Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times pertinent to the allegations of the First Amended Administrative Complaint, respondent Dennis Victor Daniels was licensed as an Ordinary Life including Disability Agent in Florida and was employed by Gulf Health/Life, Inc. in St. Petersburg, Florida. On or about January 14, 1980, Julie Stratton (then Julie Marzec) contacted respondent at the offices of Gulf Health/Life, Inc. for the purpose of purchasing health insurance. She and respondent discussed different insurance policies, and respondent informed her that if she joined the American Benevolent Society (ABS) she could obtain a lower rate for her policy and obtain the best policy for her money. Mrs. Stratton could not remember if respondent informed her of the exact amount of money she would save on her insurance if she joined the ABS. She was informed that other benefits and discounts from area businesses would be available to her as a member of the ABS. Mrs. Stratton joined the ABS in order to obtain less expensive insurance. She wrote two checks -- one in the amount of $15.00 payable to the ABS and the other in the amount of $54.26 payable to CNA Insurance Company. She obtained two insurance policies. The form numbers on these policies were 51831 and 52176. Based upon a referral from an agent with Allstate Insurance Company, John Valentine and his wife went to the offices of Gulf Health/Life in order to obtain hospitalization and surgical insurance coverage. Before moving to Florida, Mr. Valentine was covered by a group policy through his place of employment. Respondent informed Mr. Valentine that members of the ABS could obtain a policy at group rates which entailed a lesser premium than individual rates. Mr. Valentine wrote two checks -- one in the amount of $178.73 payable to CNA Insurance Company and the other in the amount of $25.00 payable to the ASS. Mr. Valentine received two policies from CNA -- one bearing form number 51831 and the other bearing form number 52176. He also received a brochure listing the places of business from which he could receive discounts as a member of the ABS. Gulf Health/Life, Inc. was a general agent for CNA. During the relevant time periods involved in this proceeding, CNA had different policies for health insurance. Policies with a form number of 51831 required the policyholder to be a member of an organization endorsing CNA in order to purchase that policy. Form 51831 policyholders paid a lesser premium for their policies. The difference in premiums between the group or organization policy and an individual policy with the same coverage is approximately $10.00. To obtain the policy bearing form number 52176, there is no requirement that the policyholder be a member of a group or an organization. Ms. Watkins, a secretary employed with Gulf Health/Life, Inc. between December of 1978 and June of 1979 observed a device known as a "light box" on the premises of Gulf Health/Life. This was a square-shaped plywood box with a slanted glass top and a high-intensity lightbulb within the box. On from a half-dozen to a dozen occasions on Fridays between January and April, 1979, Ms. Watkins observed respondent bent over the light box with a pen in his hand tracing a signature onto an insurance application. She could not produce any documents or recall any names of any insurance applicant whose signature was traced or copied by the respondent.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the First Amended Administrative Complaint filed against the respondent on April 29, 1982, be DISMISSED. Respectfully submitted and entered this 10th day of September, 1982, 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 10th day of September, 1982. COPIES FURNISHED: Curtis A. Billingsley, Esquire Franz Dorn, Esquire 413-B Larson Building Tallahassee, Florida 32301 William A. Patterson, Esquire Masterson, Rogers, Patterson and Masterson, P. A. 447 Third Avenue North St. Petersburg, Florida 33701 Honorable Bill Gunter Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issue in this case is whether Respondent, Thomas Felix Diaz, has violated various provisions of the Florida Insurance Code as alleged in an Administrative Complaint dated March 26, 1992 and, if so, what disciplinary action should be imposed against his license as an insurance agent in Florida.
Findings Of Fact Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: At all times relevant to this proceeding, Respondent was licensed in this state as a life insurance agent. Respondent is currently licensed as a life insurance agent, as a life and health insurance agent, and as a health insurance agent. At all times pertinent to this proceeding, Respondent was appointed to sell life insurance with Mass Indemnity and Life Insurance Company (MILICO) which has recently changed its name to Primerica Financial Services. In that capacity, all funds received by, from or on behalf of consumers, representing premiums for insurance policies, were trust funds received in a fiduciary capacity and were to be paid over to an insurer, insured, or other persons entitled thereto in the regular course of business. Sometime around March of 1991, the president of Delta Picture Frame Company ("Delta" or the "Company") of Miami decided to change the health insurance for two of his employees. The insurance was being provided at company expense. The prior policy included a small life insurance component as part of the coverage. The president of the Company contacted the MILICO agency to inquire regarding their group health policy and asked to see an agent. On or about March 18, 1991, Respondent accompanied another agent for MILICO, Nelson Barrera, to Delta's office to meet with the president of the Company. At the time of the meeting, Respondent was only licensed as a life insurance agent. He did not obtain his health and life license until approximately April 15, 1991. At the meeting, Barrera explained the coverage and price for health insurance. The president of Delta agreed to purchase the health insurance policies but never verbally expressed any interest in purchasing life insurance for his employees. In fact, he specifically rejected a proposed life and health insurance package stating that the company would only pay for health insurance. Respondent spoke separately with the employees. Applications for both life and health insurance were filled out and signed by the employees. The evidence was inconclusive as to whether life insurance was actually discussed with either of the employees. Only one of the employees testified at the hearing. She verified her signature on the application for life insurance, but she claims that she only discussed health insurance with the agents and did not knowingly apply for life insurance. The president of Delta signed the last page of the life insurance applications which authorized automatic withdrawals to pay MILICO for the life insurance policies. The circumstances surrounding the execution of the life insurance applications was not clearly established by the evidence.. However, the evidence was clear that the president of the Company never intended to purchase life insurance and never knowingly agreed to authorize bank withdrawals for life insurance. The evidence established that the president of the Company clearly indicated that the Company would only pay for health insurance and he never knowingly assented to the issuance of life insurance policies for the employees at company expense. When the president of the Company noticed that the bank records reflected withdrawals payable to MILICO, he inquired further and learned that the deductions were for life insurance. He immediately called Respondent who agreed to cancel the life insurance policies and provide a refund. Respondent was entitled to receive a commission of 75 percent of the first year's premiums for the sale of the life insurance policies to the employees of Delta.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance issue a Final Order finding Respondent guilty of violating Section 626.621(6) and that Respondent's licenses be suspended for a period of three months, or, in lieu of a suspension, Respondent should be required to pay to the Department a fine of $500 and be placed on probation for a period of two years subject to such terms and restrictions as the Department may apply. RECOMMENDED this 3rd day of June 1993, at Tallahassee, Florida. J. STEPHEN MENTON 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 3rd day of June 1993.
The Issue The issue is whether the licenses of Frank Joseph Brennan should be disciplined for actions of Mr. Brennan or of agents associated with Frank J. Brennan, P.A. with respect to the sale of insurance products to three (3) clients: Rebecca Fisher, Celine M. Rompre, and Mr. and Mrs. Joseph T. Nolan.
Findings Of Fact Frank Brennan Frank Joseph Brennan holds licenses as an ordinary life agent, ordinary life including health, health agent, and ordinary-variable annuity agent. Brennan is the owner and president of Frank J. Brennan, P.A., which sells life and health insurance products, including tax sheltered annuities of the National Western Life Insurance Company. The firm has several thousand tax sheltered annuity clients. Brennan had been the president and the director of Lancer Securities Corporation. On March 22, 1979, he was enjoined by the U.S. District Court for the Middle District of Florida for acting as an officer or director of any registered investment company. That injunction states that it did not constitute evidence against or an admission by Brennan, and that the injunction did not "establish or prove any of the acts alleged or asserted in any pleadings." Brennan was suspended from associating with any investment advisor for 120 days, and barred from associating thereafter with an investment advisor other than as a supervised employee in an order entered by the Securities and Exchange Commission on March 26, 1979. Brennan was barred from associating with any member of the National Association of Securities Dealers, Inc. in the capacity of a principal in an order entered by that association on October 15, 1980. Brennan was barred by the Securities and Exchange Commission in October 1980 from associating with any member in the capacity of a principal and fined $1,000. In May 1983, United Equitable Insurance Company terminated Brennan as an agent based on an adverse Equifax report. That report was not placed in evidence. (The foregoing findings 3 through 7 are based upon the Department of Insurance's Second Request for Admissions and Fifth Request for Official Recognition.) The Relationship Of Gregory Langsett And Betty Jones To The Frank J. Brennan, P.A. Frank J. Brennan, P.A., has contracts with a number of licensed insurance agents, including Gregory Langsett and Betty Jones. Langsett has a producer agreement with National Western Life Insurance Company which describes him as an independent contractor, and an agent's agreement with the Brennan firm. Under the agent's agreement Langsett has with the Brennan professional association dated December 4, 1981, Langsett is deemed an independent contractor and nothing in this agreement shall be construed to create the relationship of employer and employee. You are free to exercise your own judgement as to the persons from whom you solicit applications and the time and place of such solicitation. (Petitioner's Exhibit 28, Paragraph 1.) Brennan had been involved in training of Langsett and Jones when they first were associated with the firm. Agents such as Langsett and Jones are not listed on the employer's quarterly wage report made by the Frank J. Brennan, P.A. to the State of Florida Division of Unemployment Compensation. Agents such as Langsett and Jones pay their own estimated income tax withholding and their own social security taxes. The Brennan firm does provide agents with business cards (although Jones had her own cards printed). It also provides sales kits, telephone answering, postal services, makes available space for meeting with clients at the firm office and provides accounting services incident to the payment of commissions on business submitted to carriers through the firm, all without charge to the agents. Educational meetings are held on Fridays, which the agents are encouraged, but not required, to attend which discuss the various insurance products available through insurance companies the Brennan firm is associated with. Agents benefit from advertising done by the Brennan firm. Brennan occasionally provides leads to agents. For example, January 1986 Brennan provided to Betty Jones and her husband (also a licensed insurance agent) a list of approximately 100 names of employees of the Boca Raton Academy so that they could be solicited for purchase of tax sheltered annuities, and an arrangement was worked out under which Brennan and the Joneses would divide commissions from any such sales. There is no evidence that Brennan controlled the time, place or manner of these solicitations, or of any other solicitations for the purchase of insurance products. Langsett and Jones were not subject to the direct supervision and control of Brennan in their activities of soliciting insurance clients. They are not employees of the Professional Association -- they are independent contractors. This arrangement of appointing soliciting agents who are independent contractors is used by other sellers of tax sheltered annuities, and is not unique to the Brennan firm. (Tr. 496, 579). Brennan does have the authority, based on his contracts with insurance carriers, to appoint licensed