Hearings this 6th day of June, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-6670 Respondent/Department's Proposed Findings of Fact: 1-7. Accepted. COPIES FURNISHED: Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Norman J. Abood, Esq. Willis F. Melvin, Jr., Esq. 1015 Blackstone Building Alan J. Leifer, Esq. Jacksonville, FL 32202 Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300
The Issue Whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, the penalty that should be imposed.
Findings Of Fact At all times material hereto, Respondent was licensed by Petitioner as an insurance agent in the State of Florida licensed to sell health insurance. At all times material hereto, Respondent was not formally affiliated with Cleveland Insurance Agency. However, Cleveland Insurance Agency often referred clients to Respondent for health and Medicare supplement policies because Cleveland Insurance Agency did not handle those type policies. Prior to November 1987, Respondent, working in conjunction with Cleveland Insurance Company, sold to Irene Goldberg a health insurance policy issued through Provider's Fidelity Insurance Company (Provider's Fidelity). On November 29, 1987, Ms. Goldberg paid $1,504.56 as the annual renewal premium for this health insurance policy which extended her coverage through December 4, 1988. In March of 1988, Ms. Goldberg contacted Cleveland Insurance Agency and requested that someone review her health insurance coverage. Cleveland Insurance Agency referred Ms. Goldberg's request to Respondent. Respondent was familiar with the terms and conditions of the health insurance coverage Ms. Goldberg had in place and he knew that she had paid the premium for this policy through December 1988. Upon visiting with Irene Goldberg on or about March 10, 1988, Respondent presented Ms. Goldberg with a business card that intentionally misrepresented his status with Cleveland Insurance Company. Because Ms. Goldberg had placed most of her insurance needs through Cleveland Insurance Agency during the past few years, Respondent intentionally misled Ms. Goldberg into thinking that he was formally affiliated with Cleveland Insurance Agency. During that visit, Respondent recommended to Ms. Goldberg that she purchase a policy of insurance issued by First National Life Insurance Company (First National) to replace her Provider's Fidelity policy. Ms. Goldberg specifically discussed with Respondent a preexisting medical condition which required periodic medical treatment and the need for the treatment required by this condition to be covered by the new policy. Respondent assured Ms. Goldberg that the preexisting condition would be covered by the new policy. Respondent also told Ms. Goldberg that he would cancel the Provider's Fidelity policy and that he would secure on her behalf a pro rated refund of the premium she had paid to Provider's Fidelity. Based on Respondent's representations, Ms. Goldberg agreed to purchase the First National policy. On March 30, 1988, Ms. Goldberg gave to Respondent a check made payable to First National Life Insurance Company in the amount of $1,892.00, the amount Respondent had quoted as the full annual premium. A few days later, Respondent contacted Ms. Goldberg and advised her that there would be an additional premium in the amount of $1,360.00, which Ms. Goldberg paid on April 4, 1988. This additional premium was, according to Respondent, for skilled nursing care coverage which First National had added as a mandatory feature of the policy Ms. Goldberg had purchased. The skilled nursing care coverage was, in fact, a separate policy which was not a mandatory feature of the policy Ms. Goldberg thought she was purchasing from First National. Respondent misled Ms. Goldberg as to the terms of the policies he had sold her and as to the number of policies he had sold her. Respondent represented that the premiums he had collected on behalf of First National were in payment of a single health insurance policy. Respondent had sold Ms. Goldberg four separate policies, and he collected a commission for each of the policies. When Ms. Goldberg received her insurance documents from First National, she learned for the first time that Respondent had sold her four separate policies of insurance, including a cancer policy that she and Respondent had never discussed. In addition to the health and cancer policies, Respondent sold Ms. Goldberg a home convalescent care policy and a separate skilled nursing care policy. Respondent had sold Ms. Goldberg policies of insurance that Ms. Goldberg had not requested and that she did not know she was buying. Upon reading the health policy, Ms. Goldberg discovered that her new First National Life policy excluded her preexisting condition. Ms. Goldberg contacted Respondent who told her that he had not cancelled the Provider's Fidelity policy as he had agreed to do and that he had not tried to get the pro rated refund of the Provider's Fidelity premium. Respondent told her that any claim she might have for the preexisting condition should be filed under the Provider's Fidelity policy. Ms. Goldberg then complained to First National which, after an investigation, refunded to Ms. Goldberg the premiums she had paid for the three policies. Respondent had received a commission on the policies of insurance he had sold to Ms. Goldberg. As of the time of the hearing, Respondent had not reimbursed First National for the commission he had received based on the premiums that were subsequently refunded to Ms. Goldberg. In February 1988, Respondent met with Helen Krafft to discuss her health insurance needs. During the course of the meeting, Respondent presented to Ms. Krafft a business card which intentionally misrepresented his