The Issue Whether Respondents directly or indirectly represented or aided an unauthorized insurer, an insurance or annuity product; whether Respondents knew or reasonably should have known that the annuity contracts with the unauthorized insurer violated Section 626.901, Florida Statutes; whether Respondents knowingly placed before the public a statement, assertion, or representation with respect to the business of insurance that was untrue, deceptive, or misleading; whether Respondents knowingly caused to be made, published, disseminated, circulated, delivered, or placed before the public any false material statement; whether Respondents demonstrated a lack of fitness and trustworthiness to engage in the business of insurance; whether Respondents engaged in unfair or deceptive practices or otherwise showed themselves to be a source of injury or loss to the public; and whether Respondents otherwise acted in violation of the Florida Insurance Code provisions as specifically detailed in Petitioner’s Amended Administrative Complaint, and, if so, what penalty, if any, should be imposed on Richard P. Eberhardt’s insurance agent license and/or Nancy Eberhardt’s license.
Findings Of Fact General facts applicable to both Respondents Respondent, Richard Eberhardt (RE), is currently licensed in the State of Florida as a Life Including Variable Annuity & Health Life, Life & Health, and Health insurance agent. RE was initially licensed by Petitioner as a non- resident insurance agent on May 6, 2004. Previously, RE was a licensed insurance agent in Nebraska, Indiana, and Arizona. Respondent, Nancy Eberhardt (NE), is currently licensed in the State of Florida as a Life Including Variable Annuity, Life Including Variable Annuity & Health, Life, Life & Health, and Health insurance agent. NE was initially licensed by Petitioner as a non-resident insurance agent on January 2, 2003, and then as a resident agent on October 5, 2004. Previously, NE was a licensed insurance agent in Arizona. Petitioner has historically mailed, and subsequently made available on line, the Intercom, an insurance agent newsletter. The heading to the newsletter, reads in part: “Publication for Agents and Adjusters from the State of Florida Department of Financial Services.” These newsletters contained warnings regarding unauthorized sales of insurance products, and explanations as how an agent could verify whether or not an insurer was authorized to do business in Florida. Petitioner’s records evidence that the newsletters were distributed to insurance agents from the July – October 1996 through December 2006 editions. Respondents became licensed Florida agents in January 2003, and it is a reasonable assumption that they received or had computer access to those publications. Both Respondents are listed in Petitioner’s records as being the owners of LLQ Consulting, LLC. Respondent NE is listed as being the insurance agent-in-charge of LLQ Consulting, LLC. Pursuant to records on file with the Florida Secretary of State, LLQ Consulting, LLC, is an Arizona-limited liability company that is authorized to do business in Florida. Respondent RE was originally listed as manager; however, since April 22, 2005, Respondent NE has been listed as the manager. At all times pertinent to the dates and occurrences referred to herein, Respondents were licensed in Florida as insurance agents. Petitioner has jurisdiction over Respondents’ insurance agent licenses and appointments, pursuant to statute. National Foundation of America (NFOA) The NFOA is a registered Tennessee corporation that was formed on January 27, 2006, and headquartered in Franklin, Tennessee. Respondents assert that the difference between a charitable gift annuity and a charitable installment bargain sale is that a charitable gift annuity is under Internal Revenue Code (IRC) Section 501(m) and the payout to the investor is based on a mortality table of the donor’s expected life. Therefore, it is a tax free exchange of an asset by a donor at less than the asset’s fair market value to a charitable organization in exchange for an annuity issued by the charitable organization. On the other hand, Respondents argue that an installment bargain sale is under Section 453 of the IRC and 26 C.R.F. Sections 1.1011-2 of the IRC regulations. It is an exchange of an asset owned by the donor at less than fair market value to a charitable organization in exchange for an annuity. The IRS allows the donor to deduct the difference between the fair market value of the asset and the amount that the charitable organization pays for the asset. The payout of the annuity is for a specific term and not tied to a mortality table. Therefore, NCF did not consider the Charitable Installment Purchase to be an insurance transaction or the sale of an insurance product under state insurance laws. Nevertheless, an NFOA Corporate Resolution, dated April 16, 2006, provides for the corporate authority to “liquidate stocks, bonds, and annuities . . . in connection with charitable contributions or transactions. . . .” This same resolution also provides for the corporate ability to “enter into and execute planned giving or charitable contribution transactions with donors, including executing any and all documentation related to the acceptance or acquisition of a donation, . . . given in exchange for a charitable gift annuity. “ On September 18, 2006, the State of Washington Office of Insurance Commissioner issued an Order to Cease and Desist in the matter of National Foundation of America, Richard K. Olive, and Susan L. Olive, Order No. D06-245. The Order, among other things, was based on NFOA’s having not been granted a Certificate of Authority (COA) as an insurer in Washington and having not been granted tax exempt status under Section 501(c)(3) of the IRC. On April 13, 2007, the OIR issued an Immediate Final Order (IFO) in the matter of National Foundation of America, Richard K. Olive, Susan L. Olive, Breanna McIntyre, and Robert G. DeWald, Case No. 89911-07, finding that the activities of NFOA, et al., constituted an immediate danger to the public health, safety or welfare of Florida consumers. OIR further found that, in concert, NFOA, et al., were “soliciting, misleading, coercing and enticing elderly Florida consumers to transfer and convey legitimate income tax deferred annuities for the benefit of themselves and their heirs to NFOA in exchange for charitable term certain annuities”; and that NFOA, et al., had violated provisions of the FIC, including Sections 624.401 and 626.901, Florida Statutes. NFOA has never held a license or COA to transact insurance or annuity contracts in Florida, nor has NFOA ever been registered pursuant to Section 627.481, Florida Statutes, for purposes of donor annuity agreements. NFOA was never a registered corporation with the Florida Department of State, Division of Corporations. New Life Corporation of America (“NLCA”) d/b/a National Community Foundation (“NCF”) has been registered with OIR as a Section 627.481, Florida Statutes, donor annuity organization, since October 1997. NCLA subsequently changed its name to New Life International (“NLI”), which continued to use the d/b/a/ NCF. NLI is presently registered as a donor annuity organization with OIR. NFOA appealed OIR’s IFO to the First District Court of Appeal of Florida (1st DCA). The 1st DCA dismissed NFOA’s appeal on July 24, 2007. Therefore, NFOA operated as an unauthorized insurer in Florida. On May 17, 2007, the Internal Revenue Service (IRS) sent a letter to the Texas Department of Insurance stating that NFOA was not classified as an organization exempt from federal income tax as an organization described in Section 501(c)(3) of the IRC. On May 23, 2007, the Tennessee Department of Commerce and Insurance (DCI) filed a Verified Petition for Appointment of Receiver for Purposes of Liquidation of National Foundation of America; Immediate and Permanent Injunctive Relief; Request for Expedited Hearing, in the matter of Newman v. National Foundation of America, Richard K. Olive, Susan L. Olive, Breanna MyIntyre, Kenny M. Marks, and Hunter Daniel, Chancery Court of the State of Tennessee (“Chancery Court”), 20th Judicial District, Davidson County, Case No.: 07-1163-IV. The Verified Petition states at paragraph 30: NFOA’s contracts reflect an express written term that it is recognized by the IRS as a charitable non-profit organization under Section 501(c)(3) of the Internal Revenue Code (Prosser, attachment 4), and NFOA represents in multiple statements and materials that the contract will entitle the customers to potential generous tax deductions related to that status. The IRS states that it has granted NFOA no such designation. The deceptive underpinning related to NFOA’s supposed tax favored treatment of its contracts permeates it entire business model and sales pitch. This misrepresentation has materially and irreparably harmed and has the potential to harm financially all its customers and the intended beneficiaries of the contracts. These harms are as varied in nature and degree as the circumstances of all those individuals’ tax conditions, the assets turned in to NFOA, and the extent to which they have entrusted their money and keyed their tax status and consequences to reliance on such an organization. On August 2, 2007, the Commissioner for the Tennessee DCI, having determined that NFOA was insolvent with a financial deficiency of at least $4,300,000.00, filed a Verified Petition to Convert Rehabilitation by Entry of a Final Order of Liquidation, Finding of Insolvency, and Injunction, in the matter of Newman v. National Foundation of America, et al. On September 11, 2007, pursuant to a Final Order of Liquidation and Injunction entered in the matter of Newman v. National Foundation of America, et al., the Chancery Court placed NFOA into receivership after finding that the continued rehabilitation of NFOA would be hazardous, financially and otherwise, and would present increased risk of loss to the company’s creditors, policy holders, and the general public. On February 6, 2008, the IRS sent a letter to the court appointed Tennessee DCI Receiver (“Receiver”) for NFOA stating that NFOA does not qualify for exemption from federal income tax as an organization described in Section 501(c)(3) of the IRC. The IRS, in determining that NFOA did not qualify for tax exempt status, stated that the sale of NFOA annuity plans