agents as agents of insurance carriers. Rebecca Fisher's Dealings With Frank J. Brennan, P.A. and Frank Brennan Rebecca Fisher is an employee of the Dade County School Board. She contacted Langsett concerning tax sheltered annuities offered by the National Western Life Insurance Company, after learning of Langsett from another employee. Under Section 403(b) of the Internal Revenue Code, employees of school boards may have a portion of their wages paid into a tax sheltered annuity. They pay no income tax on the amounts deposited in the annuity through payroll deduction and the interest paid on the amounts deposited is not taxed when earned. Such annuities are long term savings plans designed to supplement the participant's retirement income. Ms. Fisher already had a tax sheltered annuity with Northern Life Insurance Company which had a face value of over $90,000. She had bought it through an insurance agent, Mr. Paul Indianer, with whom she had dealt over a number of years. Langsett met with Mrs. Fisher at her home for about 15 to 20 minutes on a Saturday in June 1985. Mrs. Fisher was not able to spend much time with Mr. Langsett that day because she had to go to a funeral at about noon. Thereafter, Mrs. Fisher attempted to call Langsett at the Brennan insurance offices. She called after 5:00 p.m. and Langsett was not there. Respondent Brennan answered the phone call. They discussed the possibility of opening a tax sheltered annuity account through National Western by rolling over into a new account money she had in her current tax sheltered annuity. Mrs. Fisher knew if the money were rolled over she would incur a surrender charge. She also discussed with Brennan whether it would be possible to borrow money from a new National Western tax sheltered annuity for home improvements. She was told money borrowed from a National Western annuity could be used for home improvements, and taxes would not have to be paid on the money borrowed from the annuity until her death. Her current annuity did not have a provision that permitted borrowing. At the hearing the provision permitting borrowing was referred to as the TEFRA provision -- so known , because it had its genesis in a portion of the Tax Equity and Fiscal Responsibility Act (TEFRA). (Tr. 45, 46, 80) Reviewing the totality of Mrs. Fisher's testimony, the Hearing Officer is not persuaded that Mrs. Fisher is able to recall with clarity the conversation which she had with Mr. Brennan. For example, the Hearing Officer does not accept the testimony that Respondent or Langsett told Fisher that National Western would pay 20 percent interest the first year and 18 percent the second year on its annuities. Those figures represented the surrender charges on the Northern Life tax sheltered annuity she already had. Neither did Brennan tell Fisher that she would get $75,000 of free life insurance in connection with a new tax sheltered annuity. One of the possibilities Brennan mentioned to Fisher was a more involved transaction in which her money would be rolled over into a new tax sheltered annuity, and a $50,000 loan would be taken against that new annuity. The $50,000 might be used to purchase a single premium life insurance policy. Interest paid on the amount placed in that policy would accumulate without any income tax being owed on the interest as it was paid. National Western Life Insurance Company would provide $75,000 of life insurance in connection with such a policy, over and above its $50,000 face amount, for a $155,000 total life insurance benefit. The single premium life insurance policy does not make a specific charge for the $75,000 additional death benefit. There is, of course, a charge for this insurance in that the interest rate paid on the $50,000 deposited in the single premium life insurance policy is reduced by the mortality charge on the $75,000 additional death benefit. Mrs. Fisher confused these two different insurance products (the tax sheltered annuity and the single premium life insurance policy), and thought that the life insurance was part of the tax sheltered annuity, which is not what Brennan discussed. Mrs. Fisher's notes of her conversation indicate that there would be a rollover penalty assessed against the face amount of her Northern Life tax sheltered annuity if she moved it to a National Western tax sheltered annuity. She had incurred penalties when she had moved money from her first annuity with Franklin Life to Standard Life the second annuity from Standard Life to Northern Life, both at the suggestion of her insurance advisor/agent, Mr. Indianer. (Tr. 57). Those notes also appear to indicate that Brennan referred to her current Northern Life tax sheltered annuity as "antiquated," and described the method by which payments are made under the annuity as "suicide" from an income tax point-of-view. In view of the complexity of these insurance matters, and Mrs. Fisher's misunderstanding of what Brennan had said on other significant portions of the conversation, the Hearing Officer is not satisfied that the evidence is clear and convincing that Brennan used those terms to describe Mrs. Fisher's current insurance products in his conversation with Mrs. Fisher. Similarly, the testimony that Brennan referred to her old Franklin Life and Standard Life annuities (which Indianer had already persuaded her to replace) as "garbage" is not accepted. Under the Internal Revenue Code, if money were borrowed from the annuity for the purpose of home improvements, no tax would be due on the amount borrowed until the annuitant's death, or the surrender of the annuity for cash or annuitization. (Tr. 624, 781). Borrowings for other purposes must be paid back in five years or they are treated as a distribution from the shelter, and require that income tax be paid on that distribution. Neither the code nor case law requires a loan to be repaid when the annuitant reaches a certain age. In short, contrary to the allegations of Count I of the Amended Administrative Complaint, the evidence is not convincing that Brennan made improper or defamatory remarks about Fisher's prior annuities or existing annuity, that he misrepresented the actual tax implications of the plans or the interest rate offered by the plans, or falsely represented that Fisher would receive $75,000 of free life insurance with a National Western annuity contract. Celine Rompre's Dealings With Betty J. Jones Betty J. Jones is an insurance agent licensed by the State of Florida. She also worked as an independent contractor through the Frank J. Brennan, P.A., selling tax sheltered annuity products of the National Western Life Insurance Company. Unlike Langsett there is no evidence that she has a written contract with the Brennan firm, but she does have a producer agreement with National Western Life Insurance Company. On or about July 23, 1985, Ms. Jones solicited Celine M. Rompre for the purpose of selling her a National Western Life Insurance Company Section 403(b) tax sheltered annuity. Rompre was an employee of the Palm Beach County School Board who already had a Section 403(b) tax sheltered annuity payroll deduction handled through Voyager Life Insurance Company; the insurance agency which had sold that annuity to her was owned by Edward Parmele. Respondent Brennan personally had nothing to do with the solicitation which Betty J. Jones made of Celine Rompre. Betty J. Jones was not acting under the direct supervision and control of Frank J. Brennan in that transaction. Betty Jones met with Celine Rompre and discussed the National Western tax sheltered annuity. Mrs. Rompre's husband also works and the Rompres do not need Mrs. Rompre's salary for living expenses. At the time she spoke with Betty Jones, Mrs. Rompre's annual salary was $5,500. She believed that it would increase to $7,200 at the beginning of the next school year, which did happen. At the time Mrs. Rompre was putting $1,040 into her Voyager Insurance Company tax sheltered annuity each year. Betty Jones discussed with Mrs. Rompre increasing her tax sheltered annuity contribution to approximately $4,000 per year. Jones told her that the maximum amount she could contribute would have to be separately calculated for each year. (Tr. 752). Mrs. Rompre was interested in this because Mrs. Rompre's daughter was then in the 8th grade, and it would be possible to borrow against that money to help with her daughter's education. Mrs. Rompre knew she would incur a substantial surrender charge on her current annuity if she switched to National Western. She signed papers prepared by Jones to accomplish the transfer of her annuity to National Western. Rompre was not eligible to increase her Section 403(b) annuity contribution immediately because she had changed her contribution once that year and only one change in the payroll deduction can be made annually. (Tr. 751). When the paperwork went to the School Board to change the annuity from the Voyager annuity to the National Western annuity, Mrs. Rompre was contacted by Mr. Parmele about her Voyager annuity. He stated that Mrs. Rompre could not put $4,000 per year into a Section 403(b) tax sheltered annuity. This influenced Mrs. Rompre to cancel the transfer to National Western. In fact, Mrs. Rompre was in a situation where she qualified to put as much as $5,051 into a tax sheltered annuity (this amount is known as the maximum exclusion allowance) over the next year under a catch-up provision of the Internal Revenue Code because she had not been contributing to an annuity for all eight years she had been employed by the Palm Beach County School Board. (Tr. 780). There is no evidence that Ms. Rompre was contributing to any other qualified retirement plans that would have affected her maximum exclusion allowance. Betty Jones did not misrepresent to Celine Rompre the amount of her maximum exclusion allowance, the terms of the surrender charges for the Voyager life insurance policy or the National Western life insurance policy, or improperly affixed the signature of Celine Rompre to a letter to the Voyager Life Insurance Company requesting cancellation of her existing account. Dealings Of Frank J. Brennan With The Nolans In about March of 1985, Mr. and Mrs. Nolan went to Brennan for help preparing their tax return and for financial planning. Mr. Brennan had been highly recommended to them. Mr. Nolan is a loss prevention manager for Radio Shack, and Mrs. Nolan is employed by the School Board of Broward County. Mr. Nolan had recently received an inheritance of about $30,000 and was looking for a way to invest it. The Nolans emphasized that the investment vehicle be liquid so they could access the money if they needed it. They were concerned that they might need it for the care of their parents. When Mr. Nolan came to Brennan, he had whole life insurance policies with Prudential and Metropolitan Life which had some cash value. Brennan suggested those policies be cancelled so that the cash value could be invested, and this was done. Mrs. Nolan's Section 403(b) Tax Sheltered Annuity When the Nolans came to Brennan, Mrs. Nolan did not have a Section 403(b) tax sheltered annuity. Brennan suggested that she contribute to such an annuity program as a means of saving on income taxes. He also told them they could borrow against those funds, but this was of no interest to the Nolans. Mrs. Nolan purchased a tax sheltered annuity with Great American Life Insurance Company which currently paid 13.75 percent interest. One of the documents which is filled out to begin the payroll deduction with the Broward County School Board for Section 403(b) tax sheltered annuities is an amendment to the annuitant's employment contract to cause part of the salary to be paid directly into the annuity. On that form there are disclosures, including whether there is a sales charge, administration fee, or transfer fee, as well as whether there is a surrender charge. The amendment which she executed does not show any surrender charge in connection with the Great American Life Insurance Company Section 403(b) annuity she purchased. Later the Nolans received another copy of the amendment which had the surrender charge portion filled in. It stated there would be a surrender charge of one-fifth of the first year's deposits only, which is waived if all proceeds are withdrawn over 36 months or longer. When Mr. Nolan received this he immediately called Mr. Brennan to ask about the surrender charge. Brennan told him that the annuity document itself explained the surrender charge and it should have been on the amendment to the employment contract as well. Brennan negligently failed to explain the surrender charge to the Nolans when the annuity was first taken out. After receiving the altered amendment to employment contract, Mrs. Nolan instructed the School Board to stop the annuity deductions as of December She had contributed $7,234 to the annuity at that time. The Nolans then asked to cancel the annuity because they had not been made aware of the surrender charge. Mr. Brennan responded by stating that in order to get the refund, they would have to sign a release at the request of the insurance company, but the Nolans refused to sign any release. They prepared a short letter to the insurance company seeking the recision of the policy. Brennan also wrote to the company seeking the refund. The Nolans did receive their money back. In connection with the rescission, the Nolans demanded and received from Brennan assurances that if the amount deposited in the annuity were not received by March 3, 1986, that Brennan would pay 10 percent interest per year on the proceeds until the Nolans received the