affiliation with Cleveland Insurance Agency. This business card misled Ms. Krafft into believing that Respondent was formally affiliated with Cleveland Insurance Agency. On February 18, 1988, Respondent sold to Ms. Krafft a health insurance policy through First National and a health insurance policy issued through American Sun Life, at which time he collected a premiums in the total amount of $519.80 for six months of coverage from each of the two policies. In July 1988, Respondent visited with Ms. Krafft at her place of work and told her that she should pay her renewal premiums for the health insurance policies on or before August 1, 1988, to avoid a premium increases. Respondent knew, or should have known, that there were no premium increases scheduled for those policies and that there were no discounts for early payment of the premiums The renewal premiums Respondent quoted Ms. Krafft for the two policies totaled $485.40. At Respondent's instructions Ms. Krafft delivered to Respondent her signed check dated July 18, 1988, in the amount of $485.40 with the payee's name left blank. Respondent accepted these trust funds from Ms. Krafft in a fiduciary capacity. Instead of using these funds to pay the premiums as he had agreed to do, Respondent filled his name in on Ms. Krafft's check and cashed it. Ms. Krafft learned that Respondent had not used the funds she had given him to renew her two policies when she started getting late payment notices from the two insurance companies with accompanying threats of cancellation if the premiums were not paid. In late September 1988, Respondent paid to Ms. Krafft the sum of $485.40 in cash. In June of 1988, Steven R. and Marilyn Hill applied, through Respondent, for a health policy with First National. The Hills paid the initial premium of $304.37 by check made payable to First National on June 26, 1988. Because of underwriting considerations, First National informed Respondent that the Hills would have to pay a higher premium to obtain the insurance they wanted. The Hills were not willing to pay the higher premium and requested a refund of the amount they had paid. First National made the refund check payable to Steven Hill and mailed the check to Respondent. There was no competent, substantial evidence as to what happened to the check other than First National Life stopped payment on the check and it never cleared banking channels. A second refund check was later delivered to Steven Hill. First National contended at the hearing that Respondent had accrued a debit balance in the amount of $2,692.45 as a result of his dealings as an agent of the company. Respondent contended that he is entitled to certain offsets against the amount First National claims it is owed based on commissions he contends that he had earned but had not been paid. First National had not, prior to the hearing, submitted to Respondent any type of accounting of sums due, nor had it explicitly demanded any specific sum from Respondent. Instead, First National had made a blanket demand that Respondent return all materials belonging to First National and advised that future commission checks would be held in escrow. From the evidence presented it could not be determined that Respondent was indebted to First National.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order which finds that Respondent committed the multiple violations of the Florida Insurance Code as set forth in the Conclusions of Law portion of this Recommended Order and which further revokes all licenses issued by the Department of Insurance and Treasurer to Respondent, John Richard Klee. DONE AND ENTERED this 30th day of November, 1989, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Hearing Officer The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division Of Administrative Hearings this 30th day of November, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-3269 The following rulings are made on the proposed findings of fact submitted by Petitioner: The proposed findings of fact in paragraph 1 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in material part by paragraph 12 of the Recommended Order. The proposed findings of fact in paragraph 3 are rejected in part as being a conclusion of law. The proposed findings of fact in paragraph 4 are adopted in material part by paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph 5 are adopted in material part by paragraph 3 of the Recommended Order. The proposed findings of fact in paragraph 6 are adopted in material part by paragraph 4 of the Recommended Order. The proposed findings of fact in paragraph 7 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 8 are adopted in material part by paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph 9 are adopted in material part by paragraphs 5 and 6 of the Recommended Order. 10 are adopted in material part 11 are adopted in material part 12 are adopted in material part 13 are adopted in material part 14 are adopted in material part 15 are adopted in material part 16 are adopted in material part 17 are adopted in material part 18 are adopted in material part 19 are adopted in material part 20 are adopted in material part 21 are adopted in material part 22 are adopted in material part 23 are adopted in material part 24 are adopted in material part 25 are rejected as being The proposed findings of fact in paragraph by paragraphs 5 and 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraphs 5 and 7 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 10 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 11 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 11 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 12 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 2 