The Issue The issue in this case is whether the Department of Insurance should discipline the Respondent for alleged violations of provisions of the Insurance Code governing agents.
Findings Of Fact The Respondent, Frank Lefler, Jr., is licensed in the State of Florida as a life and variable annuity contracts salesman, as a life insurance agent, and as a general lines insurance agent. During 1991 and 1992, he was employed by Metropolitan Life Insurance Company (MetLife). In the summer of 1991, a woman named Theresa Novovesky, a registered professional nurse living in New Orleans, Louisiana, received a telephone solicitation regarding a "Nurses Insured Retirement Plan." At the time, she was engaged to be married later in the summer to an Air Force pilot named David Russell. Not wanting to deal with the matter over the telephone, she asked the caller to mail her the information. She later received in the mail a brochure advertising for a "Nurses Insured Retirement Plan" being offered by "Metropolitan Life and Affiliated Companies." The Plan was advertised as "a convenient way for you to accumulate cash for the future you deserve." The plan's five "important benefits" included: CONTROL If you should leave your present nursing position, your retirement benefits can stay with you. FLEXIBILITY Accessibility of cash. TAX BENEFITS Tax deferred accumulation while providing a life insurance benefit. SECURITY Can be used to provide life time income. DISABILITY Your monthly contribution can continue to be deposited by Metropolitan should you become disabled. Novovesky was interested in the program described in the brochure and telephoned the toll-free number on the brochure for more information. Her call was received at the Tampa, Florida, offices of MetLife, and she used the descriptions contained in the advertising brochure to attempt to describe the reason for her call and the area of her interest. She left her telephone number so that she could be contacted at her residence in New Orleans. Not long afterwards, the Respondent telephoned Novovesky in New Orleans. She again used the descriptions contained in the advertising brochure to attempt to describe the reason for her call and the area of her interest. The Respondent made an appointment to visit Novovesky at her apartment complex in New Orleans to show her the MetLife products that were consistent with her area of interest. He mentioned at the time that he was new and in training with the company and that he would have his supervisor, Rick Urso, with him to assist. Urso and the Respondent met with Novovesky on July 25, 1991. They discussed aspects of Novovesky's career, personal and financial goals and ascertained that she was interested in a retirement savings plan. The Respondent presented a MetLife product that actually was a whole life insurance policy. He described the tax-free accumulation of cash value from contributions of $100 a month, and he estimated the cash value at age 59 as in the neighborhood of $600,000. It is unclear whether the Respondent orally explained to Novovesky in so many words during the July 25, 1991, meeting that the product being presented was in fact a whole life insurance policy. She testified that he did not, and the product could have been explained in terms that did not clarify to her that it was in fact a life insurance policy. But Novovesky also testified that she did not understand life insurance or investment terminology and knew little about either. It is conceivable that the Respondent explained the true nature of insurance product in terms that she should have been able to understand but that she did not understand what he was telling her. In his testimony, her husband (then fiance) confirmed that possibility. In addition, by Novovesky's own testimony, the Respondent asked her to verify the accuracy of information the Respondent took from her during the meeting and wrote on a form entitled, "Application for Life Insurance." Among other things, the form included a section on "Medical Data" "TO BE COMPLETED FOR ALL PERSONS TO BE INSURED." Although Novovesky denies that she read or understood the form, she clearly signed it. Although she testified that she did not recall, Novovesky also apparently was required to undergo a physical examination, including blood sampling and testing, to qualify for the insurance for which she had applied. When applying for the insurance she ultimately bought, Novovesky post- dated the check for the initial premium until after her fiance's scheduled return to the United States in August, 1991, for a brief period of leave from active Air Force duty in England. She reasoned that, in addition to helping her make final arrangements for their imminent wedding, he could advise her on whether to go through with the application she had signed. During the hustle and bustle of the prenuptial arrangements, her fiance telephoned the Respondent to assure himself and his fiancee that she had made reasonable retirement plans. From what she had told him, he assumed that she had purchased an annuity-type of retirement investment. He previously had made it clear to her that he did not think it was smart for her to buy life insurance. For whatever reason--perhaps because she preoccupied with planning their imminent wedding, or perhaps because she was afraid to tell him that she had applied for life insurance against his advice, or perhaps because she truly did not comprehend that she had in fact applied for a life insurance policy--she apparently did not tell him that she had applied for life insurance. Working from the incorrect assumption that his fiancee had purchased annuity-type of retirement investment, he asked the Respondent certain questions regarding guaranteed and anticipated performance and was given certain answers that did not alert him that the Respondent was referring to a life insurance policy. Satisfied with the answers he had gotten, Novovesky's fiance told her that it looked "OK" to him, and they got on with their busy lives. It appears that, on or about August 30, 1991, someone with MetLife delivered to Novovesky her whole life insurance policy, as well as a typical written illustration of predicted performance of the whole life insurance policy, given certain assumptions. The illustration included references to: life paid up at 95; total, initial annual, and initial semi-annual premium; annual dividend; a guaranteed death benefit; additional insurance purchased by dividends; illustrative death benefit; guaranteed cash value; cash value of additional insurance; illustrative cash value; life insurance surrender cost index; and life insurance net payment cost index. It is difficult to understand how, but Novovesky testified that, even after receipt of the policy and illustration, she still did not understand that she had applied for and purchased life insurance. She testified that she did not read the material when she received it and that, after the wedding, Novovesky (now Mrs. Russell) moved with her husband to England. The policy and other papers she relating to her dealings with the Respondent were packed away in boxes and were relatively inaccessible until after their return to the United States. Notwithstanding her testimony at final hearing and her prior hearsay statements to Insurance Department regulators, not only were the words "life insurance" mentioned in written statements she received from MetLife, she herself wrote a letter to the Respondent on November 4, 1991, advising that, while she was living in England with her husband, she would be unable to utilize the "Check-O-Matic" payment plan the Respondent had set up for her and that personal checks would be "my only means of paying my life insurance monthly." When the Mrs. Russell did not receive monthly or even quarterly statements from MetLife, and MetLife responded to inquiries by saying that only an annual statement was due her, Mr. Russell especially became concerned about exactly what his wife had purchased. Still, the policies and information was inaccessible, and they decided it could wait until after their return to the United States. When they returned and Mrs. Russell received her first Anniversary Statement in the mail, Mr. Russell could tell that his wife had not purchased an annuity-type investment, and he decided it was time to find the policy and related MetLife information to determine just what was going on. When he located and inspected the documentation, an incredulous Mr. Russell realized for the first time that his wife had purchased a life insurance policy, which was precisely what he told her not to buy. His reaction was that he could not understand how she could have been so foolish, and he told her so. She blamed it on the Respondent and MetLife. Approximately a year later, in summer of 1993, the Russells read a newspaper article indicating that many MetLife policyholders were registering similar complaints and that state insurance regulators were investigating. Mr. Russell became persuaded that, after all, perhaps MetLife, and not his wife, was to blame for the mistake. They successfully pursued their desire to rescind the life insurance policy, get a full refund from MetLife, and reinvest the refund in another investment vehicle. (Initially, they invested in an annuity; they later changed to a stock mutual fund.)