proceeds. The Nolans received the amount before the agreed date when Brennan would begin to pay interest. The amount they received was only the principal paid in, however, and did not include any interest for the period the money had been held by Great American Life Insurance Company. Repayment of the $7,234 rendered these funds subject to current income taxes, because that income had not been subject to tax when placed in the annuity. The Nolans' Other Insurance Purchases From Brennan When the Great American Section 403(b) annuity was purchased, the Nolans also purchased other insurance products. These included two $2,000 individual retirement accounts (IRAs) for Mr. and Mrs. Nolan with National Western in the form of annuity policies, a Kemper Life Insurance policy on Mr. Nolan with a face value of $100,000 to replace the existing policies he had cancelled, and a $30,000 single premium endowment policy on Mrs. Nolan from National Western Life Insurance Company, which included a life insurance benefit so that the face amount of the policy was $200,602. These purchases saved the Nolans about $3,000 in income taxes. The Nolan's had had IRA accounts at savings and loan institutions before they came to Brennan, which they would roll over when the instruments in which the money was deposited matured. Brennan explained that these National Western annuities were different than the accounts they had. These annuities were cancelled because the Nolans became dissatisfied with Brennan due to the non-disclosure of the surrender charge on the Section 403(b) annuity with Great American Life Insurance Company. Mr. Brennan arranged for those to be cancelled without penalty at the request of the Nolans. They received the principal paid in plus interest. After the cancellation of the prior whole life policies at Brennan's suggestion, see Finding of Fact 37, above, Mr. Nolan purchased a Kemper Life Insurance term life insurance policy. At first he considered rescinding it along with the IRAs, also due to dissatisfaction with Brennan because of the failure to disclose the surrender charge on the Section 403(b) annuity. Ultimately he kept the Kemper policy, which was a better policy than the ones that had been cancelled. The $30,000 inheritance Mr. Nolan received was used to purchase a $30,000 single premium life endowment policy on Mrs. Nolan, which then paid 11.12 percent interest on the amount deposited and permitted borrowing from the policy at 7.4 percent. The policy was placed on Mrs. Nolan's life because she was the better underwriting risk. The interest which accrued on that policy was not subject to current federal income taxation, so the purchase was consistent with the Nolan's goal of achieving a high yield on the money with minimum taxation. That $30,000 premium purchased over $200,000 worth of life insurance on Mrs. Nolan, which Brennan described as "a freebie" in connection with the tax sheltered investment of the $30,000. This policy was cancelled under a policy provision which gave the right to cancel the policy during the first year, in part due to dissatisfaction with Brennan over the non-disclosure of the surrender charge on the Section 403(b) tax sheltered annuity. Nolan was also dissatisfied with the endowment policy after he received it because (1) the interest guaranteed to be paid on the $30,000 was only 4 percent although he understood that the actual interest to be paid would fluctuate with economic conditions and be competitive and (2) to access the $30,000 he could not withdraw money, but had to borrow from the policy. Although a loan could be processed quickly, Mr. Nolan did not like the idea of having to borrow his own money. The record is not clear whether the Nolans did or did not receive interest on the $30,000 for the time it was on deposit with National Western Life Insurance Company before the cancellation. The policy itself provides that on cancellation the insured "will be refunded the greater of the premium you paid or the cash value at that time." (Respondent's Exhibit 25) Because Mrs. Nolan signed an application naming Mr. Nolan and beneficiary for the insurance purchased with the $30,000, because she had a physical examination to obtain the policy, and because the check to purchase it was made out to National Western Life Insurance, Mr. Nolan's testimony that he did not understand that the "investment" he was making with his $30,000 involved the purchase of an insurance policy is not accepted. Brennan did sell the $30,000 policy to the Nolans in part on the basis that they would receive approximately $200,000 in free life insurance. The Nolans were more interested in a tax shelter for the $30,000 that would pay high interest, not in the insurance benefit. In summary, Brennan failed to explain the surrender charge associated with the Great American Life Insurance Company Section 403(b) tax sheltered annuity to the Nolans when it was purchased. Brennan made no misrepresentations with respect to the sale of the two annuities from National Western Life Insurance which were to be used as the Nolans' individual retirement accounts. There were no misrepresentations made to Mr. Nolan with respect to the purchase of his Kemper Life Insurance policy, which he still has. Brennan told the Nolans that they would receive free life insurance associated with the deposit of $30,000 in the endowment policy on Mrs. Nolan's life, which had been purchased due to the tax free accumulation of interest on the $30,000 deposited.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Counts I and II of the Amended Administrative Complaint be DISMISSED. That on Count III, for offering free life insurance as an inducement for the deposit of $30,000 in the single premium endowment policy, Brennan be FINED $2,500.00 and his license SUSPENDED for a period of three (3) months. DONE AND ORDERED this 1st day of May, 1987, in Tallahassee, Florida. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of May, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-0707 The following constitute my specific rulings pursuant to Section 120.59(2), Florida Statutes (1985), on the proposed findings of fact submitted by the parties. See Rule 28-5.405(3), Florida Administrative Code. Rulings on Proposed Findings of Fact Submitted by Petitioner Before ruling on the individual proposals made by the Petitioner, it is appropriate to make some general comments. The proposals submitted by the Petitioner are exceptionally detailed, indeed unnecessarily so. Many are rejected as unnecessary or cumulative to the facts found in the Recommended Order. Others are irrelevant because they address issues not properly raised by the allegations of the First Amended Administrative Complaint. The testimony of the principal witnesses on counts one and two, Rebecca Fisher and Celine Rompre, was certainly sincere but generally unpersuasive. The testimony of the other expert witnesses who make their livings by selling tax sheltered annuities was also not convincing because their view of Mr. Brennan and his activities is so colored by their competition. Mr. Parmele's testimony left an abiding impression of hostility to Brennan for trying to persuade clients of Parmele to switch their annuities to companies represented by Brennan, and Parmele's testimony is discounted based upon his hostility. Mr. Indianer was not as hostile, but his financial interest in removing Brennan as a competitor also causes substantial discounting of his testimony. The opinions of Robert Storms are accorded little weight because he does not regard himself as an expert in tax sheltered annuities. To the extent necessary, covered in Finding of Fact 1. Covered in Findings of Fact 3-6. Covered in Finding of Fact 7. To the extent relevant, covered in Finding of Fact 2. Rejected as irrelevant. Rejected because it is not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a statement of law, not a finding of fact. Covered in Finding of Fact 8. Rejected as unnecessary. To the extent relevant, covered in Finding of Fact 2. Rejected as unnecessary. Rejected as a statement of law, not a finding of fact. Rejected as unsupported by the transcript citation given. To the extent necessary, covered in Finding of Fact 10. Rejected as irrelevant. Although true, rejected as unnecessary. Covered in Finding of Fact 8. Rejected as unnecessary, and unsupported by the transcript citation given. Covered in Finding of Fact 25. Rejected as unnecessary. Covered in Finding of Fact 13. Rejected as unsupported by transcript citation given which only reflects a division of commissions between the Jones' and Brennan with respect to sales to employees of the Boca Raton Academy. Rejected as irrelevant. Rejected as unnecessary and not supported by the exhibit citation given. PX 25 authorizes Langsett to procure applications; whether this is a license as a "writing agent" is unclear. Rejected as a statement of law. Rejected because Betty Jones had no written contract with the Brennan firm. Langsett's relationships are covered in Finding of Fact 8. Rejected because Jones had no written contract with the Brennan firm. With respect to Langsett's contract with the firm, rejected as irrelevant. To the extent relevant, covered in Finding of Fact 8. Jones had no written contract with the firm. Rejected because Langsett and Jones testified that being independent contractors included that they pay their own expenses, not meant that they pay their own expenses. Rejected as irrelevant. Covered in Finding of Fact 14. Rejected as unnecessary. Rejected as inconsistent with the transcript citations given. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent that the information was provided in the form of sales kits, covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as not supported by the evidence. Rejected as unnecessary. Rejected as not constituting a finding of fact. Rejected as not constituting a finding of fact. Rejected as not constituting a finding of fact. Rejected as subordinate and cumulative to Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary and inconsistent with the transcript citation given. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as a recitation of testimony, not a finding of fact, also irrelevant. Rejected as irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary Rejected as unnecessary. The citation given supports only the statement made as to Betty Jones. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 9. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 15. Covered in Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. - Rejected as a statement of law, not a finding of fact, also unnecessary. Rejected as a statement of law, not a finding of fact, also unnecessary. Rejected as a statement of law, not a finding of fact. Rejected as a statement of law, not a finding of fact. Rejected as a statement of law, not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 23. To the extent necessary, covered in Finding of Fact 23. Rejected as subordinate to Finding of Fact 23. Rejected as subordinate to Finding of Fact 23. Rejected as inconsistent with Finding of Fact 23. Rejected as unnecessary. Rejected as unnecessary. Subordinate to Finding of Fact 33. Subordinate to Finding of Fact 33. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 33. Subordinate to Finding of Fact 33. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected for the reasons stated for the rejection of proposed finding of fact 32. Rejected as unnecessary. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Further, Mr. Storm's testimony is not persuasive on the point. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected because the form, PX 9, is a creation of a committee which is advisory to the risk manager of the School Board of Broward County and has no legal status. Rejected because the form, PX 9, is a creation of a committee which is advisory to the risk manager of the School Board of Broward County and has no legal status. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Mr. Storm's testimony as to what would be misleading is unpersuasive. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Although true, rejected as unnecessary. The power to appoint sub-agents who become producers for insurance carriers does not mean that Brennan exercised direct supervision and control over such persons, or over Langsett and Jones in the situations at issue in this matter. Although true, rejected as unnecessary. Covered in Finding of Fact 14. Covered in Findings of Fact 8 and 25. Covered in Finding of Fact 2. Rejected as irrelevant. Covered in Finding of Fact 13. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a recitation of testimony7 not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 9. Subordinate to Finding of Fact 12. Rejected as Rejected as unnecessary. Rejected as irrelevant. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected because the finding is taken out of context. Agents such as Langsett submit business through the Brennan firm and receive their commission through the accounting system at the Brennan firm. When the files are submitted to the carriers, this does not imply that the firm has the right not to pay Langsett, it is the medium through which his payments are processed. See Finding of Fact 12. Covered in Finding of Fact 12. Rejected as a misstatement of the testimony. That testimony occurred because Langsett was asked about commissions payable in a situation he never had experienced. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Rejected as irrelevant. Rejected as irrelevant. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Generally covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 12 concerning education. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Covered in Findings of Fact 12 and 25. Rejected as unnecessary. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Rejected as irrelevant and unnecessary. Rejected as unnecessary. Generally covered in Findings of Fact 15 and 16. As pointed out at the beginning of these rulings, Mrs. Fisher's version of her dealings with Langsett and Brennan were not found persuasive. For example, only one meeting occurred between Fisher and Langsett, not two. Rejected as irrelevant to the allegations in the Amended Administrative Complaint and unnecessary. Rejected as a recitation of testimony, not a finding of fact. Rejected because I do not accept Mrs. Fisher's version of the events, rendering Mr. Indianer's comments on that version irrelevant and unnecessary. See also the general comment about Indianer at the beginning of this section. The issue of free life insurance is covered in Finding of Fact 20. Rejected as unnecessary. Rejected as a recitation of testimony, not findings of fact. Covered in Findings of Fact 27, 29, 30 and 31. Many of the proposed findings are rejected as unnecessary. Covered in Findings of Fact 29, 30 and 31. The proposal that Jones told Rompre she could deposit $4,000 per year for five years is rejected and the contrary testimony of Ms. Jones, incorporated in Finding of Fact 31, has been accepted. Rejected because the testimony of Mr. Storms is not found persuasive. Rejected as a recitation of testimony, not findings of fact. Many of the proposals are unnecessary. Rejected as unnecessary. Generally rejected because Mr. Parmele's testimony is not found persuasive. Further, many of the proposals aggregated in the finding are unnecessary. That Jones told Rompre she could deposit $4,000 a year for five years has been rejected. Rulings on Proposed Findings of Fact Submitted by Respondent Covered in Finding of Fact 1. To the extent relevant, covered in Finding of Fact 2. To the extent necessary, covered in Finding of Fact 2. Rejected as unnecessary. Covered in Finding of Fact 8. To the extent necessary, covered in Finding of Fact 8. To the extent necessary, covered in Finding of Fact 25. The proposal that Jones had a written agent's agreement with the Brennan firm is rejected because no such document was offered in evidence. To the extent necessary, covered in Findings of Fact 9 and 12. Rejected as cumulative to Finding of Fact 9. Rejected as unnecessary but discussed in the introduction to the rulings on the Petitioner's proposed findings of fact as relates to the credibility of Indianer and Parmele. Rejected as unnecessary. Rejected as unnecessary but discussed in the introduction to the rulings on the Petitioner's proposed findings of fact. Rejected as unnecessary. Rejected as not constituting a finding of fact. Covered in Findings of Fact 8 and 14. Covered in Findings of Fact 15 and 16. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 21. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Rejected as unnecessary because Indianer's testimony has not been accepted. Rejected as unnecessary. Covered in Findings of Fact 14 and 25. Covered in Findings of Fact 26, 27 and 31. Covered in Finding of Fact 29. Covered in Finding of Fact 31. Covered in Finding of Fact 31. Rejected as cumulative to Findings of Fact 30 and 31. Rejected as unnecessary, and as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Covered in Finding of Fact 32. Rejected because the testimony of Mr. Parmele has not been accepted for the reasons. stated in the introduction to the rulings on the Petitioner's proposed findings of fact. See also Finding of Fact 33. Generally rejected as a recitation of testimony. Rejected as unnecessary because it is based on income of $7,200 which was not Mrs. Rompre's income at the time of her meeting with Betty Jones. Accepted in Finding of Fact 33. To the extent not cumulative, covered in Finding of Fact 31. Covered in Findings of Fact 35 and 38. Covered in Finding of Fact 43. Rejected as unnecessary. Covered in Finding of Fact 43. Covered in Findings of Fact 39, 44 and 46. Rejected as a recitation of testimony and because the problem was not only that the form did not contain the surrender charge, but that Brennan had not explained the surrender charge to the Nolans when the Great American Section 403(b) tax sheltered annuity was first purchased. Generally rejected as unnecessary. The surrender value is explained in the altered amendment to the employment contract. See Finding of Fact 39. To the extent necessary, covered in Finding of Fact 41. To the extent necessary, covered in Finding of Fact 44. Covered in Finding of Fact 44. Covered in Finding of Fact 46 and 47. Rejected for the reasons stated in Finding of Fact 46. Covered in Finding of Fact 46. To the extent necessary, covered in Finding of Fact 46. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 23. Rejected as unnecessary and because the testimony of Mr. Indianer has not been found persuasive. Rejected because the testimony of Mr. Parmele has not been accepted. Covered in Finding of Fact 23. Sentences 1 and 2, covered in Finding of Fact 14. The remainder, rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Covered in Findings of Fact 10 and 11. Generally covered in Finding of Fact 12. Covered in Findings of Fact 8 and 11. Rejected as unnecessary. COPIES FURNISHED: James F. Falco, Esquire Department of Insurance and Treasurer Room 413-B, Larson Building Tallahassee, Florida 32399-0300 Russell L. Forkey, Esquire Pamela M. Burdick, Esquire 400 Southeast 12th Street Fort Lauderdale, Florida 33316 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner Donna Danzis is a retired state employee and is entitled to reinstatement of her policy of State Life Insurance Plan.
Findings Of Fact The Petitioner was an employee of the Florida Department of Children and Family Services (DCF) through October 28, 2005. On October 28, 2005, she voluntarily terminated her employment. At the time she terminated employment she had been covered under the Plan. The Plan is made available to state employees and retirees through the DSGI, in accordance with Section 110.123, Florida Statutes (2006). The terms and conditions of employee participation in the plan are provided for in Florida Administrative Code Rule Chapter 60P-3. The Petitioner was a cancer patient at times pertinent hereto and that may have played a role in her decision to terminate her employment. In any event, her employment termination was voluntary and occurred during a time apparently when she was undergoing chemical therapy concerning her cancer issues. Prior to the time she terminated her employment on October 28, 2005, the Petitioner did not discuss her plans to retire with DCF Human Resources Personnel. She had, however, apparently applied for disability retirement, although that disability retirement status had not yet been determined or granted at the time she terminated her employment. After termination of employment, on or about November 24, 2005, the Petitioner contacted DCF personnel office and spoke with Mr. Harvey Whitesides. During that conversation, Mr. Whitesides determined that the Petitioner had had deductions from her paycheck to cover premiums for three types of insurance coverage: state health insurance, a group life insurance plan, as well as state security insurance. The later type of insurance is an optional supplemental life insurance that is not a part of the Plan. In that November 24, 2005, conversation with Mr. Whitesides, the Petitioner told him that she had terminated her employment with the state but did not inform him that she had applied for disability retirement. During their conversation she told Mr. Whitesides that she wanted refunds that she was entitled to from the state health insurance and group life insurance plans. Mr. Whitesides was supervisor of payroll for DCF and its predecessor agency from 1993 through 2002. In that position his duties included management of the benefit section and retirement operations within the DCF. While her performed his duties as supervisor he would commonly assist employees in their preparation of the forms necessary to affect retirement. Mr. Whitesides retired in 2003, but returned to DCF as an employee in March 2004. Beginning in June 2004, he assumed the duties of DCF personnel services specialist. In July 2005, his position and duties were transferred to the Agency for Persons With Disabilities. Since returning to state employment in March 2004, Mr. Whitesides duties have been substantially the same as those he performed from 1993 through 2002. These included the processing of benefits and retirement requests submitted by employees. In the course of performing those operations he has always assisted employees in the completion of the form required to apply for retirement. Since 1993, Mr. Whitesides has used a "continuation/termination form," for retiring employees who upon retirement wished to continue their state group life insurance. Beginning in March 2004 when he returned to state employment, Mr. Whitesides had access to and used that same continuation/termination form. He did not offer the form to the Petitioner during their conversation on November 24, 2004, however, because the Petitioner did not then inform him that she had applied for retirement. Mr. Whitesides did not learn that the Petitioner had applied for retirement until he received a letter from the Division of Retirement (DMS) dated December 14, 2005, which asked that the DCF provide information and data necessary to calculate Ms. Danzis retirement benefits. Mr. Whitesides provided the date requested by DMS, including the "Florida Retirement System Pension Plan Salary Certification." Prior to the receipt of the letter dated December 14, 2005, the Petitioner had not informed anyone in the DCF personnel office that she had applied for disability retirement. Florida Administrative Code Rule 60P-3.014 requires that an employee who retires and is covered under the life insurance plan must elect one of the following options: (1) submit a request to continue coverage during retirement accompanied by a personal check or money order for one full month's premium, which must be received by the employee's former agency and forwarded with the original application no later than 31 calendar days after the last day of employment; or (2) that the retiring employee must submit a request to terminate coverage under the life insurance plan no later than 31 calendar days after the employee's last day of employment. That rule goes on to provide that an employee who applies for disability retirement and has not received approval of that prior to his last day of employment but who is covered under the life insurance plan on that last day of employment has the option to continue coverage in the life plan pending such retirement disability approval or rejection by submitting a request to continue coverage in accordance with Florida Administrative Code Rule 60P-3.014(1)(a) and by paying the full premium for each month's coverage by personal check or money order to his or her former personnel office. Concerning employees or retirees off the payroll, if it is determined that none of the required contribution by the end of the coverage month the coverage will be cancelled and the retirees coverage will be terminated effective the first day of that month. A retired employee whose coverage is terminated in accordance with subsection (1) or (2) of Rule 60P-3.010 may not re-enter the Plan. The Petitioner did not submit a continuation/termination form within 31 days of the date of her termination of employment stating that she wished to continue her participation in the plan, and provide the other information required by Florida Administrative Code Rule 60P-3.014(1)(a). The Petitioner did not submit a month's premium for life insurance within 31 days after the last date of her employment. The only notice that Ms. Danzis gave, or attempted to give, was notice that she was voluntarily terminating her employment and that her last date of work would be October 28, 2005. Because she did not elect to continue her participation in the life insurance plan through the proper procedure and filing, the Agency canceled her life insurance, thus generating the subject dispute.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Management Services, Division of State Group Insurance determining that the Petitioner failed to properly elect to remain a covered retiree of the State Life Insurance Plan, and that the Petition be dismissed. DONE AND ENTERED this 4th day of April, 2007, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF 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 Clerk of the Division of Administrative Hearings this 4th day of April, 2007. COPIES FURNISHED: Donna Danzis 7744 State Road 100 Keystone Heights, Florida 32656 Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florid 32399-0950 Sarabeth Snuggs, Director Division of Retirement Department of Management Services Post Office Box 9000 Tallahassee, Florida 32315-9000 John Brenneis, General Counsel Division of Retirement Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
The Issue The issue for consideration is whether Respondent's licenses and eligibility for licensure as a life agent, a life and health agent, a general lines agent, a health agent and a dental health care contract salesman in Florida should be disciplined because of the matters set forth in the Administrative Complaint filed herein.