has a “distinctive commercial hue” and concluded that NFOA was primarily involved in the sale of annuity plans that “constitute a trade or business without a charitable program commensurate in scope with the business of selling these plans.” The IRS letter also provides that consumers may not take deductions on their income tax returns for contributions to NFOA. Insurance Agent’s Duties An insurance agent has a fiduciary duty to his or her clients to ensure that an insurer is authorized or otherwise approved by OIR as an insurer in Florida prior to the insurance agent selling the insurer’s product to his client. There are several methods by which an insurance agent could verify whether or not an insurer was authorized or otherwise approved (hereinafter “authorized”) as an insurer in Florida by OIR. It is insufficient for an insurance agent to depend on the assurances of the insurer itself or his or her insurance business peers as to whether an insurer needs to be authorized in Florida. Respondents asserted that, prior to selling NFOA annuities in 2006, they had performed due diligence in order to determine whether or not NFOA was authorized in Florida. Respondents testified that at the time they performed their due diligence, they viewed a State of Florida website that seemingly indicated that OIR does not regulate donor annuities. Respondents’ testimony lacks credibility as to the timing of Respondents’ claimed due diligence. The websites that seemingly indicate that OIR does not regulate donor annuities did not come into existence until September 12, 2008, for OIR and January 16, 2009, for Petitioner, which would have been several years after any due diligence that Respondents claim that they performed. As further noted below, the sale of the NFOA annuities to Mr. Bisch and Ms. Clark occurred in 2006, well in advance of the September 2008 and January 2009 creation of any websites that might seemingly indicate a lack of OIR regulation of donor annuity organizations. While the OIR 2008 and DFS 2009 websites may be somewhat confusing, at all times relevant to these matters, donor annuity organizations have been and continue to be regulated by OIR pursuant to Section 627.481, Florida Statutes, and Florida Administrative Code Rules 69O-202.001 and 69O-202.015. Due to the importance of income tax considerations in a consumer’s decision making process as to whether or not to purchase an insurance product, insurance agents have a fiduciary duty to their clients to verify the validity of any representations that an insurer’s product has an IRC Section 501(c)(3) tax exempt status, prior to the insurance agent’s selling the product to his or her clients. There are several methods by which insurance agents could verify whether or not an insurer has an IRS 501(c)(3) tax exempt status. Respondents admitted, in their testimony, that they had depended on the assurances of others and assumed that NFOA did not need to be authorized as an insurer in Florida. Respondents also admitted in their testimony that, but for the different names, the NFOA paperwork was the same as that of NCF. Respondent’s testimony is contradictory and lacks credibility in that NCF was qualified and registered with OIR as a donor annuity organization and NFOA was not. Nevertheless, Respondents claim NFOA was not and did not need to be regulated by OIR. Respondents testified that they had verified with the IRS that NFOA had applied for Section 501(c)(3) tax exempt status. However, Respondents were aware that the tax exempt status had not been granted to NFOA at any time relevant to this proceeding. Respondents knew income tax considerations were materially important to their clients. However, none of the NFOA materials nor any Florida consumer contracts signed or provided by Respondents to their clients contain any disclaimer language informing consumers that the Section 501(c)(3) tax exempt status had been applied for but had yet to be granted by the IRS. Respondents received commissions totaling $22,062.80 for selling NFOA annuities to Florida consumers. Respondents have failed to return any of these commissions to the Receiver for NFOA in the state of Tennessee. Count I: Consumer – Jacob Bisch On February 20, 2006, Respondents solicited and induced Jacob Bisch of Cape Coral, Florida, then aged 75, to transfer or otherwise surrender ownership of his existing annuity contract with Allianz Life Insurance Company in return for an NFOA annuity. The NFOA agreement that the consumer entered into was signed by Respondent RE. Bisch credibly testified as to both Respondents’ involvement in the sale of the NFOA annuity. NE wrote a letter asking that the commission for this sale be issued in her name. The commission check was ultimately paid to LLQ Consulting, LLC, a company owned by both Respondents and which NE was registered as the insurance agent- in-charge. Respondents knew or reasonably should have known that NFOA was not an authorized insurer in Florida. Respondents, by use of the NFOA donor annuity agreement, knowingly misrepresented to Bisch that NFOA was a charitable non-profit organization under Section 501(c)(3) of the IRC, even though Respondents knew or should have known that NFOA did not hold tax exempt status with the IRS. Bisch’s testimony was credible that tax considerations were the prime consideration in the purchase of the NFOA annuity from Respondents. Based upon Respondents’ transaction of insurance, Bisch presently anticipates losing approximately $26,320.04. This amount includes a surrender penalty of $16,823.04 incurred for transferring his original Allianz annuity to NFOA, and after receiving partial refunds from the NFOA Receiver. Based upon Respondents’ transaction of insurance with Bisch, Respondents were paid a commission of $4,062.80 by NFOA. Count II: Consumer – Fay Ann Clark Culminating on May 8, 2006, Respondents solicitated and induced Fay Ann Clark of Ft. Myers, Florida, then aged 70, to write a check for $200,000.00 in return for an NFOA annuity. The NFOA agreement that Clark entered into, and which was signed by Respondent RE, was entered into less than three weeks after Clark requested rescission of two NCF annuities that Respondents had previously sold Clark. Proceeds from the rescission of the NCF annuities enabled Clark to purchase the NFOA annuity. Prior to the rescission of the NCF annuities, on or about October 21, 2005, Clark had surrendered two Allianz Life Insurance Company annuities. Proceeds from the surrender of the Allianz annuities were used to purchase the NCF annuities. Respondent NE signed the NCF annuities agreement and was the advisor. Respondent NE, by use of a check drawn on Respondents’ joint checking account, refunded Respondents’ commission for the NCF sales to Clark. Sales documentation and correspondence clearly and convincingly evidence both Respondents’ involvement in Clark’s Allianz to NCF and NCF to NFOA transactions. Respondents knew or reasonably should have known that NFOA was not an authorized insurer in Florida. Respondents, by use of the NFOA donor annuity agreement, knowingly misrepresented to Clark that NFOA was a charitable non-profit organization under Section 501(c)(3) of the IRC, even though Respondents knew NFOA was not tax exempt. Based upon Respondents’ transaction of insurance, Clark paid $200,000.00 for an NFOA annuity, paid $7,971.00 in penalties to the IRS (U.S. Treasury), and presently anticipates losing approximately $42,000.00. Clark has received a partial refund from the NFOA Receiver. Based upon Respondents’ transaction of insurance with Clark, Respondents were paid a commission of $18,000.00 by NFOA. Petitioner has proven by clear and convincing evidence that Respondents directly or indirectly represented or aided an unauthorized insurer to do business in Florida. Petitioner has proven by clear and convincing evidence that Respondents knew or reasonably should have known that the annuity contracts they contracted with clients were with an unauthorized insurer. Petitioner has proven by clear and convincing evidence that Respondents knowingly placed before the public a statement, assertion, or representation with respect to the business or insurance that was untrue, deceptive or misleading. Petitioner has proven by clear and convincing evidence that Respondents knowingly caused to be made, published, disseminated, circulated, delivered, or placed before the public a false material statement. Petitioner has proven by clear and convincing evidence that Respondents demonstrated a lack of fitness and trustworthiness to engage in the business of insurance. Petitioner has proven by clear and convincing evidence that Respondents engaged in unfair and deceptive practices or showed themselves to be a source of injury to the public. Neither Respondent has had prior disciplinary charges filed against them in Florida.
Recommendation Based upon the foregoing Finds of Facts and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services: Finding that Respondents violated Subsections 626.901(1), 626.901(2), 626.9541(1)(b)4., 626.9541(1)(e)1.e., 626.611(7), 626.621(2), and 626.621(6), Florida Statutes, as charged in Counts I and II of Petitioner’s Amended Administrative Complaints; Revoking Respondent Richard Eberhardt’s, licenses and appointments issued or granted under or pursuant to the Florida Insurance Code; Revoking Respondent Nancy Eberhardt’s, licenses and appointments issued or granted under or pursuant to the Florida Insurance Code; 4. Providing that if either of the Respondents, subsequent to revocation, makes an application to Petitioner for any licensure, a new license will not be granted if the applicant Respondent fails to prove that he or she has otherwise satisfied the financial losses of his or her NFOA clients or if the applicant Respondent otherwise fails to establish that he or she is eligible for licensure. DONE AND ENTERED this 27th day of April, 2010, 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 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of April, 2010.
The Issue The issue for determination in this case is whether Respondent's license as an insurance agent, and his eligibility for licensure as an insurance agent in Florida should be disciplined for violation of certain provisions of Chapter 626, Florida Statutes, and Rule 4-215.210, Florida Administrative Code, as set forth in the Administrative Complaint.