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance enter a final order dismissing the Administrative Complaint in this case. RECOMMENDED this 11th day of October, 1994, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 October, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-2210 To comply with the requirements of Section 120.59(2), Fla. Stat. (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-6. Accepted and incorporated to the extent not subordinate or unnecessary. 7. The visit was on July 25, 1991; otherwise, first sentence, accepted and incorporated. Second sentence, rejected as not proven exactly what the Respondent said. 8.-9. Accepted and incorporated to the extent not subordinate or unnecessary. Rejected as not proven that life insurance was not discussed. Otherwise, accepted and incorporated. Rejected as not proven that she did not read any of the application. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. 12.-13. Accepted and incorporated to the extent not subordinate or unnecessary. Rejected as not proven: (1) that Russell formed any opinion about what the Respondent "was soliciting" (he was concerned only about what his fiancee was buying); or (2) that life insurance was discussed. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. Rejected as not proven that the documents were "numerous" or that she did not "review" them. Accepted, but not proven that the Respondent knew about them or sent them, and unnecessary. Rejected as not proven that she did not know she had purchased a life insurance policy. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. Accepted, technically, but unnecessary. First sentence, rejected as not proven; second sentence, accepted and incorporated to the extent not subordinate or unnecessary. 20.-21. Accepted and incorporated to the extent not subordinate or unnecessary. (However, implication that they were informed for the first time is rejected as not proven.) First sentence, rejected as not proven; second sentence, accepted and incorporated. "Unknowingly" is rejected as not proven. Otherwise, accepted but subordinate and unnecessary. Second and third sentences, accepted but subordinate and unnecessary. The rest is rejected as not proven. "Understandingly unhappy" is rejected as not proven. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. Accepted and subordinate to facts found. Respondent's Proposed Findings of Fact. 1.-2. Accepted and incorporated. Rejected as being conclusion of law. Accepted and incorporated. The year 1990 is rejected as being contrary to facts found. (The meeting was in 1991.) Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. First sentence, not clear from the evidence. Otherwise, accepted but largely subordinate and unnecessary. Last sentence, rejected as being argument. Otherwise, accepted but subordinate to facts found, and unnecessary. Accepted but subordinate to facts found, and unnecessary. 9.-10. Accepted and incorporated. 11.-12. Accepted and incorporated to the extent not subordinate or unnecessary. 13.-14. Accepted but subordinate to facts found, and unnecessary. 15.-17. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate to facts found, and unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate to facts found, and unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate and unnecessary. 23.-24. Accepted but subordinate to facts found, and unnecessary. Accepted but subordinate and unnecessary. As to last sentence of the first paragraph, rejected as contrary to the evidence that "any misperception stemming from the brochure" "could not be due to" the Respondent (although not proven that it was). Otherwise, the first paragraph is accepted and incorporated. The second paragraph is argument and a transcript excerpt that is subordinate to facts found, and unnecessary. 27.-28. Accepted and incorporated to the extent not subordinate or unnecessary. 29. Accepted but argument, subordinate, and unnecessary. 30.-31. Cumulative. (Also, subordinate and argument.) Rejected as contrary to facts found that Lefler was not identified. Otherwise, largely accepted but subordinate to facts contrary to those found. Argument and subordinate. 34.-35. Accepted but subordinate and unnecessary. Argument, subordinate and unnecessary. Last sentence, rejected as being argument and as being subordinate to facts contrary to those found. Otherwise, accepted but subordinate to facts found, and unnecessary. 38.-40. Largely accepted but subordinate and unnecessary. 41. First sentence, accepted but subordinate to facts found, and unnecessary. Second sentence, rejected as argument, as subordinate and as unnecessary. 42.-44. Accepted and incorporated to the extent not subordinate or unnecessary. Argument, subordinate and unnecessary. Largely, accepted and incorporated to the extent not argument, subordinate or unnecessary. Cumulative. First sentence, accepted but subordinate to facts found. Second sentence, cumulative. COPIES FURNISHED: James B. Bossart, Esquire Daniel T. Gross, Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Jonathan L. Alpert, Esquire David Ferrentino, Esquire Alpert, Josey & Hughes First Union Center 100 S. Ashley Drive, Suite 2000 Tampa, Florida 33602 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 The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE 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 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Ralph Todd Schlosser, was licensed and eligible for licensure as a life and health insurance agent, health insurance agent and general lines agent - property, casualty, surety and miscellaneous lines by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was licensed as a life and health insurance agent for American Sun Life Insurance Company (ASLIC) and Pioneer Life Insurance Company of Illinois (PLICI). On March 2, 1987, respondent met with one Mildred H. Camp, then a resident of Clearwater, Florida, for the purpose of selling her an ASLIC long term care health insurance policy. After discussing the matter with respondent, Camp agreed to purchase a policy. She completed an application and gave respondent a check in the amount of $511.88. The check was deposited into respondent's business account at First Florida Bank in Clearwater the same day. Camp did not testify at hearing. Therefore, the only first hand version of what was discussed by Schlosser and Camp and the nature of any further communications between the two was offered by respondent. That version was not contradicted, and it is accepted as being credible. Within a week after executing the application, Camp contacted respondent by telephone concerning the policy. Pursuant to that telephone conversation, respondent did not process the application or remit the check to the company, but attempted instead to arrange another meeting with Camp to answer further questions about the policy. Although he telephoned Camp "every single Monday", respondent was unable to arrange an appointment with her until April 30, 1987. On April 30 Camp and respondent met for the purpose of him explaining in greater detail the benefits and coverage under the policy. Because two months had gone by since the application was first executed, it was necessary for respondent to update Camp's health information. Accordingly, Camp executed a new application the same date and Schlosser forwarded the check and application to ASLIC shortly thereafter. On May 5, 1987 ASLIC received the April 30 application and premium check, less respondent's commission. The application was eventually denied by ASLIC on the ground of "excessive insurance" and a refund check was forwarded by ASLIC to Camp on June 11, 1987. There is no record of any complaint made by Camp against Schlosser in ASLIC's files nor did ASLIC contact respondent regarding this matter. When Schlosser began representing ASLIC, he executed a general agent contract which contained the terms and conditions pertaining to his appointment as a general agent for the company. As is pertinent here, the contract provided that Schlosser had a responsibility "to promptly remit such funds" received by him to the company. According to a former