Findings Of Fact At all times pertinent to the matters in issue herein, the Department of Insurance and Treasurer was the state agency in Florida responsible for the licensing of insurance agents and regulation of the insurance industry in this state. Respondent, Michael Charles Peppe was and is currently licensed and eligible for licensure in Florida as a life insurance agent, a life and health insurance agent, a general lines agent and a health insurance agent. He was an officer and director of M. Peppe Agency, Inc., a Florida corporation. During the period in issue herein, Respondent's agency had a brokerage agreement with William Sanner and Mary Lou Sanner who were employed as sub- agents. Constance Abraham, an 85 year old widow first met William Sanner when she moved to Ft. Lauderdale, some 20 or so year ago. They were neighbors in the same apartment building. At that time she was insured with Mutual of Omaha and her policy was transferred to him, an agent for that company, for service. Over the years she purchased quite a bit of other insurance from him. They were all different kinds of health insurance policies and over time, she estimates, she purchased somewhere around 50 policies. During the period between 1985 and 1991, Mrs. Abraham purchased numerous health policies for both herself and her son through Mr. and Mrs. Sanner, though she does not recall ever having dealt with Mrs. Sanner. Records disclose that her coverage was placed with nine different companies and provided coverage in such areas as Medicare Supplement, nursing home insurance, cancer insurance, and hospital expense - indemnity insurance. Over the years approximately 60 policies were issued through Respondent's agency to either Mrs. Abraham or her son. The applications were taken by Sanner who would collect the initial premiums and forward both to Respondent's agency for processing to the various insurers. Some policies were signed by Sanner as agent of record and some were signed by Respondent in that capacity. Only a few were signed by Mrs. Sanner. Mrs. Abraham claims she didn't realize how much health insurance she had. Mr. Sanner would come to her apartment and talk to her about a new policy and she would abide by his advice. Her purchases amounted to approximately $20,000.00 per year in premiums which she would pay by check to Mr. Sanner. At no time did she ever deal with or meet the Respondent, Mr. Peppe. She did not question Sanner deeply about why he was selling her so much insurance. Whenever she asked about a new policy, he would usually have what appeared to he to be a good reason for it such as something was lacking in her coverage. Even when she recognized he was selling her duplicate coverage, he told her it was a good idea to have more. At no time did he or anyone else tell her she had too much insurance. Mrs. Abraham claims to know nothing about insurance herself. However, she was cognizant of the nature of the policies she had, utilizing without prompting the terms, "indemnity", "supplemental", and "accident." Mr. Sanner would come to her home at least once a month She trusted him to help her with her health insurance and would talk with him whenever a policy came up for renewal. On some occasions he would recommend she renew and on others would recommend she drop that policy in favor of another. At no time was she aware, however, of the fact that she was duplicating policies. She also claims she never had to tell Mr. Sanner what she wanted from her coverage. He always seemed to know and would handle not only the purchase of her policies but also the filing of her claims. She can recall no instance where she asked for any coverage and he tried to talk her out of it. Mrs. Abraham denies she was the person who complained to the Department. It was her daughter who noticed what was going on and took matters into her own hands. At no time did either Sanner or the Respondent attempt to contact her after the complaint was filed. Mrs. Abraham and her husband had four children. Her son, Lewis, who is somewhat retarded, lives with her and she also purchased some policies for him. Over the years she has had many occasions to file claims under her policies. It is important to her that she have protection to provide full time care if necessary because she has no family locally to provide that care for her. She had coverage that provided nursing care, a private room in the hospital, and some policies which provided for extended or nursing home care. She recognizes that such care is expensive and wanted enough policies to give her total coverage without out of pocket expense if the care was needed. She keeps track of the policies she has on her personal computer and has been doing so for some six or seven years. She apparently is sufficiently computer literate that she knows what she has and what she is doing. Mrs. Abraham owns a condominium at the Galt Ocean Mile apartment in Ft. Lauderdale. The $20,000.00 figure in policy premiums she mentioned were for her policies only. Those for her son were extra. She has sufficient income from stocks and bonds to pay her premiums, pay her mortgage, and still live comfortably. Her son has his own income from a trust fund and his own investments. At one point in time, when Mrs. Abraham had some recurring health problems and was in and out of hospitals regularly, she received in benefits far more than her actual expenses and made a tidy profit. Nonetheless, she adamantly disclaims she purchased the policies she had for that purpose claiming instead that she wanted merely that both she and her son be able to pay for the best medical care possible in the event it is needed. To that end, Lewis Abraham has filed very few claims against his carriers. Most, if not all, of the companies which provided the coverage for Mrs. Abraham and her son have limits on the amount of total coverage any one policy holder can have in any line of insurance. The limit is cumulative and not limited to policies with a specific company. Taken together, the policies in force for Mrs. Abraham in some cases exceeded that limit and had the insurers been made aware of the totality of her coverage, their policies would not have been issued. This information was not furnished to the companies, however, by either Sanner or Respondent. In addition, on many of the policies the mental condition of a policy holder must be disclosed if that person is retarded or not fully competent. Respondent did not know of Lewis' condition though Mr. Sanner was fully aware of it both as it related to his retardation and his drop foot. On none of the policy applications relating to him, however, was either ever mentioned. Some companies indicated that if Lewis's mental and physical condition had been properly disclosed on the application, they either would not have issued the coverage or, at least, would have referred the matter to the underwriter for further evaluation and a determination as to whether to issue the policy and if so, at what premium. Even more, Lewis' physical and mental condition may have caused the company to decline payment of a claim within two years of issuance of any policy actually written. Respondent received monthly statements from the various insurers with whom his agency did business detailing the transactions for that month. Commissions on each sale were paid by the insurers to Respondent's agency and thereafter, pursuant to an agreement between Respondent and Sanner, the commissions were divided. The commissions paid to Respondent's company by the insurers on all these policies amount to in excess of $18,000.00. Respondent asserts that Mrs. Abraham knew exactly what she was doing and was, in effect, conducting if not a scam, at least an improper business activity through the knowing purchase of duplicative policies and redundant coverage. This well may be true, but even if it is, Mr. Sanner was a knowing accomplice and participant. In addition, while it is accepted that Respondent might not know the status of every policy purchased through his agency or the total activity with any particular client, when his name appears as signatory on policy applications forwarded to a company for whom he accepts or solicits business, as here, it is hard to find he did not have at least a working familiarity with the business written by his sub-agents . This finding is supported by the analysis done of Respondent's pertinent activities here by Milton O. Bedingfield, a 39 year insurance agent and broker for 10 companies, a Certified Life Underwriter, and an expert in life and health insurance. Mr. Bedingfield concluded, after a review of all the policies written for the Abrahams through Respondent's agency, there was a gross oversale of policies and repeated omissions of pertinent information on policy applications. He found a duplication of benefits and overlapping coverage, all without legitimate purpose, especially for an 85 year old woman. Since the average hospital stay is less than 2 weeks, she would not likely benefit from her insurance for the stay. He could not see where Mrs. Abraham would get back in benefits what she has paid in premiums. In Mr. Bedingfield's opinion, this is the worst case of oversale he has seen in his 39 years in the insurance business. He contends the agent stands in almost a fiduciary capacity to his clients - especially the aged who rely on their agent to properly advise them on adequate coverage. There is often an element of fear involved that the unscrupulous agent can profit from. Here, he feels, Respondent's practice falls far short of the state's standard of acceptability on the sale of Medicare Supplemental insurance. On balance, however, Mr. Bedingfield does not know if all the policies he saw stayed in force throughout the period of the policy. Many could have lapsed or been cancelled. In all fairness, as well, where insurance is brokered, as here, the ultimate placing agent normally does not meet the client but must rely on what he is told by the offering agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Administrative Complaint filed against the Respondent in this case, Michael C. Peppe, be dismissed. RECOMMENDED this 11th day of December, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-2708 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. & 2. Accepted and incorporated herein. Accepted and incorporated herein. - 9. Accepted and incorporated herein. Accepted and incorporated herein. & 12. Accepted and incorporated herein. 13. & 14. Accepted and incorporated herein. 15. - 18. Accepted and incorporated herein. Accepted. Accepted. & 22. Accepted. Rejected as not supported by evidence or record except for the fact that Respondent sign and processed applications and premium payments and received a financial benefit from the sales. Accepted. FOR THE RESPONDENT: Accepted so far as it relates Ms. Abraham was well informed and aware of her coverage. Not established, but insufficient evidence of actionable misconduct. Accepted. - 6. Not proper Findings of Fact but more Conclusions of Law. Accepted. Not a proper Findings of Fact. COPIES FURNISHED: James A. Bossart, Esquire Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Thomas F. Woods, Esquire Gatlin, Woods, Carlson & Cowdrey 1709-D Mahan Drive Tallahassee, Florida 32308 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue Whether Michael McIntosh (Mr. McIntosh) and/or Phoenix Financial Solutions, Inc. (Phoenix Solutions) (collectively, Respondents) committed the offenses alleged in the Amended Notice of Intent to Issue Cease and Desist Order (Amended Notice) filed by the Department of Financial Services (Petitioner) and, if so, the penalties that should be imposed.