Findings Of Fact Petitioner, DEPARTMENT OF INSURANCE AND TREASURER, is the agency of the State of Florida vested with the statutory authority to administer the disciplinary provisions of Chapter 626, Florida Statutes. Respondent, ROBERT DARREN CARLSON, at all times material hereto, was eligible for licensure and was licensed in Florida as a life insurance agent, life and health insurance agent, and variable annuity contracts salesman. Respondent was initially licensed in 1992. Respondent's license is currently under emergency suspension as a result of the actions alleged in the Administrative Complaint filed in this case. Respondent is thirty years old, married with one son, and resides in St. Petersburg, Florida. In 1993 Respondent became a shareholder and vice-president of National Consultants International, Inc. (National), a Florida corporation operating as an insurance agency in Pinellas County, Florida. National was incorporated on November 29, 1993, and dissolved on August 24, 1994. The principal shareholder and president of National was Coreen McKeever. At National Coreen McKeever was also responsible for the administrative functions of the agency. Respondent became an agent for National in March 1994. Respondent's duties were to contact potential customers, discuss the customer's insurance needs, explain products that might address the customer's needs, and write policies if purchased by the customer. Respondent collected the premiums, but as a usual practice at National, would turn the premium checks over to Coreen McKeever for administrative processing. Respondent was also authorized to make deposits and withdrawals on National's premium trust account at Republic Bank in Seminole, Florida. Findings as to Count III - Ralph Cody Ralph Cody is an eighty-nine year old retired school maintenance worker from Kentucky. Mr. Cody retired to Florida in 1980, and currently lives with his wife, Edna, in Pinellas County. Mr. Cody is in good health, but has difficulty with his eyesight and hearing. Mr. Cody no longer drives. Mr. Cody first met the Respondent approximately two years ago. At that time Respondent sold Mr. Cody an insurance policy with a company called United American. Mr. Cody was satisfied with this insurance policy. Subsequent to his initial contact with Respondent, Mr. Cody became interested in obtaining an insurance policy which would provide for in-home health care. Mr. Cody was particularly interested in such an insurance policy because of his concern for his wife's deteriorating health, and his desire that health care be provided at home for him and his wife, and not in a nursing home. Because of his interest in obtaining an in-home health care insurance policy, Mr. Cody met with Respondent. Respondent suggested, and Mr. Cody agreed, to the purchase of a policy called Fortis Long Term Security Home Health Care (Fortis), which was underwritten by Time Insurance Company (Time) of Milwaukee, Wisconsin. Respondent was an agent with Time. Mr. Cody believed the Time policy would meet his insurance needs. On or about March 31, 1994, Respondent received from Mr. Cody a check for $3,164.40. This sum was intended by Mr. Cody to be the premium payment for the Fortis home health care insurance policy underwritten by Time. Pursuant to Respondent's directions, the check from Mr. Cody was made payable to Respondent's agency, National, not to Time Insurance Company. Respondent directed this procedure because at this time, National had limited experience with Time, and National did not have "netting" privileges. "Netting" privileges allow an insurance agency to deduct its commission prior to forwarding a premium check to the underwriting company. Because of National's limited experience with Time, and the lack of netting privileges, Respondent did not believe it was unusual to make the Cody check payable to National, or to deposit the Cody check into National's account. Time has a general policy requiring that premium checks be made payable directly to Time; however, Time, on occasion, will accept premium checks from agencies. Time also requires that an application and premium check be immediately sent to the company for processing. Respondent deposited the Cody check into National's account at Republic Bank. Respondent took the Cody application back to National, entered the information into the computer and delivered the Cody application for the issuance of the Fortis policy to Coreen McKeever. Neither the Cody check, nor the Cody application for issuance of the Fortis policy was received by Time. Within three weeks of depositing the check and delivering the application, Respondent inquired of Coreen McKeever as to the status of the Cody application. Respondent was informed by Coreen McKeever that the application had been denied by Time because of Mrs. Cody's health problems. Contrary to Ms. McKeever's report, Time did not consider nor decline the application for issuance of the Fortis policy to the Codys because of Mrs. Cody's health or any other reason. Respondent did not personally check on the Cody application, and did not contact Time regarding the issuance of the policy to the Codys. Respondent had no personal knowledge whether the Cody application had been declined and received no written notification regarding the Cody application. Respondent did not question the representations made by Coreen McKeever in this regard. Shortly thereafter, Respondent informed Mr. Cody that the application to Time had been declined. Respondent met with Mr. Cody and suggested that Mr. Cody consider purchasing a product offered by a company called Secure Care Home Services, Inc. (Secure Care), which also provided home health care and was approximately the same purchase price as the Fortis policy underwritten by Time. Respondent at that time represented to Mr. Cody, and Mr. Cody was under the belief, that the Secure Care product was substantially equivalent to the Fortis policy underwritten by Time. Mr. Cody was aware that the Secure Care product was not insurance. Secure Care is a corporation located in Seminole, Florida. Secure Care is not an insurance company, but offers "membership agreements" marketed primarily to elderly persons to contractually provide in-home health care services to its members. Coreen McKeever (a/k/a Coreen J. Morgan) is a director of Secure Care, and has an interest in Secure Care. Secure Care is currently under a Cease and Desist Order suspending its business operations. The Cease and Desist order was entered by the Petitioner on March 13, 1995. On or about May 18, 1994, Mr. and Mrs. Cody entered into a membership agreement with Secure Care. The initial cost of the membership for both of the Codys as reflected in the agreement was $3,027.00; however, the record reflects that the ultimate cost to the Codys for the Secure Care membership actually totalled $3098.40. Respondent signed the agreement as an authorized agent for Secure Care. On May 26, 1994, Respondent met with the Codys at their home. At this time Respondent offered to refund to Mr. Cody the purchase price of the Time policy. To this end, Respondent tendered check number 1191 drawn on National's account in the amount of $3,164.40 to Mr. Cody; however, because the purchase price of the Codys' membership in Secure Care which Mr. Cody had already agreed to purchase was almost as much as the Time policy, Mr. Cody requested that Respondent apply the check for the Time policy to the Secure Care membership, and refund Mr. Cody the difference. Respondent accordingly on May 27, 1994, issued a check number 1189 drawn on National's account to Mr. Cody the amount of $65.70, which represented the difference in the cost of the two products. Several months after his purchase of the Secure Care membership, Mr. Cody became aware that some of his neighbors were dissatisfied with the home health care provided by the company. Thereafter, Mr. Cody became concerned that the Secure Care membership would not meet his or his wife's needs. At this time Mr. Cody had no personal experience with Secure Care. Neither Mr. Cody nor his wife ever used, or sought to use their Secure Care membership. Mr. Cody complained to Petitioner regarding Secure Care. Mr. Cody also contacted Time and discovered that his application and check had not been received. Respondent learned of Mr. Cody's concerns with Secure Care after Mr. Cody complained to Petitioner and a departmental investigation of this matter had been undertaken. Respondent then contacted Mr. Cody who told Respondent he wanted a refund of the purchase price of the Secure Care membership. Respondent contacted Secure Care, but learned that the company was not giving refunds at that time. Respondent suggested that Mr. Cody then attempt to deal with Secure Care directly. Mr. Cody was unable to obtain a refund of the cost of the Secure Care membership. The Codys obtained no benefit from their Secure Care membership. The Secure Care membership was not substantially equivalent to the Fortis policy underwritten by Time. Secure Care was not an established company and did not have the resources or capability to provide the services offered by Time. Count II - Leila G. Smith Leila G. Smith is a widowed ninety-one year old retired first grade school teacher, originally from Georgia. Mrs. Smith currently resides with her niece, Miriam Enright, in Seminole, Florida. Brenda Blager is Miriam Enright's daughter, and Mrs. Smith's great-niece. Ms. Blager currently resides in Champagne, Illinois. Mrs. Smith receives a monthly income from her teacher's pension and Social Security benefits. Mrs. Smith is in generally good health for a person of her age, but has experienced a significant loss of vision, is totally blind in her left eye, and cannot read without the aid of a magnifying glass. Mrs. Smith moved to Florida approximately three years ago. Respondent was first introduced to Mrs. Smith by Mrs. Enright to whom Respondent had previously sold annuities. Respondent visited the Enright home and met with Mrs. Smith, Mrs. Enright, Ms. Blager, and also Mrs. Smith's nephew, Robert Smith, to discuss Mrs. Smith's insurance and investment needs. At that time Mrs. Smith purchased an annuity in the amount of $100,000 from Respondent. Approximately one month later Mrs. Smith purchased a second annuity in the amount of $100,000 from Respondent, and gave Robert Smith $60,000 for the purchase of an annuity. The interest payments from the second annuity purchased by Mrs. Smith were sent to Robert Smith. Brenda Blager usually reviewed and consulted Mrs. Smith regarding Mrs. Smith's personal finances; however, after moving to Florida and meeting Respondent, Mrs. Smith also began to rely on and trust Respondent with regard to advising her in her personal financial matters. Prior to moving to Florida, Mrs. Smith's investments consisted primarily of her home and certificates of deposit in banks and savings institutions in Georgia. Mrs. Smith was conservative in her investments, had never purchased stocks or bonds, and only wanted to place her savings in "safe" investments. Subsequent to her purchase of annuities, Mrs. Smith and Mrs. Enright contacted Respondent to discuss other financial concerns. Specifically, Mrs. Smith had sold her home in Georgia and was interested in moving her certificates of deposit to Florida, achieving a higher rate of return, addressing tax problems associated with the payment of the annuity interest to her nephew, and purchasing a new Cadillac automobile. Whenever Respondent met with Mrs. Smith to discuss her finances and investments, Mrs. Enright, or another member of Mrs. Smith's family was also present. Respondent reviewed several financial documents relating to Mrs. Smith's Georgia certificates of deposit. Mrs. Smith's financial records were disorganized. Respondent advised Mrs. Smith that there would be substantial penalties if she prematurely removed her funds and invested in certificates of deposit. Despite the penalties and Respondent's advice to the contrary, Mrs. Smith decided to cash in her Georgia certificates of deposit and relocate her funds to Florida. Respondent assisted Mrs. Smith in cashing in the Georgia certificates of deposit. Respondent also assisted Mrs. Smith in using some of these funds to purchase a Cadillac automobile. Mrs. Smith had initially been interested in leasing the automobile; however, Respondent reviewed the lease arrangement, and advised Mrs. Smith that a purchase was in her best interest. Mrs. Smith followed Respondent's advice in this regard. Mrs. Smith trusted Respondent. To assist Mrs. Smith in relocating her funds to Florida, and also achieve a higher rate of return, Respondent presented Mrs. Smith with proposals to invest in promissory notes with two local firms, Zuma Engineering and Allstate Finance. (Allstate Finance is not associated with Allstate Insurance Company). Zuma Engineering (Zuma), is a start-up company located in Largo, Florida, engaged in the business of recycling tires. The rubber in the tires is converted to crumb rubber to be resold and used in asphalt roads, playground resurfacing and other products. Respondent first became aware of Zuma at a seminar in July of 1994 through another agent, Michael Mann, who was then raising funds for Zuma. Mr. Mann took Respondent to the Zuma facility and introduced Respondent to the president of the company. Thereafter, Respondent regularly toured the facility, inspected Zuma's existing and revised business plans, attended business meetings, and reviewed the company's monthly financial reports. The