second vice-president of ASLIC, Joyce Lynch, who worked for ASLIC when the Camp transaction occurred, the company expected in the regular course of business to have checks and applications remitted by agents to the home office within fifteen days after the application was written, and that the above provision in the general agent contract was interpreted in this manner. Lynch added that she knew of no reason why an agent would hold an application and check for sixty days before submitting it to the company, particularly since once an application is completed and signed, it is the "property" of the company and not the agent. She concluded that if a customer desired more information about a policy after an application had been signed, which is not unusual, the agent still had a responsibility to promptly forward the application and check to the company within fifteen days. At that point, the company, and not the agent, would cancel a policy and refund the premium if so requested by a customer. Therefore, Schlosser breached the general agent contract by failing to promptly remit such funds. On July 28, 1987 Schlosser visited one Maxine Brucker, an elderly resident of Sarasota, for the purpose of selling her a PLICI health insurance policy. He had telephoned Brucker the same date to set up an appointment with her. After discussing the matter with respondent, Brucker agreed to purchase a policy, executed an application and gave respondent a check for $680.00. The check was deposited into respondent's bank account the following day. After Schlosser departed, Brucker noted that Scholosser did not leave a business card and she immediately became "worried" about her money and the possibility of not getting the insurance she had paid for. She telephoned the Department the same day to check on his "reputation" and to verify that Schlosser was an insurance agent. On August 4, 1987 she wrote a letter to the PLICI home office in Rockford, Illinois to ascertain if her check and application had been received but she did not receive a reply. She wrote a second letter to PLICI on August 14, 1987 but again received no reply to her inquiry. After telephoning the home office a few days later, Brucker contacted the Department a second time in late August and requested that it assist her in obtaining a refund of her money. At no time, however, did Brucker attempt to contact respondent. In early September, Brucker received by mail a money order from respondent which represented a full refund of moneys previously paid. Brucker acknowledged that she was happy with her policy when it was initially purchased. She also acknowledged that she had never contacted respondent personally to request a refund of her money. It was only after she received no reply from the home office that she made a request for a refund. According to the agency agreement executed by Schlosser when he became a general agent for PLICI, respondent had the responsibility to "immediately remit to (PLICI) all premiums (collected)". Testimony by Ronald F. Bonner, a vice- president of PLICI, established that in the regular course of business an agent was required to forward the check and application to PLICI no more than twenty-five days after receiving them from the customer. Any application held more than twenty-five days was considered "stale", was presumably invalid and had to be returned to the customer. Even so, Bonner did not contradict respondent's assertion noted in finding of fact 11 that his failure to remit the application and check was based on instructions from the home office, and under those circumstances, was not improper. Respondent readily admitted he did not remit the Brucker application and check because of instructions from the home office received after Brucker had telephoned the home office. After unsucessfully attempting to speak with Brucker by telephone daily for about two weeks, Schlosser voluntarily sent Brucker a money order via mail in early September. A review of respondent's business bank account for the months of March and August 1987 revealed that after the checks from Camp and Brucker had been deposited, the balances in the account thereafter dropped below $511.88 and $680 during those respective months. This raises an inference that those moneys were used for other undisclosed purposes during that time. According to respondent, he submitted applications and premiums checks to the home office approximately two or three times per month. It was also his practice to wait ten days or so after receiving a check from a customer to allow it sufficient time to clear. Schlosser denied having converted insurance moneys to his own personal use. There was no evidence that Schlosser lacked reasonably adequate knowledge and technical competence to engage in insurance transactions authorized by his licenses, a matter requiring conventional factual proof. Similarly, there was no evidence to establish that Schlosser intended to willfully violate the law or that his conduct demonstrated a lack of fitness or trustworthiness to engage in the insurance business.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the administrative complaint filed against respondent be dismissed with prejudice. DONE AND ORDERED this 18th day of January, 1990, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 18th day of January, 1990.
The Issue Whether Respondent, The Medical Escrow Society, Inc., violated Section 626.989(6), Florida Statutes, as alleged in the twenty-six counts of the Administrative Complaint issued by Petitioner, Department of Financial Services, on January 6, 2003; and If Respondent is found to have violated any of the twenty- six counts of the Administrative Complaint, whether any such violations were committed willfully or non-willfully.
Findings Of Fact Petitioner, the successor agency to the Department of Insurance, regulates the viatical industry operating in Florida pursuant to the section of the Insurance Code referred to as the Viatical Settlement Act, Part X, Chapter 626. Prior to enactment of the Viatical Settlement Act in 1996, Petitioner did not have jurisdiction to regulate viatical settlement transactions. Respondent is a Florida corporation which was and is licensed as a viatical settlement broker in Florida, as well as a number of other states. Respondent, on behalf of a viator and for a fee, commission, or other valuable consideration, offers or attempts to negotiate viatical settlement contracts between a viator resident, in this state or other states, and one or more viatical settlement providers, and did so at all times material hereto. Respondent is currently owned by Christopher Lane (Lane), who purchased the company from the prior owner in a transaction which was approved by Petitioner on November 6, 2001. Lane is the current president of Respondent. At all times material to the allegations of the Administrative Complaint, Lane neither owned nor controlled Respondent. At all times material to the allegations of the Administrative Complaint, Lane was an employee of Respondent, as a vice president who handled marketing and new client relations. Lane did not have any knowledge of the facts or circumstances giving rise to the allegations of the Administrative Complaint. Furthermore, under Lane's ownership and management, Respondent has adopted and filed with Petitioner an anti-fraud plan, pursuant to Section 626.99278, which was first enacted in 2000. In general, the business of viatical settlements involves the sale by a policyholder to an investor or group of investors of the policyholder's life insurance policy, prior to the policyholder's death, for an amount that is less than the face value of the policy. Viatical settlement transactions typically have been used by terminally ill individuals as a means to obtain cash prior to their death, which could be used for life-sustaining treatments or to relieve financial stress during their lifetime. Recently, viatical settlement transactions have also been marketed to elderly individuals who are healthy but may no longer need life insurance and who want to obtain money during their lifetime for any number of reasons, such as paying for health care. There