and 10 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 13 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 13 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 13 of the Recommended Order. The proposed findings of fact in paragraph unsubstantiated by the evidence. The proposed findings of fact in paragraph 26 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 27 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 28 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 29 are adopted in material part by paragraph 14 of the Recommended Order. The proposed findings of fact in paragraph 30 are adopted in material part by paragraph 14 of the Recommended Order. COPIES FURNISHED: Roy H. Schmidt, Esquire Office of the Treasurer Department of Insurance 412 Larson Building Tallahassee Florida 32399-0300 Greg Ross, Esquire 400 Southeast Eighth Street Fort Lauderdale, Florida 33316 Don Dowdell General Counsel The Capitol Plaza Level Tallahassee, Florida 32399-0300 Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following facts are found: At all times relevant to this proceeding, the respondent Frank Cimino, Jr. was licensed as an ordinary life, ordinary life including disability and dental health plan insurance agent. Respondent was also the president and incorporator of National Consumer Investment Counselors, Inc., a Florida corporation doing business at Post Office Box 1520, Brandon, Florida. Charles R. Ritzi is an insurance salesman employed at National Consumer Investment Counselors, Inc., and respondent is his supervisor. On or about November 2, 1979, Mr. Ritzi went to the home of Edward Kimball for the purpose of discussing insurance with him. He received from Mr. Kimball his other existing insurance policies and took them back to his office to analyze and compare their benefits, costs and terms with a policy which could be provided by respondent's corporation. Among the policies taken was Mr. Kimball's State Farm Insurance Company "IRA" annuity policy number 4,664,836. Several days later, Mr. Ritzi and respondent returned to Mr. Kimball's residence. Mr. Kimball made a decision to purchase an insurance Policy from respondent and numerous forms were signed by Mr. Kimball. These forms were then taken back to respondent's office and processed. Mr. Kimball did not sign a cash surrender form for his State Farm "IRA" annuity policy and he did not intend for that policy to be cancelled. On December 6, 1979, the offices of State Farm Life Insurance Company received in the mail a cash surrender request form on Edward Kimball' s "IRA" annuity policy number 4,664,836. Mr. Kimball's name appeared on the signature line of the form. The form also contained a change of mailing address section in which had been written the respondent's business address. The form constitutes a request for a withdrawal of dividends and surrender of the policy. By the terms of the policy, only the owner of the policy may make such a request. The "IRA" annuity policy funds a retirement plan. If the request form had been processed, there would have been a penalty imposed by the Internal Revenue Service for a premature distribution of funds and the funds distributed would have been treated as ordinary income for tax purposes. State Farm sent a service agent to Mr. Kimball's residence and it was discovered that Mr. Kimball did not desire to give up his "IRA" policy number 4,664,836, and that he did not sign the cash surrender request form. A handwriting expert confirmed that the handwriting appearing on the line entitled "Signature of Policyowner" was not the signature of Mr. Kimball. It is concluded as an ultimate finding of fact that respondent or an employee acting under his supervision signed the name of Edward Kimball, Jr. appearing on the State Farm cash surrender form and transmitted sold form to State Farm without the knowledge or consent of Mr. Kimball, the policy owner. In February of 1980, respondent placed an advertisement in the East Hillsborough Edition of The Tampa Tribune, a newspaper with a circulation of approximately 36,000. The advertisement guaranteed the reader that: "...if you are insurable and own any personal, ordinary life insurance, regardless of the company, we can show you a method of rearranging your program in a way that will: Increase the amount of money which would be paid to your beneficiary in the event of your death. 2. Increase the amount of cash available for retirement [sic], 3. Retain all of your existing guarantees and benefits and 4. We can do all this with no increase in premium." The four guarantees mentioned in the advertisement may not be capable of performance in all life insurance policies. However, it is possible for a qualified agent to accomplish the four guarantees in personal ordinary cash value life insurance policies. The guarantees are made to those persons who are insurable and who own personal, ordinary life insurance.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED THAT: The charges in the Administrative Complaint relating to a Penn Mutual Life Insurance Whole Life Policy be dismissed; Count II of the Administrative Complaint relating to an advertisement appearing in The Tampa Tribune be dismissed; Respondent be found guilty of violating Florida Statutes, Sections 626.611(4),(5),(7),(9), and (13) and 626.9541(1)(f); and Pursuant to Section 626.611, Florida Statutes, the insurance licenses presently held by the respondent be suspended for a period of one (1) year. Respectfully submitted and entered this 6th day of February, 1981, in Tallahassee, Florida. DIANE D. TERMOR Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of February, 1981. COPIES FURNISHED: Richard P. Harris, Esquire Department of Insurance 428-A Larson Building Tallahassee, Florida 32301 Frank Cimino, Jr. Post Office Box 1520 Brandon, Florida 33511 Honorable Bill Gunter Office of Treasurer Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issues for determination in this proceeding are whether Respondent committed the acts alleged in the Amended Notice And Order To Show Cause and, if so, what, if any, penalty should be imposed.