Zuma physical facility consisting of a warehouse and processing plant appeared to be consistent with the business plan. Respondent also obtained documents from Zuma reflecting that the company had initiated a research and development program associated with the University of South Florida. Respondent observed independent auditors at the Zuma facility, and reviewed financial documents that indicated Zuma had made progress toward a private stock offering. Respondent took reasonable actions to examine the operational and fiscal soundness of Zuma. When Respondent met with Mrs. Smith he presented her with documents including the Zuma business plan, and explained the investment opportunity in Zuma. Mrs. Smith does not recall Respondent explaining the Zuma investment proposal, nor does Mrs. Smith recall reading any documents or other material relating to Zuma. Given Mrs. Smith's extremely poor vision and the technical nature of the Zuma business plan, it is highly unlikely that Mrs. Smith read the business plan or any other documents pertaining to Zuma. Mrs. Smith did not comprehend the nature of the investment opportunity in Zuma. Although Mrs. Smith did not comprehend the nature of the Zuma investment, between September 26, 1994 and May 31, 1995 she nonetheless made several purchases of promissory notes payable by Zuma. Specifically, Mrs. Smith signed checks payable to Zuma as follows: September 26, 1994, two checks, one in the amount of $10,000, and another in the amount of $20,000; December 6, 1994, in the amount of $70,000; March 10, 1995 in the amount of $10,000; March 29, 1995 in the amount of $10,000; and, May 31, 1995 in the amount of $90,000. Mrs. Smith did not actually write the checks. Because of her poor eyesight, Mrs. Smith signed the checks in blank, and Respondent filled in the date, payee, and amount. Respondent remitted Mrs. Smith's checks to Zuma. In exchange, Zuma issued promissory notes to Mrs. Smith. The Zuma promissory notes were not insurance products. No interest has been paid on the Zuma promissory notes, and several of the notes are now in default. Mrs. Smith has not received any of the principal of the promissory notes back from Zuma. The prospectus of Zuma states that securities in Zuma are speculative, carry a high degree of risk, and "...should not be purchased by anyone who cannot afford the loss of his or her entire investment." Mrs. Smith did not understand the high risk involved in purchasing securities in Zuma. In addition to Mrs. Smith, Respondent sold promissory notes issued by Zuma to approximately thirty other investors. Subsequent to selling the Zuma notes to Mrs. Smith, Respondent met with an investigator from the Florida Comptroller's Office, and was informed that due to fiscal irregularities at Zuma, Respondent should refrain from selling Zuma securities. Respondent was not aware of the problems with Zuma prior to his meeting with the Comptroller's investigator. At the same time that Respondent presented Mrs. Smith with the Zuma proposal, Respondent also presented Mrs. Smith with information from Allstate Finance. Allstate, which is not related to the Allstate Insurance Company, is a company located in Tampa, Florida, in the business of automobile financing. Mrs. Smith purchased at least one promissory note in the amount of $40,000 from Allstate. The Allstate promissory note purchased by Mrs. Smith was not an insurance product. Mrs. Smith has received, and continues to receive, monthly interest payments from Allstate. In June of 1995, Mrs. Smith allowed the Allstate promissory note to renew for another year. In July of 1995, Brenda Blager received a telephone call from her mother, Miriam Enright, requesting assistance in reviewing Mrs. Smith's investments. Ms. Blager has worked in a financial planning office, but is not a certified financial planner. Prior to that time Ms. Blager had no knowledge of Zuma. Ms. Blager obtained a Dunn & Bradstreet report on Zuma and became very concerned regarding Mrs. Smith's investment in Zuma. Ms. Blager then came to Florida from Illinois for the purpose of reviewing Mrs. Smith's investments. After reviewing the Zuma and Allstate promissory notes, Ms. Blager met with an attorney and attempted to recover Mrs. Smith's funds; however, Ms. Blager was unable to do so. As a result of Respondent's actions, Mrs. Smith has cashed in all of her certificates of deposit to purchase the Zuma and Allstate promissory notes, and her Cadillac automobile. Mrs. Smith has no other savings or investments. While Mrs. Smith did want to relocate her funds from Georgia, Respondent was aware that Mrs. Smith desired and intended to place her funds in safe, low risk, investments. Respondent's advice and assistance, which resulted in placing Mrs. Smith's funds in a high risk security such as a Zuma promissory note, was not appropriate for an elderly woman in Mrs. Smith's circumstances.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Petitioner DEPARTMENT OF INSURANCE AND TREASURER enter a final order finding Respondent, ROBERT DARREN CARLSON, in violation of the provisions of Chapter 626, Florida Statutes, as set forth above, and that Respondent's licenses and eligibility for licensure be SUSPENDED for a period of fifteen (15) months. DONE and ENTERED this 21st day of March, 1996, in Tallahassee, Florida. RICHARD HIXSON, 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 21st day of March, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-4947 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-4. Accepted and incorporated. Accepted as to Zuma was a start-up company, recycling tires. Rejected as to Mrs. Smith's knowledge and consent. Accepted as to Mrs. Smith wanting safe investments. Rejected as to Respondent being employed by Zuma. 7.-10. Accepted and incorporated. 11.-12. Accepted to the extent that Mrs. Smith desired safe investments. 13.-21. Accepted and incorporated. Respondent's Proposed Findings of Fact. 1.-6. Accepted and incorporated. 7.-13. Accepted and incorporated. 14.-16. Rejected as to Respondent's reasonable basis for believing the representations of Coreen McKeever. 17. Accepted, except to the extent that Mr. Cody was led to believe Secure Care was equivalent to Time. 18.-25. Accepted and incorporated. Rejected as not necessary. Accepted and incorporated. Rejected as not an accurate assessment of Mr. Cody's testimony. 29.-30. Accepted and incorporated. 31.-32. Accepted; Time's general policy allowed checks from agencies. 33.-35. Rejected as not supported by the weight of the evidence. 36.-43. Accepted and incorporated. 44. Accepted except to the extent that Zuma and Allstate promissory notes were not appropriate investments for Mrs. Smith. 45.-54. Accepted to the extent that Respondent investigated Zuma, reviewed fiscal reports, and believed Zuma to be a viable start-up company. 55.-57. Accepted and incorporated. 58. Accepted to the extent that Mrs. Smith had document relating to Zuma; rejected to the extent that Mrs. Smith understood the nature of the Zuma investment. 59.-63. Accepted and incorporated. Accepted to the extent that Mrs. Smith allowed the Allstate not to renew. Accepted to the extent that Mrs. Smith wanted her certificates of deposit moved from Georgia. Rejected to the extent that Respondent knew, or should have known, the investments were high risk. Accepted to the extent that Ms. Blager is not a certified financial planner. Rejected to the extent that Zuma has defaulted on several of Mrs. Smith's notes, and not returned any interest or principal. Rejected as not supported by the weight of the evidence. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 200 East Gaines Street Tallahassee, Florida 32399-0333 Robert D. Newell, Jr., Esquire NEWELL & STAHL 817 North Gadsden Street Tallahassee, Florida 32303 Dan Sumner, Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issues to be determined in this proceeding concern whether the licenses of each Respondent should be subjected to disciplinary action for violations of Chapter 626, Florida Statutes, as more specifically alleged in the Amended Administrative Complaints. If the violations, or any of them, are proven, it must be established what, if any, penalty is warranted.
Findings Of Fact The Department is an agency of the State of Florida charged, as pertinent hereto, with the licensure and regulation of insurance agents of all types and the regulation of the practice of insurance agents, agencies, the business of selling insurance policies, and the insurance industry generally. The Respondents have been licensed by the Department at all times pertinent hereto. Mills Sr. is licensed as a non-resident life and health insurance agent and as a non-resident general lines insurance agent. Mills Jr. has been licensed at all times pertinent hereto as a non-resident life and health insurance agent. The Respondents have been charged with various violations of Chapter 626, Florida Statutes, as more particularly delineated in the Amended Administrative Complaints and as discussed with particularity in the Conclusions of Law below. It is undisputed that Florida Insurance Counselors, Inc. is a corporation organized and licensed under laws of Florida. It was purchased by Mills Sr. in 1988. Both Respondents have a pecuniary interest in Florida Insurance Counselors, Inc. That corporation was a Florida insurance agency engaged in the solicitation and sale of property and casualty insurance, but not in the business of sale of policies of life and health insurance. The corporation ceased doing business on June 1, 1993 and was formally dissolved on August 13, 1993 at the behest of Mills Sr., who was the principal owner, board chairman, and chief executive officer. Mills Jr. was a shareholder and president of the corporation. Mills Sr. has held a Florida non-resident life insurance agent's license and a Florida non-resident health insurance agent's license for many years, since approximately 1956. In 1991, Mills Sr. applied for and received a license as a Florida non-resident general lines agent. General lines agency includes the right to sell property and casualty insurance. Statements made by Mills Sr. in three license applications admitted into evidence in terms of the situs of his principal place of insurance business (Atlanta, Georgia) and the disclosure of his pecuniary interest in Florida Insurance Counselors, Inc. have been shown to be true and correct. In spite of the disclosure as to his pecuniary interest in Florida Insurance Counselors, Inc., upon his application for the non-resident general lines agent's license, the Department nevertheless and mistakenly issued the general lines non-resident agent's license. Upon graduation from college in the late 1940's, Mills Sr. went to work for Atlanta Insurance Company. Except for five years spent in the insurance business in Texas, Mills Sr. has lived in Georgia until the events mentioned hereinbelow. Most of his Georgia career has been associated with the Atlanta, Georgia, area, where his insurance business, residence and domicile has historically been located. The insurance agency owned and controlled by Mills Sr. in Atlanta, Georgia, is called Institutional Managers of America, Inc. In 1986, he sold that business to Monumental General Insurance Company, effective January 1, 1987. The transaction included a three-year management agreement from Mills Sr. In 1987, Mills Sr. started construction of a residence in Gulf Breeze, Florida, where Mills Sr. had earlier owned a summer home. In February, 1989, for unrelated business or financial reasons, Mills Sr. was forced to purchase the insurance business back from Monumental General Insurance Company. Mills Sr. had planned to retire after the expiration of the three-year management agreement responsibility but elected not to retire after he had to purchase the business back. Mills Sr. owns the building in which his agency is located at 395 Johnson Ferry Road N.E., Atlanta, Georgia. He directs the staff in that agency from a room in that office. His toll-free telephone number is for incoming calls to that office. All advertising materials of his business show the Atlanta address. Mills Sr. spends most week nights in his Roswell Road apartment in Atlanta, except for approximately one night every other week spent in his Gulf Breeze, Florida, residence, as well as nights spent on the road when traveling in Alabama, Florida, North Carolina, and South Carolina, where Mills Sr. holds non-resident agent licenses. Mills Sr. owns a farm near Yatesville, Georgia, where he spends some weekends, especially during hunting season. Most other weekends are spent at his residence at 3017 Bay Street, Gulf Breeze, Florida. Mills Sr. and his wife spend some weekends in Atlanta because their social life revolves around Atlanta and he has family in the Atlanta area. The records of the Georgia Insurance Department show that Mills Sr. is licensed as a resident agent in the State of Georgia for life, accident and sickness, property and casualty, surety, and allied lines of insurance. On February 15, 1988, Mills Sr. signed a sworn application seeking Florida homestead property tax exemption and filed that application with the Santa Rosa County property appraiser, listing his address as 3017 Bay Street, Gulf Breeze, Florida. The application stated that Mills Sr. became a permanent resident of Florida on or about June, 1987. Pursuant to that application, Mills Sr. was granted homestead property tax exemption for his property, a residence, located at 3017 Bay Street, Gulf Breeze, Florida. On