are various categories of persons involved in a typical viatical settlement transaction. The policyholder who is selling a life insurance policy is referred to as a "viator." A viator is typically represented by a viatical settlement "broker" who represents the viator by obtaining quotes from potential purchasers of the viator's policy, called viatical settlement "providers." Viatical settlement providers, in turn, seek investors to fund the viatical settlement transactions. Viatical settlement brokers and providers are required to be licensed under the Viatical Settlement Act. As part of its duties under the Viatical Settlement Act, Petitioner issues licenses to viatical settlement brokers through its Bureau of Agents and Agencies. In each of the twenty-six counts of the Administrative Complaint, Petitioner has alleged that Respondent possessed a copy of an insurance policy application form, which when compared to information submitted on Respondent's forms, demonstrates evidence of a fraudulent insurance act committed by the particular viator. In that respect, paragraph 4 of the Administrative Complaint states as follows: Information available to the Department reflects that Medical Escrow has, from offices located in this state, offered or attempted to negotiate viatical settlement contracts between viators and one or more viatical settlement providers in the presence of circumstances whereby Medical Escrow knew, or in the exercise of reasonable diligence should have known or been caused to believe, that the underlying insurance policy had been procured through fraud, or dishonesty, or misrepresentations made by the viator on his application to the insurance company issuing the policy in question. Consequently, as a threshold matter Petitioner must prove that Respondent actually possessed the documents referenced in the Administrative Complaint. Petitioner's financial specialist, Janice S. Davis (Davis), testified that she obtained copies of the documents referenced in the twenty-six counts of the Administrative Complaint from a variety of sources as follows: (1) the documents referenced in Counts One and Eight were obtained by Petitioner in 1999 from an examination of a viatical settlement provider named Mutual Benefits Corporation; (2) The documents referenced in Counts Two, Three, Four, Five, Six, and Seven were obtained by Petitioner in 2000 in response to a document production request to a viatical settlement provider named Future First Financial Group; (3) the documents reference in Count Nine were obtained by Petitioner in 2002 from an examination of a viatical settlement provider named William Page & Associates; and (4) the documents referenced in Counts Ten, Eleven, Twelve, Thirteen, Fourteen, Fifteen, Sixteen, Seventeen, Eighteen, Nineteen, Twenty, Twenty-one, Twenty-two, Twenty- three, Twenty-four, Twenty-five, and Twenty-six were obtained by Petitioner in 2000 from files which had been obtained from Respondent by execution of a search warrant by the Offices of Statewide Prosecution and Petitioner's Division of Insurance Fraud. With respect to the documents obtained from the first three sources-Mutual Benefits Corporation, Future First Financial Group, and William Page & Associates-Petitioner has failed to offer proof that the referenced documents were ever actually in the possession of Respondent. Although it may be reasonable to presume that the actual forms of Respondent were in the possession of Respondent at some point in connection with the referenced viatical settlement transactions, Petitioner has offered no testimony regarding how those records were maintained by the three viatical settlement providers. Moreover, Petitioner failed to offer any evidence that the insurance policy applications were ever in the possession of Respondent. Petitioner has offered no evidence upon which to make a finding that Respondent actually possessed the particular insurance policy applications which were obtained from the three viatical settlement providers. While Petitioner offered testimony from former employees of Respondent to the effect that Respondent obtained insurance policy applications from viators in general, such testimony does not establish that the particular insurance policy applications in the possession of the three viatical settlement providers were actually obtained by Respondent. None of Respondent's application forms referenced by Petitioner in the Administrative Complaint required submission of an insurance application. Because Petitioner has failed to offer any evidence that the particular insurance policy applications referenced in Counts One, Two, Three, Four, Five, Six, Seven, Eight, and Nine were ever actually possessed by Respondent, there is no basis upon which to make a finding of fact that Respondent should have reported to Petitioner anything set forth in such insurance policy applications. Petitioner may not penalize Respondent based upon a mere assumption that Respondent possessed the insurance policies referenced in those nine counts of the Administrative Complaint. With respect to the documents referenced by Petitioner in Counts Ten through Twenty-six, Davis testified that copies of those documents were obtained from Respondent's files which had been obtained by the Office of Statewide Prosecution and the Division of Insurance Fraud through execution of a search warrant in 2000. Although Davis had no involvement in or personal knowledge concerning the circumstances surrounding the execution of that search warrant, this evidence is sufficient to substantiate its allegations that Respondent actually possessed the insurance applications referenced by Petitioner in Counts Ten through Twenty-six of the Administrative Complaint in its files. In Count Ten of the Administrative Complaint, Viator Eight submitted to Philadelphia Life Insurance Company an insurance policy application, dated March 21, 1996, which represented that Viator Eight had not been treated for or diagnosed with Acquired Immune Deficiency Syndrome (AIDS) within the last ten years. Viator Eight submitted to Respondent an application form, dated July 8, 1998, which represented that Viator Eight had first been diagnosed with AIDS in 1989. The question on Respondent's application asks for the date of first diagnosis of the "current medical condition" which is described in the preceding question. While Viator Eight's description of his "current medical condition" on Respondent's application includes "AIDS," it also includes a "history of Hodgekins Lymphoma" as well as other conditions. The information on Respondent's application does not specify whether the 1989 diagnosis was for AIDS or the other disorders listed as Viator Eight's "current medical condition"; however, this information is sufficient to alert Respondent's employees that a fraudulent insurance act is being or has been committed and trigger the reporting requirement of the statute. In Count Eleven of the Administrative Complaint, Viator Eight submitted to Manhattan Life Insurance Company an insurance policy application, dated July 3, 1996, which represented that Viator Eight had not consulted with or been treated by any licensed physician or medical practitioner within the last five years and was in excellent health. Viator Eight submitted to Respondent an application, dated July 8, 1998, which represented that Viator Eight had first been diagnosed with AIDS in 1989 and was being attended by Dr. Ronald Wiewora. The "current medical condition" described by Viator Eight in Respondent's application form states a diagnosis in 1989 of AIDS and Hodgekins Lymphoma, and "recent difficulties with protein inhibitors . . ." This is sufficient information to require the reporting of potential fraud under the statute. In Count Twelve of the Administrative Complaint, Viator Nine submitted to Time Insurance Company an insurance policy application, dated August 6, 1996, which represented that Viator Nine had not had a physical examination, diagnostic test, medical treatment, health impairment, or been advised to undergo any treatment within the past five years. However, the application also represented that he had not been diagnosed with AIDS or AIDS-related complex (ARC) or received treatment for it within the past ten years. Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS and had first been diagnosed Human Immunodeficiency Virus (HIV) positive in February 1991. This was sufficient information to require the reporting of potential fraud under the statute. In Count Thirteen of the Administrative Complaint, Viator Nine submitted to Jackson National Life Insurance Company an insurance policy application, dated March 5, 1992, which represented that Viator Nine had not been treated by a physician or other medical practitioner, or been a patient in a clinic or medical facility, or been diagnosed or treated for AIDS or any other immunological disorder, within the past five years. Viator Nine submitted to Respondent an application, dated August 15, 1997, which represented that Viator Nine had first been diagnosed with AIDS in February 1991 and was not presently employed. This was sufficient information to require the reporting of potential fraud under the statute. In Count Fourteen of the Administrative Complaint, Viator Nine submitted to Interstate Assurance Company an insurance policy application, date March 21, 1993, which represented that within the last ten years Viator Nine had not been diagnosed or treated by a member of the medical profession for an immune system disorder and that within the last five years he had not been hospitalized or treated by a member of the medical profession or consulted a physician or been prescribed any medication. Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS and had first been diagnosed HIV positive in February 1991. Although the insurance application did not specifically request disclosure of a diagnosis of HIV positive and did not define the term "immune system disorder" to include a diagnosis of HIV positive, Viator Nine's disclosure on Respondent's application of a diagnosis of HIV positive was sufficient to alert an employee of Respondent to report the potential for fraud under the statute and to require that this information be reported. In Count Fifteen of the Administrative Complaint, Viator Nine submitted to Interstate Assurance Company an insurance policy application, dated March 4, 1994, which represented that, within the last ten years, Viator Nine had not been diagnosed or treated by a member of the medical profession for an immune system disorder and that within the last five years he had not been hospitalized or treated by a member of the medical profession or consulted a physician or been prescribed any medication. Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS and had first been diagnosed HIV positive in February 1991 and that Dr. Leslie Diaz represented on Respondent's "Physician's Questionnaire-HIV Disease" form, dated, September 4, 1997, that Viator Nine had the HIV disease and a life expectancy of five to ten years. Although the insurance application did not define the term "immune system disorder" to include a diagnosis of HIV positive, Viator Nine's disclosure on Respondent's application of a diagnosis of HIV positive was sufficient to alert an employee of Respondent of the need to report the potential for fraud under the statute. In Count Sixteen of the Administrative Complaint, Viator Nine submitted to Security Mutual Life Insurance Company an insurance policy application, dated November 4, 1997, which represented that Viator Nine had not been treated for or had any known indication of AIDS, ARC, or tested positive for HIV antibodies. Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS, had first been diagnosed HIV positive in February 1991, and was being treated by Dr. Leslie Diaz. This is sufficient to trigger the reporting requirement of the statute. In Count Seventeen of the Administrative Complaint, the evidence submitted indicated that Viator Nine submitted to Columbia Universal Life Insurance Company an insurance policy application for a face amount coverage of $70,000, dated August 28, 1998, which represented that Viator Nine had not been diagnosed with any immune deficiency disease. Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS, had first been diagnosed HIV positive February 1991, and was being treated by Dr. Leslie Diaz. On Respondent's form submitted in 1997, Viator Nine indicated that he had a preexisting life insurance policy, in the face amount of $200,000, with Columbia Universal Life issued on December 28, 1985. There is no apparent connection between Respondent's application, dated August 15, 1997, and the Columbia Universal Life application, dated August 28, 1998, that would trigger the necessity of an employee of Respondent to make a report. In Count Eighteen of the Administrative Complaint, Viator Nine submitted to Philadelphia Life Insurance Company an insurance policy application, dated August 28, 1998, which represented that Viator Nine had not been told that he had tested positive for exposure to the HIV infection and that to the best of his knowledge, his health was not impaired in any way. Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS, had first been diagnosed HIV positive in February 1991, and was being treated by Dr. Leslie Diaz. Respondent's application relates to an individual life policy issued by the Columbus Mutual Insurance Company, in the face amount of $200,000, dated December 28, 1985. There is no apparent connection between Respondent's application, dated August 15, 1997, and the Philadelphia Life Insurance Company policy application, dated August 28, 1998. Therefore, there was no obligation to report. In Count Nineteen of the Administrative Complaint, Viator Nine submitted to Respondent an application, dated August 15, 1997, which stated that Viator Nine had AIDS, had first been diagnosed HIV positive in February 1991, and was being treated by Dr. Leslie Diaz. Viator Nine submitted to United Home Life Insurance Company an insurance policy application, dated April 23, 1999, which represented that within the last ten years Viator Nine had not tested positive for exposure to the HIV infection, had not tested positive for antibodies to the AIDS virus, and had not consulted a medical practitioner within the last five years. Respondent's application relates to an individual life policy issued by Columbus Mutual Insurance Company, in the face amount of $200,000, dated December 28, 1985. There is no apparent connection between Respondent's application, dated August 15, 1997, and the United Home policy application, dated April 23, 1999. Therefore, there was no obligation to report. In Count Twenty of the Administrative Complaint, Viator Ten submitted to Respondent an application form, dated August 15, 1997, which represented that Viator Ten had AIDS, had first been diagnosed HIV positive in February 1991, and was being treated by Dr. Leslie Diaz. Viator Ten submitted to Federal Home Life Insurance Company an insurance policy application, dated October 20, 1997, which represented that within the last ten years Viator Ten had not tested positive for exposure to the AIDS virus, had not been treated for the AIDS virus, and had not consulted a medical practitioner within the last five years. Respondent withheld this insurance policy from sale for a period of time because Respondent knew that Viator Ten had not yet submitted the application for the policy to the life insurance company and that it contained false information. Respondent had an obligation to report these discrepancies. In Count Twenty-one of the Administrative Complaint, Viator Eleven submitted to Manhattan Life Insurance Company an insurance policy application, dated April 25, 1996, which represented that Viator Eleven had not consulted, been examined or treated by any licensed physician or medical practitioner within the last five years. Viator Eleven submitted to Respondent an application, dated April 14, 1998, in the attachments it stated that Viator Eleven had first been diagnosed HIV positive in September 1991, and as of November 1995 had been diagnosed with AIDS and had received treatment from a physician since that time. Although the insurance application does not request any information regarding any diagnosis