Findings Of Fact Mr. McIntosh is not currently licensed, and at all times relevant to this proceeding, was not licensed, as a life insurance agent in the State of Florida. Mr. McIntosh is currently licensed, and at all times relevant to this proceeding, was licensed, as a title insurance agent in the State of Florida. Mr. McIntosh's title insurance agent license is E099115. Mr. McIntosh's title insurance agency, Phoenix Title & Escrow, Inc., has been licensed by Petitioner, but the license was not active as of June 2010. Phoenix Solutions is not currently licensed, and at all times relevant to this proceeding, was not licensed, as an insurance agency in the State of Florida. Bishop Jose Decena (Bishop Decena), an individual, is the owner of Bishop Decena Ministries, Inc. (Decena Ministries), a Florida corporation. Mr. McIntosh was the president of Operations for Decena Ministries. Mr. McIntosh was also a signatory on bank accounts in the name of Decena Ministries. Bishop and Decena Ministries created "The Benevolent Ministries Program" (Program). The Program was a comprehensive insurance plan. There was no evidence that the Program actually secured any insurance policy for any member of a church or other organization. The following is a description of how the Program was designed and what Respondents agreed to do. The Program is no longer in existence.3 Respondents are no longer associated with the Program. In late 2008, Respondents entered into an agreement with Bishop Decena and Decena Ministries to perform the services described below. Respondents and Decena Ministries created separate websites to describe and promote the Program. While there was no contract introduced into evidence, the information posted on Respondents' website detail Respondents' duties and responsibilities. Respondents were to be paid $375,000.00 per year for five years. Respondents terminated their agreement with Bishop Decena and Decena Ministries on September 21, 2010. The Program was designed to put individual insurance plans in place for members of churches and other organizations. The Program was designed to provide life insurance and funeral benefits at no cost to "Members" of the Program. The Program contemplated the use of a "Trustee," whose duties will be discussed below. Bishop Decena was to serve as the Trustee. The website formerly maintained by Respondents to provide information as to the Benevolent Ministries Program to prospective members contained a letter from Bishop Decena that included the following: The Trustee recognizes the amount of efforts [sic] made by church leaders to find identifying [sic] ways which can ease the pain of unfortunate situations when they arise. As a result, the Trustee offers all Pastors and their members an opportunity to leave an inheritance to break the bondage of poverty. We know that countless ministries and other faith-based organizations provide vital services. Therefore, the Trustee has designed a finance system to develop funding for various projects to release the burden on the churches with respect to funeral expenses for its members. The churches also have a financial option with this program to help benefit the church. (example: [sic] build a church, help with the churches [sic] financial needs, [and] help its members) The Trustee has initiated a special Comprehensive Insurance Plan for your members. The plan will include life insurance and funeral benefits at no cost to you. The policy will be owned by the Trustee, the church and/or organization is the primary beneficiary and you [,] the member [,] will designate your own beneficiary. The member and the church and/or organization will be required to sign an acknowledgment and hold harmless agreement agreeing to the terms and conditions under which the Trustee will be applying for life insurance on your life. [Emphasis is in the original.] The Program contemplated that the church or other organization would become enrolled in the Program as an eligible organization. The members of an eligible organization would then be eligible to become Members of the Program after the church or organization: (1) submits a "Program Organization Set-up Form;" (2) pays a $1,000.00 fee to Decena Ministries or to Bishop Decena; and (3) signs an "Acknowledgement and Hold Harmless Agreement." To become a Member of the Program, a member of the eligible church or other organization were required to: (1) file a "Pre-Qualification Form for the Benevolent Ministries Program;"4; (2) pay a $20.00 processing fee to Decena Ministries or to Bishop Decena; and (3) sign an Acknowledgment and Hold Harmless Agreement, agreeing to the terms and conditions under which the Trustee will apply for life insurance on the Member's life. Individuals seeking to become Members were also referred to as the "Proposed Insured." All Pre-Qualification Forms for the Benevolent Ministries Program and all Program Organization Set-up Forms were to be sent directly to Phoenix Solutions. The $1,000.00 fee associated with the Program Set-up Form and the $20.00 fee associated with the Pre-Qualification Form were to be sent directly to Phoenix Solutions. Phoenix Solutions was to collect these sums on behalf of Bishop Decena and/or Decena Ministries. Respondents were not to keep any portion of either fee. Respondents were not to receive any commission for any insurance policy that was to be sold. A prospective Member was required to complete a "General Client Information Form" that contained the letterhead of Phoenix Solutions and required the Member to designate the type of life insurance wanted, other insurance on the Member's life, and the name and address of the writing insurance agent. The form requested detailed medical information and a list of the available insurance carriers. Church or organizations members seeking to become a Member of the Program were to sign an "Authorization" form that authorized the release of the prospective Member's medical information and provide the following as to the use of otherwise confidential medical information: . . . This protected health information is to be disclosed under this Authorization so that Phoenix Financial Solutions may: 1) underwrite my application for coverage, make eligibility, risk rating, policy issuance, enrollment determinations; 2) obtain reinsurance; 3) administer claims and determine or fulfill responsibility for coverage and provisions of benefits; 4) administer coverage; and 5) conduct other legally permissible activities that relate to any coverage I have or have applied for with Phoenix Financial Solutions. The "Authorization" form also contained the following acknowledgment: I further understand that if I refuse to sign this authorization to release my complete medical record, Phoenix Financial Solutions may not be able to process my pre- qualification. Phoenix Solutions was to forward a Member's information to an insurance carrier for processing. There was conflicting information on Respondents' website as to the entity that would apply for the life insurance. Some material reflected that the Trustee would be the entity applying for insurance on the Member's life. Other material reflected that the eligible church or other organization would be the entity to apply for insurance on the Member's life. A licensed insurance agent was to fill out the insurance application for each Member. Phoenix Solutions was to coordinate with the insurance carrier a physical examination for a Member. Any life insurance policy issued on a Member's life was to be owned by the "Trust", which was owned by Bishop Decena, and was to be controlled by the "Trustee" (Bishop Decena). Decena Ministries was to pay to the insurance company all premium payments related to a life insurance policy issued on a Member's life. The eligible church or other organization was to be considered the primary beneficiary of the insurance policy on a Member's life. The eligible church or other organization was to only receive $8,000.00 of a $250,000.00 policy; only $16,000.00 of a $500,000.00 policy; and only $30,000.00 of a $1,000,000.00 policy. A Member may also designate his or her own secondary beneficiary. The eligible church or other organization was to instruct the Trustee to allocate to the secondary beneficiary only $100,000.00 of a $250,000.00 policy; only $250,000.00 of a $500,000.00 policy; and only $400,000.00 of a $1,000,000.00 policy. There was no guarantee that the Member's designated secondary beneficiary would obtain any benefits. The Acknowledgment and Hold Harmless Agreement that a prospective Member would be required to sign includes the following provision in paragraph 4: 4. Assuming you qualify for coverage medically and financially, neither you nor your heirs will have any control or stake in the policy insuring your life under the Program once it has been issued to the trust. . . . At your death, if the policy remains in force, The Insurance Company will not pay any of the policy proceeds to your heirs. Paragraph 7 of the Acknowledgment and Hold Harmless Agreement includes the following: 7. The trust may require third party financing in order to pay some or all of the Premiums needed to keep the life insurance policy on you [sic] life in force. Thus, a substantial portion of proceeds payable upon you [sic] death may be used to retire the debt on funds borrowed from such lender. Paragraph 9 of the Acknowledgment and Hold Harmless Agreement includes the following: 9. The Trust will upon you [sic] death, administer and be responsible for taking care of your final burial arrangements in accordance with you [sic] written wishes. The Trust will also assume responsibility for your named beneficiaries and do there [sic] utmost to take care of their needs whether it is completion of education, welfare or day to day care [sic]. Paragraph 11 of the Acknowledgment and Hold Harmless Agreement includes the following: 11. The Trust, as owner of the policy, is responsible for premium payments. Interest rates, morality [sic] charges, monthly deductions, and other administrative charges may very [sic] which can have a negative impact on policy performance and cause the policy to lapse unless additional premiums are paid. Phoenix Solutions was to receive the proceeds of Members' life insurance policies from the Trustee and distribute those proceeds to various parties as directed by the Trustee. Because there was no life insurance policy issued pursuant to the program described in this Recommended Order, Respondents did not actually do many of the tasks they agreed to do. For example, they never managed any of the insurance proceeds because there were none. It is clear that Mr. McIntosh went to various churches to promote the Program, sometimes with an insurance agent and sometimes without an insurance agent. At least 31 individuals submitted a "Pre-Application for Proposed Insured" form, which was required to be submitted with the $20.00 fee described above. It is also clear that Respondents collected fees from churches and from prospective Members. Mr. McIntosh testified, credibly, that when asked questions about an insurance policy, he would advise that he was not an insurance agent and would refer the person or persons to an insurance agent. Bishop Decena, as Trustee of the Program, did not have an insurable interest in the lives of individual members of churches or other organizations. Information on Respondents' website that the Trustee would apply for life insurance on a Member's life was misleading. While the Trustee may submit such an application, the Trustee would not be able to lawfully obtain the life insurance.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order finding Respondents guilty of the violations alleged in Count II of the Amended Notice and not guilty of the violations alleged in Counts III, IV, and VI. It is further recommended that the Final Order impose against Respondents an administrative fine in the total amount of $5,000.00 payable jointly and/or separately. DONE AND ENTERED this 3rd day of October, 2011, in Tallahassee, Leon County, Florida. S CLAUDE B. ARRINGTON 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 3rd day of October, 2011.
Findings Of Fact Respondent is currently licensed as an Ordinary-Combination Life, including Disability Insurance Agent to represent Interstate Life and Accident Insurance Company and as a General Lines Agent Limited to Industrial Fire to represent Interstate Fire Insurance Company. (Exhibit 37) During the period June 1, 1974, until October 1, 1976, Respondent was an agent for Gulf Life Insurance Company. In his application for licensing by Petitioner on the application dated July 3, 1974, Respondent listed his date of birth as December 14, 1928 (Exhibit 36), on the application dated June 28, 1975, Respondent listed his date of birth as November 11, 1928 (Exhibit 35), and on his application dated October 5, 1976, Respondent listed his date of birth as November 14, 1926 (Exhibit 34). By affidavit dated January 4, 1978 (Exhibit 33), Respondent declared he was born November 14, 1926. On March 15, 1974, John L. Harris was issued life insurance field policy No. 745 676 678 (Exhibit 1) and weekly premiums were paid continuously on this policy. He was also issued whole life policy No. 715 090 733 on October 18, 1971 (Exhibit 2), and weekly premiums were paid continuously on this policy. Although Harris paid the premiums each week when due to the Respondent, at one period these premiums were not remitted to Gulf Life and the policies lapsed. Immediately thereafter, on May 1, 1975, an application for new policies (Exhibit 5), was submitted to Gulf Life by Respondent with the name of John Harris in the space for the signature of the proposed insured. This signature was not that of Harris and Respondent signed the application as a witness to Harris signature. Gulf Life issued a policy to Harris (Exhibit 4) based upon this application. Evidence was presented that similar procedures were followed by Respondent in Gulf Life policies issued to Frances Harris, Dorcas Cohen, James Cohen, Joe Bryant, Peggy Hanie Bryant, Wilma Hanie and Brenda Bryant, whereby policies serviced by Respondent were lapsed by Gulf Life who later issued new policies on forged applications submitted by Respondent.
The Issue The issue is whether Petitioners, as beneficiaries of their deceased father's life insurance policy, are entitled to a payment of $7,500 in addition to the $2,500 benefit already paid. As set forth more fully herein, since Florida's statutory and rule framework do not require that notice provided to the Division of Retirement be shared with the Division of State Group Insurance, Petitioners did not demonstrate that they are entitled to the additional benefit.