May 9, 1988, Mills Sr. registered to vote in Santa Rosa County, Florida. In conjunction with that registration, Mills Sr. provided the supervisor of elections of Santa Rosa County with his home address as being 3017 Bay Street, Gulf Breeze, Florida. On January 7, 1989, Mills Sr. signed a renewal application for homestead property tax exemption. On that application, he affirmed that his status as a permanent resident of Florida had not changed since he submitted his original application for tax exemption. Pursuant to the aforementioned renewal application, Mills Sr. was granted continued tax exemption for his property located at 3017 Bay Street, Gulf Breeze, Florida. On January 9, 1990, Carmelia Mills, the wife of Mills Sr., signed an application for homestead property tax exemption for property owned jointly with Mills Sr. applying for the transfer of homestead property tax exemption from the property located at 3017 Bay Street, Gulf Breeze, Florida, to the property located at that address as joint owners (presumably by operation of law as tenants by the entireties). Pursuant to that application, Mills Sr. and his wife were granted the maximum allowable homestead property tax exemption. The maximum allowable homestead property tax exemption for the county is granted only when all owners of the property are permanent residents of Florida. In 1988, when Mills Sr. applied for homestead exemption for the home owned in Gulf Breeze, Santa Rosa County, Florida, he was informed by the office of the property appraiser that he would need to register a car in Florida and register to vote in Florida. Mills Sr. did both and was afforded the homestead exemption mentioned above. He is the owner of a 1989 four-door Chevrolet currently registered in Florida and he remains registered to vote in Florida. He holds a Florida driver's license. He and his wife have enjoyed the benefits of homestead exemption with regard to the above-referenced real estate and residence in Gulf Breeze, Santa Rosa County, Florida, in the manner and for the times referenced in the above Findings of Fact concerning the application for and the granting of the homestead exemption. Mills Sr., and presumably his wife, resided in their home in Atlanta until sometime in 1990 when the home was sold. Mills Sr. then moved into an apartment at 5143 Roswell Road, N.E., Atlanta, Georgia, in 1990 and to this date, resides in that apartment when he is located in Atlanta. In light of the above facts concerning his location and the residences he has maintained with his wife, Mills Sr. has believed that his residence is co-extensive with the situs of his insurance agency business, that is, that it is located in Atlanta, Georgia; and that was his belief at the time he executed all applications for insurance relevant to these proceedings. On August 30, 1976, Mills Sr. applied for licensure as a Florida non- resident life and health insurance agent. The application listed his address as 5910 Garber Drive, Atlanta, Georgia. Pursuant to that application, he was licensed as a non-resident life and health insurance agent. The last paragraph of that application contains a statement by Mills Sr. that "in further support of my application...I do not or will not maintain a place of business in the State of Florida for the purpose of soliciting insurance...". On February 13, 1990, Mills Sr. filed a corporation annual report with the Secretary of State of Florida stating that Mills Sr. was the president, director, and registered agent of Florida Insurance Counselors, Inc. On February 11, 1991, Mills Sr. filed such an annual report with the Secretary of State for that corporation, which stated that he is the president, director, and registered agent of Florida Insurance Counselors, Inc. This report indicated that Mills Sr. had changed his address from 5910 Garber Drive, Atlanta, Georgia, to 3017 Bay Street, Gulf Breeze, Florida. On May 30, 1991, Mills Sr. applied for licensure as a Florida non- resident general lines insurance agent. That application listed his home address as 5143 Roswell Road, N.E., Atlanta, Georgia. On that application, at paragraph 16, Mills Sr. disclosed to the Department that he was part owner of Florida Insurance Counselors, Inc. In spite of this application, in which Mills Sr. provided his Atlanta, Georgia, address and provided the disclosure that he was part owner of Florida Insurance Counselors, Inc., an insurance agency, the Department, by mistake, licensed Mills Sr. as a non-resident general lines insurance agent. On February 27, 1992, Mills Sr. filed a corporation annual report with the Secretary of State which stated that he was still the resident agent of Florida Insurance Counselors, Inc. and that he had become the chief executive officer of that corporation. Mills Sr. has filed no notification to the Department of any change of address nor any disclosure to the Department that he is a resident of Florida, as of the time of this hearing. In 1985, Florida Insurance Counselors, Inc. was incorporated. Mills Sr. owned a partial interest in the corporation at that time. Later, he bought out the other owners, becoming sole owner. Lee Newcomb is a director in the corporation and acted as the Florida licensed agent for the company until on or about May 1, 1992. The corporation did business in the Tampa area with an office in Brandon. The corporation had a Seffner, Florida, mailing address. Mills Sr. owned his interest in Florida Insurance Counselors, Inc. until it ceased doing business on June 1, 1993 and Mills Sr. dissolved the corporation in August of 1993. Mr. Newcomb acted as the Florida resident agent for the corporation and as manager of the agency from its inception. On May 1, 1992, Mills Sr. and Mills Jr. became aware that Mr. Newcomb had suddenly resigned effective April 30, 1992. It was learned from office personnel that Mr. Newcomb may have taken some personal property and records of the agency with him upon leaving. On May 4, 1992, Mills Jr., being concerned with this situation, left Atlanta, Georgia, and drove to Brandon, Florida, where he found that Mr. Newcomb had, indeed, taken certain records of Florida Insurance Counselors, Inc. with him. Florida Insurance Counselors, Inc. had a non-competitive agreement with Mr. Newcomb during his tenure as resident agent and managing agent. Upon his arrival in the Brandon, Florida, office and shortly thereafter, Mills Jr. began interviewing perspective replacement resident agents. He hired a resident licensed agent who commenced working as the resident licensed agent for Florida Insurance Counselors, Inc. after giving proper notice to her former employer. She began working in approximately the last week of May, 1992 for Florida Insurance Counselors, Inc. originating all insurance business and managing and operating the agency after that time. It was learned by Mills Jr. from a secretary in the office that Mr. Newcomb, while he was employed by Florida Insurance Counselors, Inc., was sending in certain applications for insurance coverage to a number of carriers or insurers. Copies of those insurance applications were not in the records of Florida Insurance Counselors, Inc., the implication being that Mr. Newcomb had taken those documents with him when he left. The secretary, Dolores Olrey, prepared as best she could duplicates of those applications from memory. Mills Jr. attempted to find out from the insurance carriers involved if they had received the applications for insurance coverage from Mr. Newcomb as originating agent, in order to find out if Mr. Newcomb had violated the non- competitive agreement by submitting applications for insurance coverage as a separately operating agent or agency while he was actually still working for Florida Insurance Counselors, Inc. Mills Jr. testified that he was told that the companies did not have time to look through their records of recent business to determine if Mr. Newcomb had submitted such applications in that fashion. According to Mills Jr., the companies involved advised him that if he merely submitted a duplicate application for the same coverage for the condominiums involved (property and casualty coverage), he would know if another application had previously been submitted, since the later applications would be automatically rejected if that were the case. Accordingly, Mills Jr. instructed Ms. Olrey to affix his signature stamp on an application by Northeast Heights Condominium of Tamarac, Florida, to the Public Service Mutual Insurance Company of New York, as well as on an application for insurance for the Altamonte Woods Condominium Association of Altamonte Springs, Florida, to MCA Insurance Company of New Jersey. Those were the two applications believed by Ms. Olrey to be replicas of those prepared earlier and submitted by Mr. Newcomb in supposed violation of the non- competitive agreement. These condominium associations were customers of Florida Insurance Counselors, Inc. Mills Sr. sent his applications in for the purpose of acquiring information which could be used against Mr. Newcomb if the Mills and Florida Insurance Counselors, Inc. later attempted to assert that he violated the non-competitive agreement. Mills Jr., however, could have determined by direct contact with those condominium association customers whether or not they had previously submitted an application for insurance through Mr. Newcomb, rather than attempting to find that out indirectly by submitting the applications for insurance involved to the companies. Mills Jr. genuinely believed that both insurance applications would be rejected because he believed that Mr. Newcomb had already sent in the original applications in violation of the non-competitive agreement. In fact, however, only one of the applications was rejected. The application for insurance for the Northeast Heights Condominium Association eventually resulted in a policy being issued by the Public Service Mutual Insurance Company. The effective date of that policy, as requested by the application, was from June 30, 1992 through June 30, 1993. Geraldine Corbitt became the duly-licensed resident agent of Florida Insurance Counselors, Inc. in the last week of May, 1992; therefore, the coverage became effective under her tenure as the appropriate resident agent for Florida Insurance Counselors, Inc., although Mills Jr. actually originated the application which resulted in that policy coverage. The application submitted for the Altamonte Woods Condominium Association was rejected by the insurer because its information, provided to Mills Jr., was that another agent had already received a quote from the company on that business on May 7, 1992, implicitly Mr. Newcomb. On March 2, 1989 through February 27, 1992, annual reports were filed with the Florida Secretary of State for Florida Insurance Counselors, Inc. which stated that Mills Jr. was the vice-president and director of Florida Insurance Counselors, Inc. and lastly, was the president and the director of Florida Insurance Counselors, Inc. For a period of approximately two weeks in May of 1992, as referenced in the above Findings of Fact, Mills Jr. directly operated and controlled the offices of Florida Insurance Counselors, Inc. due to the abrupt departure of the resident insurance agent, Mr. Newcomb. On both policy applications submitted by Mills Jr., the signature of Mills Jr. appears in the space marked "producer's signature" on a policy which was ultimately issued by Public Service Mutual Insurance Company under Policy No. 78-0047889 to Northeast Heights Condominium Association, effective June 30, 1992. The broker was listed as Florida Insurance Counselors, Inc. and "Bill Mills" was listed as the "contact person." Mills Jr. testified and acknowledged that although the policy was issued for the application he submitted, Ms. Corbitt had finalized the transaction after he sent the application to the insurer. The policy bearing the above number does not contain any indication that Ms. Corbitt sold the policy, originated the coverage, nor does her name appear anywhere on the policy. These policies were for the obtaining of coverage for property and casualty insurance in the State of Florida. The transaction or solicitation of property and casualty insurance in the State of Florida requires a general lines insurance agent's license. Mills Jr. holds no such license. Mills Jr. testified at the final hearing that he did not submit the applications for the purpose of transacting insurance business but to determine whether Mr. Newcomb was in violation of the covenant not to compete with Florida Insurance Counselors, Inc. Mills Jr. was a life and health insurance agent, and his experience was totally in the field of life and health insurance. He had no experience in the submission of applications for casualty insurance. Mills Jr. had submitted his application for licensure as a non-resident life and health insurance agent on March 15, 1982. Pursuant to that application, he was licensed in Florida as a non-resident life and health insurance agent. In that application, there was contained the statement executed by Mills Jr. that "in further support of my application...I do not or will not maintain a place of business in the State of Florida for the purpose of soliciting insurance...." Florida Insurance Counselors, Inc. is a Florida corporation engaged in the business of insurance agency and is an insurance agency for the purpose of property and casualty insurance. It does not engage in the business of soliciting and selling life and health insurance.