or treatment for AIDS or HIV, Viator Eleven stated that he did not have a family physician, had not seen a physician in the past, and was not taking any medication. This was obviously false, and Respondent should have reported it. In Count Twenty-two of the Administrative Complaint, Viator Twelve submitted to Southern Farm Bureau Life Insurance Company an insurance policy application, dated July 1, 1996, which represented that Viator Twelve had not been told that he had or had been treated for an immune deficiency disorder, AIDS, ARC, or had test results indicating exposure to the HIV virus. Viator Twelve submitted to Respondent an application, dated December 3, 1996, which represented that Viator Twelve had "asymptomatic HIV" and had first been diagnosed in 1991. This was sufficient to trigger the reporting requirement. In Count Twenty-three of the Administrative Complaint, Viator Twelve submitted to Primerica Life Insurance Company an insurance policy application, dated July 30, 1996, which represented that Viator Twelve had not within the past ten years been diagnosed or treated for AIDS or any immune deficiency disorder or tested positive for exposure to the HIV virus. Viator Twelve submitted to Respondent and application, dated December 3, 1996, which represented that Viator Twelve had "asymptomatic HIV" and had first been diagnosed in 1991. This was sufficient to trigger the reporting requirement. In Count Twenty-four of the Administrative Complaint, Viator Thirteen submitted to Nationwide Life Insurance Company an insurance policy application, dated July 25, 1997, which represented that Viator Thirteen had not within the past five years been diagnosed or treated for AIDS, ARC, or any other immune deficiency syndrome and had not been examined or treated by any physician or medical practitioner, or by any hospital, clinic, or medical facility not previously mentioned on the application. Viator Thirteen submitted to Respondent an application, dated January 12, 1998, which represented that Viator Thirteen had been diagnosed HIV positive in 1992 and had been diagnosed with AIDS in 1994 and that information supplied by Viator Thirteen's physician on Respondent's "Physician's Questionnaire-HIV Disease" form confirmed those representations. Although Respondent withheld Viator Thirteen's policy from sale for a period of time, Respondent's personnel noted that Viator Thirteen had lied on the application. Respondent failed to report this fact to Petitioner. In Count Twenty-five of the Administrative Complaint, Viator Three submitted to Respondent an application, dated April 11, 1995, which represented that Viator Three had been diagnosed HIV positive in May 1986 and had been diagnosed with AIDS in March 1995. Viator Three submitted to Allstate Life Insurance Company an insurance policy application, dated July 31, 1995, which represented that Viator Three had never been diagnosed with or treated for AIDS, ARC, or an AIDS-related condition. Since the application for the life insurance policy and the application to Respondent were submitted prior to the enactment of the Viatical Settlement Act, Respondent had no duty to report possible fraud in this instance, since it occurred prior to July 1, 1996, the effective date for the statute. In Count Twenty-six of the Administrative Complaint, Viator Three submitted to Respondent an application, dated December 3, 1996, which represented that Viator Three had been diagnosed HIV positive in May 1986 and had been diagnosed with AIDS on September 4, 1996, and that on Respondent's "Physician's Questionnaire-HIV Disease" form, dated May 18, 1995, submitted by Dr. Carroll L. Cook, confirmed those representations. Viator Three submitted to Nationwide Life Insurance Company an insurance policy application, dated October 20, 1995, which represented that Viator Three had not, within the last five years, been diagnosed with or treated for AIDS, ARC, or any other immune deficiency disorder. This is sufficient to trigger the reporting requirement. The evidence is clear and convincing, as to Counts Ten, Eleven, Twelve, Thirteen, Fourteen, Fifteen, Sixteen, Twenty, Twenty-one, Twenty-two, Twenty-three, Twenty-four, and Twenty-six of the Administrative Complaint that Respondent, in the performance of its role as a viatical settlement broker, routinely received from viators and reviewed written information about their medical condition, particularly regarding the presence of an HIV/AIDS diagnosis, that directly and materially contradicted information supplied by that same viator on one or more written and corresponding insurance policy applications, also routinely received and reviewed by Respondent. The same viators who represented on the relevant life insurance policy applications that they did not have HIV or AIDS represented on viatical applications that they did have that condition during the same material times. This is especially true, wherein Viator Nine submitted eight applications to Respondent on the same date, August 15, 1997. In each instance, the contrast is so great that any reasonable person, especially an employee of Respondent in the viatical industry, would have to know or believe that the life insurance policy being offered for sale through Respondent had been obtained through misrepresentations made by the viator on or in support of the insurance policy application. Respondent not only failed to report those circumstances to Petitioner, but proceeded to offer many of those policies for sale to viatical settlement providers. The evidence is clear and convincing that Respondent, during the relevant time period, had no company policy requiring or even acknowledging an obligation to report such matters to Petitioner and that the usual and prevalent custom of Respondent was to send the applications to providers without comment. Only after 1999 did Respondent instruct its employees to direct such suspicious viatical applications to the attention of a company vice-president. Even then, no reports were filed with Petitioner. Thus, Respondent's admitted failure to report cannot be ascribed to the negligence or inattention of a company officer or employee to his or her duty to fulfill a company policy requiring such reports, since there was no such policy. It is clear that Respondent simply ignored the reporting requirements in the statute and, in most instances, offered the tainted viatical applications/insurance policies for sale to viatical settlement providers without comment. Accordingly, it is found that any and all admitted failures to report the circumstances alleged in Counts Ten through Sixteen, Twenty through Twenty-four, and Twenty-six in the Administrative Complaint were willful.
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 as follows: Dismissing Counts One through Nine, Seventeen, Eighteen, Nineteen, and Twenty-five. Finding Respondent guilty of violating Section 626.989(6) in Counts Ten, Eleven, Twelve, Thirteen, Fourteen, Fifteen, Sixteen, Twenty, Twenty-one, Twenty-two, Twenty-three, Twenty-four, and Twenty-six of the Administrative Complaint; and In conformity with the Joint Pre-hearing Stipulation and the earlier, seven-page stipulation of the parties, finding the violations in question willful, and imposing an administrative fine in the amount of $30,000 and subjecting Respondent to two years of probation under the terms and conditions set forth in the seven-page stipulation, paragraph 5. DONE AND ENTERED this 7th day of November, 2003, in Tallahassee, Leon County, Florida. S DANIEL M. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of November, 2003. COPIES FURNISHED: Michael H. Davidson, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Thomas J. Maida, Esquire N. Wes Strickland, Esquire Foley & Lardner 106 East College Avenue, Suite 900 Tallahassee, Florida 32301 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 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.
The Issue Should discipline be imposed by Petitioner against Respondent's insurance agent licenses alleged as life including variable annuity (2-14), general lines (2-20), and health (2-40), pursuant to Chapters 624 and 626, Florida Statutes?