Findings Of Fact The Division of State Group Insurance (DSGI) is an administrative unit located within the Department of Management Services (DMS), and pursuant to Section 110.123(3), Florida Statutes, is designated as the agency responsible for the administration of the State Group Insurance Program (Program). The life insurance program at issue in these proceedings is a part of the Program. DMS has contracted with Northgate Arinso, formerly Convergys, Inc., to provide human resources management services, including assisting in the administration of employee benefits. Convergys primarily performs these tasks through an online system known as "People First." The term "employee benefits" refers to insurance, but not to retirement benefits. People First became the system of record for DSGI benefits data, including addresses, on January 1, 2005. Petitioners Martha L. Kenerson and David R. Kenerson, Jr., are the daughter and son of David R. Kenerson (Mr. Kenerson), a retired employee of the State of Florida, and the beneficiaries of the life insurance that was provided through the Program. Mr. Kenerson died a resident at 156 56th Street South, St. Petersburg, Florida, on March 31, 2009. Since Mr. Kenerson's retirement, the State of Florida, through DSGI, has maintained a Group Life Insurance Policy (the Policy) covering the individual lives of its former employees who elected to be covered. The Policy is a benefit available to retirees of the State of Florida which Mr. Kenerson, as a retiree, accepted. The Insured, Mr. Kenerson, was entitled to inclusion in the group of State of Florida retirees who were covered under the Policy that was offered by the State of Florida to its retirees. Mr. Kenerson received a pension for life from the State of Florida. Beginning January 1, 2000, and subsequently, the life insurance coverage was $10,000. It was changed beginning in Plan Year 2007, as to all retirees, due to DSGI's determination of the impending loss of the Advanced Premium Account. As to Mr. Kenerson, it was reduced from $10,000 to $2,500 beginning in Plan Year 2007 for the following reasons: He defaulted in responding to the Open Enrollment Notice; Neither Mr. Kenerson nor anyone on his behalf submitted any notification of election pursuant to such Open Enrollment Notice; and DSGI determined that it was necessary to change the coverage for death benefits because of such impending loss of the Advanced Premium Account. On April 10, 2009, Minnesota Life Insurance Company claims examiner Latrice S. Tillman contacted Petitioner Martha L. Kenerson regarding the death of Mr. Kenerson, asking for the death certificate of the Insured and the Preference Beneficiary Statements from both Petitioners. On April 17, 2009, Petitioners filed the appropriate documents with the Minnesota Life Insurance Company as beneficiaries of Mr. Kenerson's life insurance policy. On May 20, 2009, Petitioners each received a check in the amount of $1,257.59, constituting $1,250 of insurance proceeds (totaling $2,500) and the balance of interest on the $2,500 insurance proceeds. On May 24, 2009, Petitioner Martha L. Kenerson wrote a letter to DSGI requesting an appeal. On June 9, 2009, Ms. Kenerson received a letter dated July 9, 2009, from Michelle Robleto, the Director of DSGI, denying Petitioners' Level II Appeal and informing Petitioners of their right to request a hearing. On June 26, 2009, Ms. Kenerson timely petitioned for an evidentiary hearing regarding Mr. Kenerson's policy. Approximately 29,391 State of Florida retirees were covered under the Policy in Class A (i.e., with initial $10,000 coverage excluding Classes having such initial coverage) at the time when Respondent sent the Change Notice of the proposed changes in coverage that applied also to Mr. Kenerson's Policy. Approximately 5,921 State of Florida retirees were covered under Class A of the Policy and elected, in response to the Change Notice, to increase the premium in order to retain the coverage at $10,000. None of the State of Florida retirees in Class A under the Policy who failed to respond in writing to the Change Notice was contacted by Respondent prior to the effective date of coverage change. Respondent never attempted to call retirees regarding their wishes as to the Change Notice. Respondent has no proof that it spoke with the Insured to explain the proposed change of coverage and/or premium in January 2007. Respondent did not mail the Open Enrollment Notices to retirees by a method that required affirmative identification of the recipient, such as by certified return receipt or other postal proof of delivery. The premiums for the Policy were paid by the State of Florida from Mr. Kenerson's pension as a deduction from the payment of the gross pension payments. From at least January 1, 2003, to the end of the Open Enrollment Period for Plan Year 2007, the Department of Financial Services (DFS) never communicated to Respondent the address that DFS was using for Mr. Kenerson. DFS has a separate and independent data base from that used by Respondent. At no time did DMS send to the Insured c/o Petitioner David R. Kenerson, Jr., any Open Enrollment Notice for any plan year before the 2008 plan year relating to the terms of the Policy. As administrator of the Policy, it is and has been DMS's responsibility to maintain a database of addresses for contacting retirees who are eligible for coverage under the Policy. In August 2002, DMS contracted with Convergys as a third party service provider to perform administrative functions, including the maintenance of the retirees "address of record" database for insurance purposes and for recordkeeping relating to retirees whose lives were insured under the Policy. With respect to the July 31, 2006, mailing to retirees, DMS retained direct control of the stuffing, sending, and addressing of the letters, as well as the collection of mail that was returned as undeliverable. In 2004, DMS delivered to Convergys a copy of the retiree address of record contained in the Cooperative Personnel Employment System (COPES), previously maintained only by DMS. Tom Lockridge, Respondent's Benefits Team Manager in 2005, noted his confusion with how many different databases exist that cover retirees of the State of Florida. He was aware that DSGI and the Division of Retirement Services (DRS) each has its own databases. Retirees entitled to enroll in the Policy managed by DSGI are also entitled to pension eligibility or other post- retirement activities managed by DMS, DRS, or the State University System. Since the inception of the DMS website, www.myflorida.com, two separate databases, the People First database and the DRS database, have been maintained. At all times since 2000, Mr. Kenerson was listed as a retiree of the State of Florida in the databases of DSGI and DRS. During the Open Enrollment period for Plan Year 2007 for the Policy, DMS records maintained by Convergys in the "address of record" database showed that Mr. Kenerson lived at 1737 Brightwaters Boulevard, St. Petersburg, Florida. DMS, through its agent Convergys, sent the Open Enrollment Notice for Plan Year 2007 for the Policy to Mr. Kenerson at the Brightwaters Boulevard address. In 2001, Mr. Kenerson sent to DRS, but not to DSGI, a written notice of change of address showing his new address as 156 56th Street South, Villa 37, St. Petersburg, Florida. DMS never received an affirmative notice from Mr. Kenerson electing to either adopt the $2,500 coverage; increase to $10,000 in coverage; or terminate his enrollment altogether. In connection with the Open Enrollment notice, DMS contract with Convergys did not require Convergys to seek data from other Florida agencies or divisions to update the database of retirees' addresses and contact information. In connection with the Open Enrollment notice, DMS records management policies did not require DMS personnel to obtain data from other Florida agencies or divisions to update the DMS database of retirees' addresses and contact information. In designing the offered choices on the Open Enrollment notice, DMS allocated $6.33 per month from the Advance Premium Account to subsidize each retiree's premium for Plan Year 2007. Approximately 80 percent of the then-current retirees elected, or were deemed to have elected by default, to reduce their coverage from $10,000 to $2,500 as a result of the Open Enrollment process conducted by DMS. As of October 2006, 24,488 retirees elected the $2,500 life insurance policy for Plan Year 2007, while 4,769 retirees elected the $10,000 coverage. The Open Enrollment notice did not explain why those electing the $10,000 in coverage were required to pay almost eight times the amount of premium charged for $2,500 of coverage ($35.79 per month versus $4.20 per month). A "positive enrollment" means an individual must affirmatively elect each and every benefit or a certain type of benefit. A "passive enrollment" is where, by taking no action, the individual continues to have the same benefit level as previously. Respondent used the "passive enrollment" system for Plan Year 2008, when the life benefit premium changed due to the fact that Convergys would have charged a significant fee (seven figures) to conduct a "positive enrollment." DMS elected not to incur the additional expense. Since the state has designated People First as the system of record for its retirees relating to their benefits and information regarding Open Enrollment, any changes in address are made through the People First system. The agreement between DMS and Convergys does not require Convergys to communicate with other agencies regarding updating of the address of record database for retirees. Convergys, as the contractor to DMS, routinely destroys mail returned as undeliverable after 90 days. Neither DMS nor Convergys maintains a list of "bad addresses," those to which mail has been returned as undeliverable. DMS told Convergys not to synchronize their address database with the Florida Retirement System (FRS) database. DMS was aware that there were retirees who sent address changes to DRS and not to People First. DMS was aware that its address of record database for retirees contained at least some addresses that were not current for some customers. DMS was aware that some number of Open Enrollment packages was returned every year as undeliverable due to incorrect addresses. DMS does not maintain a record of returned Open Enrollment packages. DMS has adopted no rules to record the names and addresses of retirees whose Open Enrollment packages have been returned as undeliverable. DMS has adopted no rules to compare or synchronize the DMS address of record used for Open Enrollment packages with other databases maintained by DMS, DFS, the Florida Department of Revenue, the Florida Department of Highway Safety and Motor Vehicles, local voter registration, or any other State of Florida address lists. DMS has adopted no rules to update the address of record database used by DMS for notices to retirees relating to group term life insurance policies such as the one at issue here. DMS has adopted no rules to create, preserve, or update records, and to destroy names of retirees whose notices are returned by the U.S. Postal Service as undeliverable due to no forwarding address. The ultimate custodian of the State of Florida database containing addresses of record for retirees' insurance benefits is Convergys, Inc. At all times from January 1, 2001, to April 30, 2009, the FRS, administered by DMS, has maintained a database of State of Florida retirees that includes their address records in connection with pension and retirement income and expense matters. This FRS database is separate from the address of record database maintained by Convergys/People First for the same period. The letter dated July 31, 2006, relating to the 2007 plan year, advised State of Florida retirees that they could change their election of life insurance benefit up to and including January 19, 2007. Mike Waller, an employee of DSGI, maintains benefits data for People First/DSGI. In July 2006, Mr. Waller was asked to prepare a file containing the names and addresses of all retirees who were covered by life insurance. He created a file used in a mail merge program to send all retirees a copy of the July 31, 2006, letter. In preparing the file containing the mailing addresses of retirees covered by life insurance in July 2006, Mr. Waller used the addresses of record from the benefits data he maintained. The DSGI address of record for Mr. Kenerson in July 2006 was 1737 Brightwaters Boulevard, St. Petersburg, Florida 33704, and was included in the mailing addresses file. Mr. Waller prepared the file and delivered it to Dick Barnum and Thomas Lockridge on July 3, 2006. Thomas Lockridge delivered the file to Laura Cutchen, another employee of DSGI. DSGI contracted with Pitney Bowes, a mailing system company, to mail the July 31, 2006, letter to all State of Florida retirees. After obtaining copies of the letter from the DSGI print shop, Ms. Cutchen delivered the letters and the file containing the names and addresses of the retirees to Pitney Bowes to assemble. The letters were assembled by Pitney Bowes and delivered to the U.S. Post Office, accompanied by Ms. Cutchen, and the State of Florida first class mailing permit had been applied to each envelope. The letter dated July 31, 2006, was mailed to Mr. Kenerson at the Brightwaters address, by first class mail, using the State of Florida permit for DSGI. The return address on the envelope containing the July 31, 2006, letter was DSGI, 4050 Esplanade Way, Suite 215, Tallahassee, Florida 32399-0949. Any letters returned