Findings Of Fact Parties Petitioner is the state agency responsible for regulating insurance and insurance related activities in Florida. Petitioner is the agency responsible for regulating any licensed or unlicensed person or entity engaged in unfair insurance trade practices within the meaning of Section 626.951, Florida Statutes. 1/ Respondent, Leroy Preston, is licensed to sell life and health insurance in Florida. The other Respondents are not licensed to transact insurance in Florida and are not otherwise licensed by Petitioner pursuant to Chapters 624 through 632, 634, 635, 637, 638, 641, 648, and 651 (the "Florida Insurance Code"). Respondent, American Family Benefits Group, Incorporated ("AFBG, Inc.") is a Florida corporation wholly owned by the four individual Respondents. Respondent, Roy L. Beach, is an officer and director of AFBG, Inc., and is an attorney licensed to practice law in Florida. Respondents, Preston, Kenneth King, and Robert King, are officers and directors of AFBG, Inc. The individual Respondents comprise American Family Benefits Group ("AFBG") and the board of directors for AFBG, Inc. (the "Board"). Background Respondents designed a marketing program for the sale of memberships in AFBG, Inc. Promotional materials describing the benefits of membership were reviewed and approved by each member of the Board and mailed to thousands of prospective customers in 50 states. Memberships were offered to individuals at a price of $99 per membership. The benefits of membership included: life insurance up to $350,000 at no cost to members; a certificate of deposit of $5,000; a major bank credit card, regardless of credit history, secured by the certificate of deposit; non- qualifying mortgage loans; non-qualifying automobile leases; discounted long distance service; and discounted catalog prices. Respondents received approximately 140,000 applications for membership. Approximately 600 applications included payment of the $99 membership fee. Petitioner issued a Notice And Order To Show Cause on February 10, 1994. The marketing program for the sale of memberships in AFBG, Inc. was terminated by Respondents. Respondents returned the membership fee paid by approximately 300 applicants. On May 6, 1994, Petitioner issued an Amended Notice And Order To Show Cause ("Amended Notice"). The Amended Notice charges that Respondents violated Sections 626.9521, 626.9541(1)(a), (b), (h), (l), and (n). The Amended Notice charges that Respondents violated Section 626.9541(1)(a) by making misrepresentations for the purpose of effecting an assignment or pledge of insurance policies to secure a loan. Respondents allegedly violated Section 626.9541(1)(b) by representing that insurance policies obtained on the life of members would be used to secure a loan that would fund membership benefits. Respondents allegedly violated Section 626.9541(1)(h) by offering the payment of money to induce customers to enter into an insurance contract. The Amended Notice charges that Respondents violated Section 626.9541(1)(l) by inducing customers to pledge, assign, borrow on insurance policies, convert insurance policies, or to take out an insurance policy with another insurer ("twisting"). Finally, the Amended Notice charges that Respondents violated Section 626.9541(1)(n) by offering free insurance as an inducement for the purchase or sale or services directly or indirectly connected with real or personal property. Pledge Or Assignment To Effect A Loan: Section 626.9541(1)(a) Respondents knowingly issued and circulated a statement or sales presentation (the "promotional materials") that was a misrepresentation. The misrepresentation was made for the purposes of: effecting a pledge or assignment of an insurance policy; and effecting a loan against an insurance policy. Payment of the $99 membership fee did not entitle a new member to any of the benefits of membership. A new member was not required to elect any membership benefit, including the insurance benefits. Such a member could simply pay Respondents $99 and choose to receive none of the benefits of membership. A new member who wished to elect any of the benefits of membership was in substantially the same position as a new member who chose to receive no benefits. A new member who desired any one of the benefits of membership was first required to elect the insurance benefits. Insurance benefits entitled a new member to five universal life insurance policies on the life of the new member. Each policy was to be issued for $70,000. 2/ No life insurance policies were available unless a new member applied for and obtained all five policies and assigned four of the five policies to a bank. The bank must then make a loan in an amount and terms that were sufficient to fund all of the benefits of membership. 3/ A loan in the gross amount of $84,000 was needed to fund the benefits of membership. The net loan proceeds were to be used to purchase an annuity, a certificate of deposit to secure the credit card for the new member, pay Respondents a profit of $5,000, pay commissions and referral fees to independent parties up to $3,000, pay administrative costs, and fund the other benefits of membership. 