Recommendation In consideration of the evidence of record, the candor and demeanor of the witnesses, and the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding Respondents, William Dewberry Mills, Sr. and William Dewberry Mills, Jr., guilty of the violations as determined in the above Conclusions of Law and that the remaining counts and statutory violations, found above not to have been proven, should be dismissed in their entirety. It is FURTHER RECOMMENDED that Respondent, William Dewberry Mills, Sr.'s licenses as a non-resident insurance agent in Florida be revoked, without prejudice to his re-application as a resident Florida insurance agent should he so desire, for the same level of licensure or other licensure for which he is, by education and demonstrated competency, qualified. The Respondent, William Dewberry Mills, Jr.'s Florida licenses should be suspended for a period of three (3) months. DONE AND ENTERED this 4th day of February, 1994, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of February, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-2350 and 93-2351 Petitioner's Proposed Findings of Fact 1-38. Accepted, but subordinate to the Hearing Officer's findings of fact on the same subject matter in those instances where the Hearing Officer's findings of fact may differ. Respondent's Proposed Findings of Fact 1-16. Accepted, but subordinate to the Hearing Officer's findings of fact on this subject matter to the extent that the Hearing Officer's findings of fact may differ. COPIES FURNISHED: John R. Dunphy, Esquire Department of Insurance Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 Rollin D. Davis, Jr., Esquire SHELL, FLEMING, ET AL. Post Office Box 1831 Pensacola, Florida 32598-1831 Tom Gallagher, Commissioner Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, Esquire General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue for determination in this case is whether the Florida insurance license of Respondent should be disciplined for violation of certain provisions of Chapter 626, Florida Statutes, as contained in allegations set forth in the five- count Administrative Complaint filed by Petitioner.
Findings Of Fact Based upon observation of the witnesses and their demeanor while testifying and documentary materials received in evidence, stipulations by the parties, evidentiary rulings made pursuant to Section 120.57, Florida Statutes (2003), and the record compiled herein, the following relevant and material facts are found: The Department is the agency of the State of Florida vested with the statutory authority to administer the disciplinary provisions of Chapter 626, Florida Statutes (2001). Respondent is and, at all times material, was licensed in Florida as a life and health insurance agent. His Florida insurance license number is A283290. The Department has disciplined the license of Respondent on two previous occasions. The last discipline was taken pursuant to a Consent Order in Case Number 20371-97-A. Respondent was placed on probation for a period of three years beginning on July 29, 1999, and ending July 9, 2002, as a result of having enrolled five customers in a health plan without their knowledge or consent. A condition of his probation required Respondent to "strict[ly] adhere to all provisions of the Florida Insurance Code and Rules of the Department of Insurance and Treasurer" during his probation period. Respondent was also fined $7,500. Respondent is and, at all times material, was operating as a health insurance agent for PHP. Respondent, as an employee of PHP, was paid a commission on his enrollment of each client with PHP. He was assigned PHP employee number 6232. His employment with PHP did not preclude nor deny his freedom to market life insurance. PHP is an insurance company that maintains a contract with the State of Florida's Agency for Health Care Administration (AHCA) to deliver benefits to Medicaid recipients. The state screens potential Medicaid recipients to determine individual eligibility. The Medicaid plan "marketing agent," who is an insurance agent (Respondent), must hold an "event," invite the public, and explain benefits of the PHP plan. Each such event shall be approved by AHCA. As a part of the terms of employment with PHP, certain activities are prohibited and are not to be engaged in by "marketing agents." The prohibitions included: knocking on doors and offering to parents of children who have been determined eligible for benefits monetary awards, gifts, rebates, or any other incentives to induce enrollment of a child in Medicaid plans. PHP retained MDA Investigations, an independent investigative company, to investigate irregularities in the marketing processes resulting from marketing agents' conduct and/or client dissatisfaction brought to the attention of PHP and to provide PHP with an investigative report of each such irregularity. It was through this agency that complaints about Respondent were referred for investigation. Count I Julia Benefield (Ms. Benefield), complainant, has a high school diploma and is the mother of T.K. and K.K. Both children, having met certain entitlement criteria determined by the state, are entitled to receive Medicaid benefits. Ms. Benefield decides what physician treats her children and, at all times material to this issue, had previously selected Dr. Arlene Haywood as their chosen health care provider. From her past experience in selecting the health care provider for her children, Ms. Benefield was not new to the required enrollment processes. She recalled initially meeting Respondent at the apartment rented by her mother. During the meeting, Respondent asked if her children were on Medicaid, to which she responded affirmatively, informing Respondent that they received medical services from Dr. Arlene Haywood, a physician who had previously treated Ms. Benefield when she was a child. During the course of his sales pitch conversation, Respondent discussed with Ms. Benefield life insurance policies for her minor children and intermingled his discussion with statements urging her to switch her Medicaid provider to PHP. During the course of this meeting and conversation, Ms. Benefield signed a "Request to Enroll Card" with the clear understanding that her signature thereon meant: "[I]t was to put my kids on life insurance." She emphatically denied ever intending or desiring to change from her then present physician provider and enroll her children in PHP offered by Respondent. During this process, Respondent presented Ms. Benefield with a Request to Enroll Card. The card, which Ms. Benefield acknowledged signing, contained the names, dates of birth, and social security numbers of her two children. Above the signature line, the Request to Enroll Card has printed the condition of enrollment, to wit: "By signing this card, I understand that I am only indicating my intent to enroll my family members in the Medicaid HMO plan listed above. To complete the enrollment process I will need to sign and return an enrollment form that will be sent to my home by the Medicaid Options Program." Ms. Benefield became aware of the switch of her Medicaid provider from Dr. Arlene Haywood to PHP when she received a letter mailed to her mother's apartment address informing her that her children were then enrolled (switched) with PHP. This switch to PHP caused her not to be able to obtain medical services from the children's regular pediatrician, Dr. Arlene Haywood. Ms. Benefield, dissatisfied with the method and manner of Respondent changing her Medicaid provider against her stated desires and without her permission, complained about the switch to PHP to the Department. Respondent justified and defended his conduct in this instant with the summary statement: "that if she knew the difference of the two policies [PHP and life insurance] then how could she have made a mistake when life insurance cost money and Medicaid is free." Ms. Benefield firmly maintained, "[H]e went ahead and enrolled them anyway [in PHP] without my permission." At the time Ms. Benefield executed the enrollment card presented to her by Respondent, it was not her intent to switch from her then Medicaid provider, Dr. Arlene Haywood, to PHP. The intentional misrepresentations made by Respondent induced Ms. Benefield to sign the enrollment card. Count II Dahlia Malcolm (Ms. Malcolm), complainant, is a high school graduate who also earned a cosmetology degree. She is the mother of A.M., a minor who is qualified to receive Medicaid benefits. Ms. Malcolm recalled Respondent coming uninvited to her home during which time he repeatedly suggested switching from her Medipass provider to his employer, PHP provider. Following the pattern of his conversation with Ms. Benefield, Respondent discussed with Ms. Malcolm life insurance policies for her minor child intermingled with statements urging her to switch her Medicaid provider to PHP. In this instant, and as an additional inducement incentive, Respondent offered to give Ms. Malcolm money to cover the cost of a "pizza" or "pizza party," if Ms. Malcolm would either invite her friends over or provide Respondent with the names of her friends with children who were Medicaid eligible. Ms. Malcolm recalled laughing at the suggestion of a "pizza party." A few weeks later, she received a package mailed to her stating: "thank you for enrolling in PHP." According to Ms. Malcolm, the signature "Dahlia Malcolm" on the Request to Enroll Card, dated July 5, 2001, was "definitely" not her signature. She emphatically denied giving Respondent permission or authority to enroll her son in PHP. Dissatisfied with Respondent switching her Medicaid provider, Ms. Malcolm complained to both PHP and the Department. Respondent suggested that the mother of Ms. Malcolm was probably not happy with Ms. Malcolm enrolling her children with PHP and that to cover her mistake, Ms. Malcolm made a complaint to the Department; that suggestion is without merit. Ms. Malcolm at no time evidenced a knowing intent to switch her Medicaid provider to PHP. Assuming Ms. Malcolm did, in fact, sign the Request to Enroll Card, her inducement to sign the Request to Enroll Card was due to the intentional misrepresentations made to her by Respondent. Count III The complainant, Calandra Birdine, did not appear at the final hearing to testify. Respondent consented to admission of a Department Inquiry form containing statements from another person, written by Joseph Rufus, who also did not testify. Attached thereto were two Request to Enroll Cards containing the names and ages of six minor children who were qualified to receive Medicaid services, dated August 23, 2001. Although admitted into evidence without objection from the Respondent, the documents are hearsay, as are the contents. The Department failed to provide independent corroboration of the hearsay statements, and the documents and their contents are insufficient to support a finding of fact. Accordingly, the Department failed to prove by competent substantial evidence the allegations contained in Count III of the Administrative Complaint. Count IV The complainant, Monique Young, did not appear at the final hearing to testify. Respondent consented to admission of the Department Inquiry form that contained statements from another person, written by Keith Yore, who did not testify. Attached thereto were two Request to Enroll Cards containing the names and ages of eight minor children who were qualified to receive Medicaid services, dated May 11, 2001. Although admitted into evidence without objection from Respondent, the documents and contents are hearsay. The Department failed to provide independent corroboration of the hearsay evidence, and, therefore, the documents and their contents are insufficient to support a finding of fact. Accordingly, the Department failed to prove by competent substantial evidence allegations contained in Count IV of the Administrative Complaint. Count V The complainant, Jamie Powell, did not appear at the final hearing to testify. Respondent consented to admission of the Department Inquiry form containing statements of another person, written by Robekah (no last name in the record), who did not testify. Attached thereto was one Request to Enroll Card containing the name and age of one minor child who was qualified to receive Medicaid services, dated June 2, 2001. Although admitted into evidence without objection of Respondent, the documents and contents are hearsay. For a lack of independent corroboration, the documents and contents are insufficient to support a finding of fact. Accordingly, the Department failed to prove by competent substantial evidence the allegations contained in Count V of the Administrative Complaint. Respondent complained that he was employed with PHP for 11 months after the first complaint was filed against him in January 2001. He maintained that he was not notified of these complaints by the special investigator, Gladys Kennedy, until December 2001, one month after he no longer worked for PHP. It was his belief that PHP instigated the complaints because he went to work with a competing company. Respondent maintains that he had written over 1,500 applications per year with PHP and his success record demonstrated that "I must be doing something right." Respondent, under the impression that the Department assumed he was taking advantage of his client because of their educational level, testified that he, too, has only a high school diploma. Respondent, evidenced by Findings of Fact 3 through 12 hereinabove, violated his probation condition imposed in the Consent Order, of July 29, 1999, in Case Number 20371-97-A.