to DSGI as undeliverable were processed by Janice Lowe, an employee of DSGI. Each letter returned to DSGI was handled in one of two ways: If the envelope showed a different address on the yellow sticker applied by the U.S. Postal Service, the letter was re-mailed to that address; or If the returned envelope did not provide a different address, a manual search of the database of DRS was made; a copy of the print screen showing the address in the DRS database was made, if different from the address on the database of DSGI; and the original envelope and letter were placed in another envelope and mailed to the address from the DRS database. A copy of each DRS print screen that was accessed by Ms. Lowe was printed and inserted in alphabetical order in a binder. There was a DRS print screen for every person whose letter was returned and for which there was not another address. The absence of a DRS print screen indicates that the initial letter was not returned. No DRS print screen exists for Mr. Kenerson, an indication that the letter to him dated July 31, 2006, was not returned to DSGI. Prior to Convergys assuming responsibility for the administration of benefits, DSGI maintained benefits information in COPES. When Convergys assumed responsibility for the management of benefits on January 1, 2005, the benefits information from COPES was imported into the Convergys/People First system. People First and DRS do not share databases and each maintains its own database of names and addresses. In addition to the letter discussed at length above, each year, DSGI must hold an "Open Enrollment" period for the health program. Open Enrollment is the period designated by DMS during which time eligible persons, not just State of Florida retirees, may enroll or change coverage in any state insurance program. Prior to Open Enrollment each year, DSGI provides employees and retirees a package that explains the benefits and options that are available for the next plan year. The 2006 Open Enrollment period for the 2007 plan year ran from September 19, 2006, through October 18, 2006. During Open Enrollment for Plan Year 2007, the People First Service Center was charged with the responsibility of sending Open Enrollment packages to State of Florida retirees and other employees. People First mailed Mr. Kenerson's Open Enrollment package to the Brightwaters Boulevard address on September 3, 2006. The mailing of Open Enrollment packages is noted on the Open Enrollment screen by the Item Code "FSAE." The Open Enrollment packages, like the July 31, 2006, letter to retirees, were mailed by People First through the U.S. Post Office, first class prepaid postage. The Open Enrollment package mailed to Mr. Kenerson on September 3, 2006, contained Mr. Kenerson's Benefits Statement; a letter from John Mathews, former Director of DSGI; Information of Note; a Privacy Notice; a Notice Regarding Prescription Coverage; and the 2007 Benefits Guide. The Information of Note included a detailed description of the reduction in life insurance benefits from $10,000 to $2,500 unless an affirmative election was made to pay a higher premium. Neither Mr. Kenerson nor anyone on his behalf affirmatively elected to continue $10,000 in life insurance coverage during the enrollment period in 2006 for Plan Year 2007. Because the $10,000 life insurance option was not affirmatively made by the Insured or anyone on his behalf, upon his death, Respondent determined that he was entitled to $2,500 in death benefit. For those retirees who did not make a timely election pursuant to the Open Enrollment notice sent in 2006 for Plan Year 2007, the death benefit automatically became $2,500, effective January 1, 2007, for a monthly premium of $4.20. As of Open Enrollment 2005, the People First Service Center was charged with the responsibility of sending Open Enrollment packages to State of Florida retirees and other employees. The letter contained in the Open Enrollment package for 2006 for Plan Year 2007 stated as follows: The State conducts a "passive enrollment." If you want to keep the same insurance and benefits plans indicated, you do not have to do anything. Your Flexible Spending Account will be continued at the same annual amounts if no charges are made during Open Enrollment. The reverse side of this letter contains important information regarding changes, new offerings, and reminders regarding processes necessary to ensure a successful enrollment. Please review these items of note. Included in the Open Enrollment package was an "Information of Note" which set forth the reduction in life insurance benefit as well as the amounts to be charged for either the $2,500 or $10,000 benefit. Prior to January 1, 2007, funds in the Advanced Premium Account were applied to payment of costs of life insurance premiums under the policy for retirees. Once the funds in the Advanced Premium Account were depleted, the monthly premium for the $10,000 policy increased significantly to $35.79. DSGI has consistently mailed Open Enrollment packages, including Benefits Guides, to the addresses of record for all retirees, including Mr. Kenerson. Prior to May 1999, Mr. Kenerson actually resided at the Brightwaters Boulevard address, which had been his address of record since at least 1988. DSGI had mailed all correspondence to that address for Mr. Kenerson. In the past, DSGI had mailed, from time to time, newsletters to retirees. These newsletters were mailed to the addresses of record for the retirees. The newsletter for January-March 1999 contains the telephone number and address for DSGI and the following notice under the heading "Reminder Tidbits": "Notify both the Division of Retirement and the Division of State Group Insurance in writing if your mailing address changes." The newsletter for July-September 1999 contained the following: "Q. What if I do not receive my Open Enrollment package? A. If you do not receive the Open Enrollment package by September 17, contact the Division of State Group Insurance. You should also confirm your mailing address when you call." Prior to Mr. Kenerson moving from the Brightwaters Boulevard address, notices mailed to him there included notification that retirees were required to update any changes in address with DSGI. Throughout the years, the Benefits Guides that are included in the Open Enrollment packages have informed all program participants of their responsibility to maintain a current address with DSGI. Even if Mr. Kenerson had changed his address with DRS, such update would not have been provided to DSGI. Neither DSGI nor DRS notifies the other of receipt of a change of address. A change of address with one division of DMS does not automatically change the address in another since the two divisions have separate databases. Within DMS there is no centralized database of records containing addresses of record for all DMS functions. Retirees and active employees of the State of Florida are not required to have one address of record for all functions and services received through DMS. In fact, many State of Florida employees have different addresses for different DMS division functions. DSGI and DRS serve different functions and do not share databases. DRS consists of all retirees who participate in FRS, including local governments. The total number of individual participants is over 300,000. The synchronization of databases would be an expensive undertaking and no funding has been provided to synchronize DSGI with DRS or any other state agency or public entity. No evidence demonstrated that Mr. Kenerson informed DSGI in any way that he desired to maintain his $10,000 life insurance benefit, or that DSGI assumed or accepted that responsibility.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Group Insurance, enter a final order dismissing the petition in its entirety. DONE AND ENTERED this 10th day of November, 2010, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN 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 10th day of November, 2010. COPIES FURNISHED: Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florida 32399 Martha Lynne Kenerson, Esquire Bierce & Kenerson, P.C. 420 Lexington Avenue, Suite 2920 New York, New York 10170 William B. Bierce, Esquire Bierce & Kenerson, P.C. 420 Lexington Avenue, Suite 2920 New York, New York 10170 John Brenneis, General Counsel Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed in Florida as a life and variable annuity contracts salesman and as a life and health insurance agent. In 1994 twin sisters Edith Ellis and Gertrude Franklin attended a luncheon at which Respondent made a presentation. The sisters were then 79 years old, and both were the owners of single-premium insurance policies issued by Merrill Lynch. They decided to cash in their existing policies and purchase new policies through Respondent. Both Ellis and Franklin executed 1035 exchange forms whereby the monies obtained from cashing in their Merrill Lynch policies were transferred to the insurance companies issuing their new policies. Both were charged a substantial penalty by Merrill Lynch. On August 11, 1994, Security Connecticut Insurance Company issued to Edith Ellis a flexible premium adjustable life insurance policy with a face value of $150,000. The cover page of the policy recites in bold print that it is a flexible premium adjustable life insurance policy, directs the insured to read the policy, and provides a 20-day period for canceling the policy with a full refund. It also contains a statement that provides: This Policy provides flexible premium, adjustable life insurance to the Maturity Date. Coverage will end prior to the Maturity Date if premiums paid and interest credited are insufficient to continue coverage to that date. Dividends are not payable. Flexible premiums are payable to the end of the period shown, if any, or until the Insured's death, whichever comes first. The cover page also recites that the first premium is $75,000 and that the monthly premium is $805.75. After deductions, Merrill Lynch only transferred $44,928.81, and Ellis never paid any additional premiums. Therefore, the policy was not funded to maturity since the company only received a partial payment. The insurance company did not set up this policy to receive periodic premium payments because it was originally anticipated that the company would receive $75,000 which would carry the expense, based upon the then interest rate. The policy was dependent upon interest rates. The company sent annual statements, however, to both Ellis and to the agency where Respondent worked. These statements clearly showed a declining accumulated value for the policy and specified how much it had declined from the previous year. When Ellis surrendered the policy on July 3, 2002, its value was $4,849. First Colony Life Insurance issued a flexible premium adjustable life insurance policy to Gertrude Franklin on October 18, 1994, with a face value of $600,000. The cover page provides for a 20-day cancellation period with a full refund of premiums paid. In bold type, the cover page further advises as follows: "Flexible Premium Adjustable Life Insurance Policy", "Adjustable Death Benefit Payable at Death", "Flexible Premiums Payable During Insured's Lifetime", and "Benefits Vary with Current Cost of Insurance Rates and Current Interest Rates." It also advises that the initial premium is $56,796. The insurance company received an initial premium payment of $203,993.75 on December 19, 1994, and an additional premium payment in February 1996, for a total of premiums paid of approximately $266,000. The total premiums received, however, were insufficient to fund the policy to maturity since that would have required in excess of $400,000 in premiums. Annual statements sent by the insurance company reflected that the policy value was declining. On August 26, 1996, the insurance company received a letter over the name of Nancy Franklin, the trustee of the trust which owned the policy, advising the company to send billing and annual statements to the address of the agency where Respondent was employed. Respondent sent that letter as a courtesy because Gertrude Franklin asked him to keep her papers for her because she had no place to keep them. Gertrude Franklin, not her daughter, signed that letter. Respondent left that agency in October 1997 and was not permitted to take any records with him. In 2002 Edith Ellis showed her policy to someone at a senior center. Based upon that person's statements she called her sister and told her that their policies were no good. They contacted Respondent who came to their homes and reviewed their policies. He advised Gertrude Franklin that her only options at that point were to pay an additional premium or to reduce the face value of the policy to $400,000 in order to keep it in effect longer. She chose the latter course. Respondent gave Franklin a letter for Nancy Franklin's signature directing the insurance company to reduce the face value of the policy. Franklin, not her daughter, signed the letter and forwarded it to the company. The company reduced the face value based upon that letter which it received on April 1, 2002. That directive allowed the policy to stay in force another two months.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Administrative Complaint filed against Respondent in this cause. DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT 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 28th day of December, 2004. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Nancy Wright, Esquire 7274 Michigan Isle Road Lake Worth, Florida 33467 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