Findings Of Fact Petitioner issued license E125386 to Respondent. At present the license is valid in the following categories: life including variable annuity (2-14) and general lines (2-20). At present Respondent has appointments with American Family Life Assurance Company of Columbus in the categories life including variable annuity and health (2-15) and general lines (2-20). February 9, 2005, is the relevant date in this case. On that date Respondent held a license in categories (2-14) and (2-20). The category (2-14) was for an appointment with Direct Life Insurance Company. The category (2-20) was an appointment with Direct General Insurance. At the time Respondent worked at an office in Tallahassee, Florida, referred to as the Case Register Insurance Agency, that sold life insurance offered by Direct Life Insurance Company, among other products. On February 9, 2005, Denise Daley Turnbull worked at Case Register. She was a customer representative category (4- 40), appointed by Direct General Insurance Agency, Inc. Respondent worked with Ms. Turnbull. On February 9, 2005, Patrician Ann Brown came to the Cash Register Insurance Agency to purchase personal injury protection (PIP) automobile insurance mandated by the State of Florida. Ms. Turnbull dealt with the customer. In doing so, Ms. Turnbull followed a script which in relevant part stated: * * * How did you hear about Cash Register? Are you currently insured? Have you had the policy for at least 6 months with no more than a 7-day lapse in coverage? If they say yes, say . . . Great! We will need you to bring in a copy of your renewal offer or a letter from your current company when we write the policy. This will make you eligible for a discount. Are you buying, leasing or do you own your vehicle? Is the vehicle registered or titled in your name? * * * What coverage will you be purchasing with us? Inform the customer about the work loss option. Under the mandatory Personal Injury Protection, there is a work loss option should you be involved in an accident that will pay up to 60% of your lost wages. Would you like to include this option? Quote only PIP/PD unless the client asks for BI. Always quote $750.00 deductible for Comp/Coll and $1000 deductible NI or NIRR for PIP. Other deductibles are available upon request. * * * What is your date of birth? Are you married or single? If married, get spouses information) What tickets, accidents, or suspensions have you had in the last 3 years? (Do you need an SR-22?) Who else living in your household is 14 years or older? Are there other drivers who do not live in the house? * * * What is the year, make and model of your vehicle? Does it have air bags, anti-lock brakes or an anti-theft device? Is the vehicle used for personal, business or commercial use? Is your vehicle customized in any way? (remember, we do not cover any customization) Mr/Mrs. I have quoted you with the State Mandatory liability limits up to $10,000 dollars Property Damage, Personal Injury Protection up to $10,000 dollars with a $1,000 deductible, Comprehensive and Collision with $750 deductibles and offered with this quote are the optional policies for Accident Medical Coverage, Rental Reimbursement and a $10,000 term life benefit. You will need only $ to start your policy and have 12 payments of only $ . How does that sound? (Always quote 20/27 day pay plan-can offer 10 day plan when client comes into office) (emphasis added) How does that compare to other quotes you have received? * * * Mr./Mrs. , Direct is now offering to our customers, a Direct Visa Debit Card for a special low price of only $699. This requires no bank account, no credit check and is valid wherever Visa is accepted! Only $699, so be sure to bring that amount in with your down payment so you can take advantage of this special offer. Ms. Patricia M. Brown purchased automobile insurance from Direct General Insurance Company, including PIP and property damage liability (PD) totaling $848.00 with fees assigned. In addition, Ms. Brown purchased a policy through American Banking Travel Protection Plan for one year. The cost for that policy was $60.00. Ms. Brown purchased from Lloyds Accident Medical Protection Plan an individual accident medical protection plan. The cost was $110.00. Ms. Brown bought life insurance with a one-year period, that was renewable, $10,000.00 coverage, with a premium charge of $108.00. In making her purchases, Ms. Brown signed a form titled Explanation of Policies, Coverages and Cost Breakdown (including non-insurance products). The total cost for all purchases was $1,133.99. Ms. Brown signed a form that referred to American Bankers Insurance Company of Florida, Travel Protection Plan- Florida Declarations. That form was counter-signed by Ms. Turnbull. Ms. Brown signed another form referred to as American Bankers Insurance Company Optional Travel Protection Plan. Ms. Brown and Ms. Turnbull signed a form entitled Accident Medical Protection Plan Application. Ms. Brown signed a related form referred to as 100% Certain Underwriters @ Lloyds/London (DB/33) ACCIDENT MEDICAL PROTECTION PLAN. Ms. Turnbull signed a page referred to as a Scan Cover Sheet Life Policy Policy No. FLAD162704741:1627016705. In that connection Ms. Brown completed an application for life insurance with Direct Life Insurance Company by initialing information in the application form about her insurability for such things as heart trouble or high blood pressure, cancer, tumors, etc. Ms. Brown signed the application. Although Respondent had no direct participation with Ms. Brown in relation to the details of the life insurance policy, leaving the task to explain the policy to Ms. Turnbull, Respondent placed his name on the application in two places. He printed his name as agent and wrote his license ID number E125386 and he signed it with his agent signature on that same page. In conversation, Ms. Turnbull asked Ms. Brown about possible medical problems such as high blood pressure or stroke or seizure as part of the process of initialing those questions on the application form. Ms. Turnbull told Ms. Brown that the life insurance policy was optional and that it was a $10,000.00 term life benefit.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That Petitioner enter a final order suspending Respondent's license for six months for the violations. DONE AND ENTERED this 27th day of March, 2007, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of March, 2007.
Findings Of Fact The Respondent, John Edward Gonzalez, is licensed in the State of Florida as a life and variable annuity agent and as a life, health and variable annuity agent. During 1992, he was employed by Metropolitan Life Insurance Company (MetLife). The Respondent worked out of MetLife's Southeastern Head Office in Tampa under its marketing head, Rick Urso. Under Urso, the Tampa office developed a scheme for marketing whole life insurance to nurses as an "insured nurses' retirement" plan or program. The goal of the scheme was for the nurses to apply for a whole life insurance policy before they realized that the "insured nurses' retirement" plan or program consisted of nothing more than a whole life insurance policy. Under the marketing scheme, MetLife's Tampa office would mail unsolicited "pre-approach" letters to nurses informing them of a supposedly new retirement savings plan available to professional nurses. The "pre-approach" letter touted the retirement investment's high current interest rates, the availability of the investment's cash fund for emergencies and opportunities, the ability to make "deposits" monthly, an optional "disability benefit," and a guaranteed income at retirement. The wording of the "pre-approach" letter was designed to disguise the fact that the supposedly new retirement savings program was nothing more than a whole life insurance policy. The "pre-approach" letter allowed the recipient to tear off a form at the bottom of the letter to fill in and mail to MetLife for more information. In the spring of 1992, an unsolicited "pre-approach" letter was mailed from MetLife's Tampa office to Sharon Ward, a registered nurse living in Fort Worth, Texas. The letter was signed by the Respondent. If the "pre-approach" letter had given Ward notice that she was being solicited for life insurance, she would have disregarded it. She already had all the life insurance she wanted. However, she was interested in saving and investing for retirement, so she responded by requesting more information. Under the marketing scheme, responses from recipients of the "pre- approach" letter ordinarily would be referred to the MetLife insurance agent who mailed the letter. The agent would telephone to schedule an appointment. Ward's response was referred to the Respondent as the agent who signed the "pre- approach" letter to her. The Respondent was trained in MetLife's Career Success School (CSS) to telephone nurses responding to "pre-approach" letters to schedule an appointment. No information was intended to be imparted during this telephone contact; certainly, the agent was not to reveal that whole life insurance was being solicited. In accordance with his CSS training, the Respondent telephoned Ward during the spring of 1992 and scheduled an appointment to meet with her at her home in Fort Worth. If the Respondent had revealed to Ward that he was soliciting for life insurance, she would not have agreed to the appointment. However, as planned by the MetLife Tampa office and the Respondent, she agreed to an appointment to learn more about the "nurses' retirement savings" plan. CSS also trained the Respondent and other MetLife agents in how to deliver a scripted presentation to a nurse at the scheduled appointment. The script was carefully worded to entice the nurse to apply to be accepted in the "nurses' retirement savings" plan