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order as follows: Finding Respondent, Roger Lee White, guilty, as alleged in Count I and Count II of the Administrative Complaint, of violating Section 626.611 and Subsections 626.9541(1)(k)1. and 626.611(7), (9), and (13), Florida Statutes. Revoking the license of Respondent and eligibility for licensure. Dismissing Counts III, IV, and V of the Administrative Complaint filed against Respondent, Roger Lee White. DONE AND ENTERED this 16th day of December, 2003, in Tallahassee, Leon County, Florida. S FRED L. BUCKINE 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 16th day of December, 2003. COPIES FURNISHED: David J. Busch, Esquire Department of Financial Services, Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Roger Lee White 257 Coastal Hill Drive Indian Harbour Beach, Florida 32937 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 The issue in this proceeding is whether Respondent’s certificate of authority to transact life insurance in the State of Florida should be revoked, suspended, or otherwise disciplined.
Findings Of Fact Respondent, Liberty National Life Insurance Company, is a foreign insurer licensed to transact life insurance in Florida under a Certificate of Authority issued by the state. The application for life insurance used by LNL is form A-250. This application is used for all regular and batch life insurance applications, except Career Life Plus and Group Term life insurance policies, which are not at issue in this proceeding. Form A-251 is the application used to apply for life insurance riders on an applicant's spouse or children. Both applications are used in multiple states and are intended to elicit information that may or may not be relevant or used in the state relevant to any given applicant. For instance, Question 16 in form A-250 asks, "Is the Proposed Insured a Citizen of the United States? (If "No" complete and attach A- 282-2.") Form A-282-2 is titled "Residency Questionnaire." The form elicits information related to whether an applicant is a legal resident of the United States, whether the applicant intends to remain a resident of the United States and what citizenship the applicant holds. Like the applications, the residency form is used in multiple states and is intended to elicit information that may or may not be relevant or used in the state relevant to any given applicant. For instance, the questionnaire asks whether the proposed insured has traveled outside the United States during the last 12 months. The applicant's response to the travel question was not intended to be used for underwriting purposes in Florida after it enacted a law prohibiting the denial of insurance based solely on an applicant's past travel or future travel plans. See § 626.9541(1)(dd)1., Fla. Stat. Importantly, Florida does not prohibit any insurer from asking about such travel and such inquiry does not violate Florida law. Each application, along with any required or additional information, is submitted by an agent to LNL's centralized underwriting department and is assigned to an individual underwriter. The underwriter reviews the application for completeness. If the application is not complete or if there are questions about the application, the underwriter either requests the information from the agent or requests a telephone interview be done. Activity on the application is entered into LNL's electronic processing system which maintains the electronic application file. How much detail support information is entered on any given application file varies by underwriter. None of the underwriters who made entries in the application files at issue in here testified in this proceeding. LNL's policy is to process most applications within two weeks, with some few applications taking up to 30 days. Pending applications are maintained on a pending applications list which is reviewed by upper management for compliance with LNL's processing policy. LNL’s underwriting guidelines for persons of foreign national origin residing in the United States were instituted in 2003 or 2004 over concerns the company had regarding the reliability of documents from certain countries and the potential for fraud based on such unreliable documents. Towards that end, LNL categorized foreign nations into four groups: “A,” “B,” “C,” and “D.” The basis for the categorization was the long-time, actuarially-recognized standard in the life insurance industry and the re-insurance industry that mortality risks are severe in “D” countries, somewhat severe in “C” countries, and moderate in “A” and “B” countries. In part, these mortality risks are derived based on the political stability of a country, crime rates, law enforcement, and access to good quality medical care and treatment in a given country. In general, C and D countries possess one or more of the factors that contribute to severe mortality risks. Additionally, political instability causes the authenticity and availability of birth and death records to be unreliable. These country code classifications are used throughout the life insurance industry. Importantly, these country codes are sustained by mortality statistics generally regarded as reliable by life insurance actuaries, and by the professional opinion of Mr. Himmelberger, the only expert life insurance actuary who testified at final hearing. LNL's underwriting guidelines for foreign nationals or foreign risks were reflected in a memorandum dated July 26, 2004, and sent to all of the company's district managers for dissemination. The memorandum stated as follows: If the proposed insured is from a country classified as A or B you should follow normal underwriting procedures. If a proposed insured is from a country classified as C or D, you must submit the following information. If the proposed insured is a U.S. Citizen: A copy of citizenship documents or A notarized statement verifying that the proposed insured is a citizen and providing the date citizenship was acquired. An IBU (Interview by Underwriter) is required on all cases. If the proposed insured is not a U.S. Citizen: Form A-282-2 . . . is required on all A-250/A-251 or batch applications. Copies of W-2 forms from the last three years are required. The ultimate face amount issued (if any) will be limited to the income for the most recent year. Attach a cover letter indicating the number of consecutive years the proposed insured has been in the United States (subject to rejection if less than 10 years, depending on other information submitted). An IBU . . . is required on all cases. Minor children of non-citizen parents will be underwritten as non-citizens. Applications for $100,000 and above will be reviewed on a case-by-case basis. The information above is required for all cases regardless of face amount. These guidelines were also incorporated into the company’s instruction manual for its agents. The goal of these underwriting guidelines and the use of the country codes are to try to assess the risk of a person who was born outside of the United States permanently returning to their country of origin where, depending on the country, there may be a higher risk of mortality. An applicant’s connection to the United States, as evidenced by steady employment or family, and desire to permanently stay in this country, as evidenced by naturalization or length of legal residency, lowers the actuarial risk underwritten by LNL. The evidence demonstrated that these criteria were actuarially supported. Therefore, applicants who are foreign nationals born in “A” or “B” countries with lower mortality risks, and who legally reside in the United States or are naturalized United States citizens at the time they apply for insurance are underwritten using the same underwriting criteria as applied to United States citizens. The only extra information required is proof of residency or citizenship and a confirming interview by the underwriter (IBU) or by an outside subcontractor through a rapid interview process. Life insurance applications by foreign nationals from “C” or “D” countries who have become naturalized United States citizens at the time they apply for insurance are underwritten using the same underwriting criteria that LNL applied to United States citizens and require the same information as those from “A” or “B” countries. Applicants who are foreign nationals from “C” or “D” countries and who are not naturalized United States citizens, but reside in the United States at the time of application for insurance, are required to provide proof of legal residency for 1 year and annual income for three years. Both of these factors indicate a stronger connection to the United States and desire not to return to live in a country with a higher mortality risk. These applicants are also required to complete a telephone interview to confirm this information. Additionally, applicants from “C” or “D” countries who are legal residents in the United States at the time of application for insurance may be declined for coverage or have the coverage limited to the amount of the applicant’s income. However, whether the application is declined depends on other information (such as employment history and income) that shows a stronger connection to the United States. There is no requirement that the underwriter decline to issue or limit the amount of insurance to such an applicant simply because the person has not resided in the United States continuously for 10 years. Clearly, LNL’s underwriting guidelines do not cause LNL to refuse to issue insurance to applicants from “C” or “D” countries based solely on the applicant’s national origin. Rather, these underwriting rules and guidelines incorporate the political, social and economic climate of a country which leads to instability, crime and poor access to health care and relatively higher or lower risks of mortality. Additionally, these guidelines require the length, nature, and quality of the applicant’s residency in the United States to be considered to determine the strength, quality, and duration of the applicant’s ties to the United States. The additional underwriting information required for such applicants is designed to gather evidence of such matters so that LNL’s underwriters may make informed underwriting judgments about the underwriting risks associated with issuing insurance. These underwriting guidelines are consistent with the actuarial risks posed by higher mortality risks in “C” or “D” countries and the risk that applicants will voluntarily or involuntarily return to his or her country of origin to again take up residence there, and thereby be subjected to the high mortality risks associated with residing in a “C” or “D” country. The evidence demonstrated that these guidelines are consistent with generally accepted actuarial principles of risk classification. The limitation of coverage amount to the applicant’s most recent year’s income is likewise consistent with generally accepted actuarial principles of risk classification