4/ Respondents' pro forma projections of economic feasibility for the membership program showed an annual interest rate of six per cent, an amortization period of 20 years, and level periodic payments of principal and interest. Respondents' pro formal projections were based, in relevant part, on three assumptions. First, the insurance policies would be used as part of the collateral securing the loan needed to fund the benefits of membership. Second, Respondents were to be personally liable for each loan. Third, an annuity would secure the loan, pay the debt service on the loan, and pay the premiums for the insurance policies assigned to the lender. The insurance policies that new members were required to assign to the lender to secure the purported loan had no loan value. Respondents represented to prospective members that the life insurance policies were universal life policies. However, the policies were "skeleton" universal life policies that had de minimis cash value and no loan value. The loan to value ratio of any loan secured by the insurance policies would necessarily exceed 100 percent. Respondents' personal liability for loans to new members lacked economic substance. Capital contributions to AFBG, Inc. and Respondents' individual assets were inadequate to secure individual loans of $84,000 to 140,000 members. The annuity needed to pay the debt service on the loan and the insurance premiums on the policies securing the loan was not economically feasible. 5/ The membership fee of $99 was inadequate to pay the first year insurance premium on one $70,000 policy, much less the other four policies required to fund any of the benefits of membership. The economic reality of the membership program required a new member to pay Respondents $99 and to apply for and obtain five insurance policies from independent insurance agents. There was little or no probability of receiving any of the benefits of membership because the loan needed to fund those benefits had little or no economic reality. Thus, the membership program required a new member to pay $99 to Respondents for no benefits of membership. If $99 had been paid by all 140,000 applicants, Respondents would have received $13,860,000 in return for illusory promises of membership benefits. Insurance Policies To Secure Loan: Section 626.9541(1)(b) Respondents knowingly published, circulated, disseminated, and placed before the public an untrue statement concerning the business of insurance. Respondents represented that the universal life insurance policies obtained by individual members would be used as collateral to secure the loan needed to fund their insurance benefits. Respondents knew that the insurance policies were skeleton policies with little or no cash value and no loan value. The untrue statements issued by Respondents concerned the business of insurance. Respondents used economic incentives to induce prospective members to obtain life insurance policies. Without life insurance policies, new members were not entitled to any of the other benefits of membership including, a certificate of deposit, a credit card, non-qualifying mortgages, and non- qualifying car leases. The purchase and assignment of life insurance policies was an integral part of the business conducted by Respondents. The economic incentives used by Respondents were designed to effectuate a contract of insurance. Respondents effectuated approximately five contracts of insurance. The subsequent assignment of insurance policies to a lender also constituted the business of insurance. Those assignments constituted the transaction of matters subsequent to the insurance contract and arising out of the insurance contract. Unlawful Rebates: Section 626.9541(1)(h) 27. Respondents knowingly offered an indirect rebate of an insurance premium to prospective members as an inducement to enter into an insurance contract. Respondents' offer to pay the insurance premiums on members' insurance policies was a valuable consideration intended to induce new members to enter into insurance contracts. Twisting: Section 626.9541(1)(l) 28. Respondents knowingly made misleading representations with respect to insurance policies for the purpose of inducing or tending to induce new members to pledge, assign, borrow on, or convert an insurance policy or to take out a policy of insurance in another insurer. Respondents representations were misleading. 29. Respondents' representations led prospective members to believe that a pledge, assignment, or conversion of their insurance policies could be used to secure a loan needed to fund other membership benefits. The representation that a loan could be obtained by new members upon assignment of their insurance policies had no economic reality. Free Insurance: Section 626.9541(1)(n) Respondents offered to provide free insurance as an inducement for new members to purchase real or personal property. The benefits of membership included non-qualifying mortgages in real property, non-qualifying car leases, and non-qualifying bank credit cards. None of those benefits were available to new members unless they obtained life insurance policies and assigned those policies to a lender. The insurance policies were free to new members. There was no cost to new members. The insurance premiums were to be paid out of the annuity to be purchased from the net loan proceeds.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents guilty of all of the charges in the Amended Notice and ordering Respondents to permanently cease and desist the marketing of memberships in AFBG, Inc. It is further recommended that a fine of $4,000 should be imposed on each of the Respondents, not to exceed the aggregate amount of $20,000, and that the license of Respondent, Leroy Preston, should be suspended for 30 days. RECOMMENDED this 28th day of March, 1995, in Tallahassee, Florida. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 1995.