or program without revealing that it consisted of nothing more than a whole life insurance policy. Whole life insurance was not mentioned in the script; once in the eleven page script, it was mentioned that "the retirement account provides an insurance benefit to protect it." Otherwise, the script gave no indication that life insurance was involved. The script never mentioned insurance premiums; instead, it referred only to "deposits," "contributions," or "savings." While the "optional disability benefit" referred to in the "pre-approach" letter was nothing more than the standard life insurance "disability waiver of premium," those words were not used; instead, the script described how, in the event of a disability, "Met will keep saving for you." The word "policy" was not mentioned; instead, the script offered to have MetLife "open an account" for the prospect. One of the big selling points emphasized in the script was MetLife's reputation, assets and security. Another big selling point was flexibility. While informing the prospect that the retirement savings plan is meant for long- term investment, the plan is contrasted with IRA's and other investments that penalize withdrawal of cash before retirement. CSS trained the Respondent and other MetLife agents to use a "Track Book" for illustrative purposes while delivering the scripted presentation. Life insurance was mentioned in parts of the "Track Book," but the "Track Book" was to be shown to prospects during the course of a presentation in a manner designed to preserve the disguise of the nature of the "nurses' retirement savings" plan or program. When the Respondent met with Ward in the spring of 1992 at her home in Fort Worth, he followed the CSS scripted presentation exactly, and it worked as designed. When Ward agreed to "apply," she had no idea that she was applying for a whole life insurance policy; she thought she was opening a retirement savings and investment account. Had she known that the Respondent was soliciting life insurance, she would have declined. When Ward agreed to apply, the Respondent took information from Ward and filled out the application for her, as he was trained to do in CSS. Some of the information for the application--e.g., the names of beneficiaries--was consistent with a life insurance application, but also not inconsistent with information required for opening a retirement savings account. Other information was less consistent with opening a retirement savings account, such as health history; but that type of information may not have been considered to be inconsistent with the "insurance protection" and "disability option" the plan was supposed to have. After completing the information on the application, the Respondent had Ward sign. Under the marketing scheme, it was hoped that the nurse would sign the application without reading it to determine that it was an application for life insurance. On the other hand, a nurse who read the application and determined that it was a life insurance application might assume that it was an application for the "insurance protection" and "disability option" the plan was supposed to have. In Ward's case, the scheme worked to perfection. While the Respondent did not prevent Ward from reading the application, he did not encourage her to, and she did not read it. She did not know it was an application for life insurance. Had Ward known that it was an application for life insurance, and that the "retirement savings" program was nothing more than a whole life insurance policy, she would not have applied. In accordance with the CSS marketing scheme, the Respondent left a brochure with Ward before he returned to Tampa. The brochure reiterated the major selling points of the "Nurses Insured Retirement Plan." Like the other marketing literature, the brochure was worded so as not to reveal that the "retirement plan" consisted of nothing more than a whole life insurance policy. In accordance with the CSS marketing scheme, after the Respondent's return to Tampa, a letter was sent to Ward signed by the Respondent as "Account Representative," dated August 13, 1992, congratulating Ward on her "foresight in starting an insured retirement savings program." (The Respondent denied that he signed the letter or authorized it to be signed for him by someone else. But the Respondent knew the substance of the congratulatory letter sent to a prospect at this stage of the sales process, and he did not protest when he learned that one had been sent to Ward over his signature.) As with prior communications with Ward, the letter was worded so as not to alert her to the nature of the "program"--i.e., that it was nothing more than a whole life insurance policy. It never mentioned life insurance. In accordance with the CSS marketing scheme, the Respondent's manager also sent Ward a letter of congratulation later in August, 1992, advising her that her "plan" had been approved and that her "Account Representative" (the Respondent) would be telephoning to make an appointment to "review the benefits and flexibility of your Retirement Program in detail." As with the Respondent's August 13 letter, the manager's letter was worded so as not to alert Ward to the nature of the "program"--i.e., that it was nothing more than a whole life insurance policy. It never mentioned life insurance. When Ward received a whole life insurance policy in the mail, she filed it away without reading it. Had she read it, she probably would have been able to determine what it was. If she had made this determination within ten days of receipt of the policy, she might have been able to cancel it and get a full refund; on the other hand, she might have assumed that it was the "insurance protection" her "retirement savings plan" was supposed to have. After about a year of making her monthly payments as they came due, Ward changed jobs, and her new employer gave her the opportunity to begin a Section 401K retirement account. When she attempted to transfer her MetLife funds into it, she learned for the first time that her MetLife retirement "account" consisted of a whole insurance policy that had no cash value yet. Ward tried to contact the Respondent to complain but he did not return her calls. When she pursued it further with MetLife, MetLife initially refused to refund her money. MetLife asked for the Respondent's version of what had happened, and the Respondent reported essentially that he had followed the CSS training. The Respondent let MetLife handle the matter from there. It was not until after Ward requested the assistance of the Texas Insurance Commissioner that MetLife finally refunded her money. The Respondent did not question the legality of the marketing scheme devised by the Tampa office of MetLife. He assumed that MetLife and the Florida Department of Insurance had approved it. There was no evidence that the Department or even MetLife had in fact approved the scheme. The Respondent sold many whole life insurance policies using the CSS methods. (He received MetLife's Leader's Conference Award for high sales.) No customer other than Ward has filed a complaint against him.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance and Treasurer enter a final order finding the Respondent guilty of the violations charged and suspending his licenses and eligibilities for six months. DONE and ENTERED this 7th day of August, 1996, in Tallahassee, Florida. J. LAWRENCE JOHNSTON, 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 7th day of August, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-2220 To comply with the requirements of Section 120.59(2), Florida Statutes (1995), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-37. Accepted and incorporated to the extent not subordinate or unnecessary. Cumulative. Cumulative and argument. Respondent's Proposed Findings of Fact. 1.-2. Accepted and incorporated. 3. Conclusion of law. 4.-5. Accepted and incorporated to the extent not subordinate or unnecessary. 6. Accepted but subordinate and unnecessary. 7.-10. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence that the Track Book "consistently referred to life insurance" or that it was used as a "visual aid." It contained some references to life insurance but did not, and was not used so as to, make it clear that what the Respondent was selling was a whole life insurance policy. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence in that the entire marketing scheme gave him reason to believe it was illegal; accepted and incorporated that MetLife did not indicate to him that its scheme was illegal. In part, rejected as contrary to the greater weight of the evidence. See 13., above. In part, accepted and incorporated. See Finding 21, above. Cumulative. Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. Accepted but subordinate and unnecessary. Rejected as contrary to the greater weight of the evidence that he gave her "every opportunity"; otherwise, accepted and incorporated. Rejected as contrary to the greater weight of the evidence that all were sent out by MetLife management or that any were approved by the Department. Otherwise, accepted and incorporated. it.) Accepted but subordinate and unnecessary. (The Respondent identified Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. Accepted and incorporated. However, it was MetLife's explanation as to why she could not transfer funds from her MetLife "retirement account" that finally revealed to her that it was nothing more than a whole life insurance policy. Accepted but subordinate and unnecessary. Accepted and incorporated. COPIES FURNISHED: Willis F. Melvin, Jr., Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Stacey L. Turmel, Esquire Maney, Damsker, Harris and Jones, P.A. Post Office Box 172009 Tampa, Florida 33672 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