and risk management for life insurers. Indeed, there was no expert actuarial evidence offered by OIR to the contrary. Additionally, there was no substantive evidence that demonstrated LNL had an informal policy or practice of refusing to issue life insurance to applicants who are persons of “C” or “D” countries solely because of their national origin. The evidence clearly showed that LNL had issued policies to such applicants given the number of applications reviewed by OIR in its examination of LNL. On July 1, 2006, Florida’s “Freedom to Travel Act,” Section 624.9541(1)(dd), Florida Statutes, became effective. Around July 6, 2006, LNL sent a memorandum to its underwriters informing them of the passage of Florida’s “Freedom to Travel Act” and instructing them to comply with the act. The memorandum also informed the underwriters that they could no longer use an applicant’s past travel or future travel plans to underwrite life insurance on Florida applicants. However, as indicated earlier, the multi-state residency questionnaire asks about an applicant’s past travel. Such information is not used for underwriting purposes by LNL on Florida applications. After notification of Florida’s “Freedom to Travel Act,” it has been LNL’s policy, in respect to applications for life insurance from Florida residents, not to refuse life insurance or limit life insurance coverage based solely on the individual's past lawful foreign travel or future travel plans. Additionally, it should be noted that the term travel had a variety of meanings during the hearing. At times it referred to short-term travel and at other times it referred to an applicant’s more permanent return to a country to reside in that country. From June 23, 2008 through November 14, 2008, OIR conducted a "market conduct" examination of LNL pursuant to Section 624.3161, Florida Statutes. A market conduct examination is a review of the business practices and records of an insurer. The examination is designed to monitor marketing, advertising, policyholder services, underwriting, rating, and claims practices. The LNL examination covered the period from January 1, 2004, through March 31, 2008, and was conducted by Examination Resources, LLC, at the offices of LNL in Birmingham, Alabama. The purpose of the examination was to verify compliance by the company with the Florida Unfair Trade Practices Act, Section 626.9541, Florida Statutes. Examination Resources assembled a team of examiners to conduct the survey. Some members were more experienced than others were in examining records of a company and in performing a market conduct survey. At least two of the team members, Terry Corlett and Todd Fatzinger, were certified financial examiners (CFE), certified insurance examiners (CIE) and fellows of the Life Management Institute (FMLI). One member of the examination team was a certified life underwriter (CLU). During the examination period, LNL’s underwriters reviewed approximately 1,500 life insurance applications per week from Florida, in addition to applications from other states. As a consequence, LNL received 101,461 applications for life insurance. Approximately 40,000 applications out of the total applicant pool were batch processed. Batch-processed applications are standard applications (A-250 and A-251) that are processed through an automated computer system with no further underwriting review and are either approved or disapproved based on information in the application for life insurance. The evidence indicated that some applications from applicants born outside of the United States were batch-processed applications. However, the batch process does not capture any information based on an applicant's country of birth or travel in the electronic file system used by LNL. Since the batch process does not capture country of birth or travel information, these applications were not reviewed by the examiners in the market conduct survey of LNL's records. Because these applications were not reviewed, it is unknown how many of these applicants were born outside of the United States. Out of the approximately remaining 61,000 applications, the team reviewed 7,040 life insurance applications received by LNL during the period of January 1, 2004 through March 31, 2008, that LNL identified as being from an applicant born outside the United States. No one member of the examination team reviewed all of the files. There was some evidence that the criteria or standards of review and interpretation of files by each examiner was not consistent during the exam process. Very few of the examiners conducted any interviews or took testimony from the people who made entries in or handled a particular file that was reviewed. More importantly, the evidence did not demonstrate that the information sought during these rare interviews of unidentified underwriters on an unidentified file had any relevancy to the issues or allegations involved in this case. The only testimony regarding these few and unknown underwriters was that they generally did not recall anything about the file beyond what was in the electronic records of LNL. Such generalizations do not otherwise provide support for the interpretation of data or information in these files by the examiners or the failure to adduce such evidence by going to the human source of the data or information contained in the electronic records of LNL. Moreover, conspicuously absent from the examination process was an expert in statistical analysis and sampling of data from a universal pool of applicants. Given this lack of expertise, there is no evidence which demonstrated that the group of 7,040 applications reviewed by the examiners was a valid sample of all the applications processed during the examination period. Examination Resources submitted their draft report of examination to OIR around mid-November 2008. The report contained a number of statistics and conclusions drawn from those statistics. However, because of the absence of any reliable or valid statistical analysis of the information gathered by the examiners, none of the statistics or conclusions drawn from such statistics that were contained in the draft report is probative of any of the alleged violations contained in the Petitioner's Order in this matter. In short, other than to list the electronic records of LNL that were examined, the market conduct study and report provide no credible or substantive evidence that demonstrates LNL violated any provision of Florida law. The report may have formulated a basis that warranted OIR to investigate LNL further, but it is insufficient on its own to establish by any evidentiary standard that any violations occurred. The evidence did not demonstrate that a draft report from the examiners was finalized by Examination Resources or OIR. However, no further examination of the files of LNL was done after the draft report was completed. Likewise, no further analysis of the data was completed after the submission of the draft report to OIR. Both of these facts indicate that the draft report was the final report. In any event, as a consequence of OIR's perception of the report as a draft, OIR did not furnish a copy of the draft examination to LNL and did not afford LNL the opportunity for an informal conference concerning the draft examination report’s allegations or an opportunity to correct any of the alleged violations referred to in the order. Such a conference would have been required by Section 624.319, Florida Statutes, and Florida Administrative Code Rule 69N-121.066 if the report had been finalized with the Office. Instead, OIR used the report to issue its Order to suspend or revoke LNL's certificate of authority and required LNL to cease and desist from engaging in unfair trade practices as defined in Section 626.9541(1)(g)1., (x)1. and (dd), Florida Statutes, based on 35 counts involving 35 separate applications. Counts 17 (insurance issued to a 34-year-old Haitian- born female), 18 (insurance issued to an 18-year-old Haitian- born male), and 29 through 35 charged that LNL knowingly discriminated "between individuals of the same actuarially supportable class and equal expectation of life,” in violation of Subsection 626.9541(1)(g)1., Florida Statutes. These “actuarially supportable class” charges are addressed as a group. The remainder of the charges involving violations of Subsections 626.9541(1)(x)1. and 626.9541(1)(dd), Florida Statutes, are addressed below per each count. As to the actuarially-supportable class charges, OIR offered no competent substantial evidence defining or establishing what the actuarially supportable class consisted of or who the members of that class were. The only references to the alleged class were unsupported statements by OIR representatives and unqualified witnesses that the actuarial class was the whole world. Moreover, there was no evidence in the record that demonstrated that these members had the same life expectancy. Indeed, the only evidence in the record about the actuarial class was the testimony of Mr. Himmelberger who stated that the alphabetical classifications of countries established actuarial classes for persons born in those countries and that persons born in “C” or “D” countries residing in the United States are not in the same actuarially-supportable class as persons who are United States citizens (including United States citizens born in “C” or “D” countries), or as persons born in “A” or “B” countries residing in the United States. OIR presented no evidence to contradict Mr. Himmelberger's testimony. Even assuming arguendo that Mr. Himmelberger's testimony is not accepted, the fact remains that no other qualified actuarial expert provided this statutorily crucial evidence. Given these facts, OIR has not established that LNL violated Subsection 626.9541(1)(g)1., Florida Statutes, in Counts 17, 18, and portions of Counts 29 through 35 that pertain to Subsection 626.9541(1)(g)1., Florida Statutes, and those counts should be dismissed. COUNT 1 Count 1 of the OIR Order alleged that, in June 2004, LNL refused to issue a $100,000 life insurance policy to a 23- year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for less than 10 years. The unrefuted evidence demonstrated that this applicant was declined insurance because she had no income. LNL’s underwriting rules limited the amount of insurance that could be issued to the prior year’s income. Since she had no income, the application was denied. However, in April 2006, when the applicant filed another application for life insurance and demonstrated that she had income, LNL issued a life insurance policy to her. OIR offered no competent evidence that LNL refused to insure this applicant solely on the basis of her national origin since it had an independent basis for its action based on its underwriting guidelines. As discussed above, these guidelines have several actuarially-sound underlying factors that are not related to the particular national origin of an applicant. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 2 Count 2 of the OIR Order alleged that, in June 2004, that LNL refused on two separate occasions to issue life insurance policies to a 65-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The applicant had originally applied for an $82,000 policy (A005491299) with his wife in April 2004. Later, in June 2004, the applicant applied for a $15,000 policy (A0050974020). At the time of the applications, the applicant had resided in the United States for less than 10 years. The first application required medical tests to be performed prior to approval. These tests included a paramedical examination, EKG, blood profile and urine sample. None of the medical tests were completed and no medical information was supplied prior to the time the underwriting decision to decline the application was made. Similarly, the medical underwriting information was not submitted with the second application. The evidence showed that LNL had a standard underwriting procedure that a second application cannot be processed unless all missing underwriting information required for a previous application is submitted with the second application. If such information is not submitted with the second application, the application is not processed and is closed or cancelled. As indicated, the second application was not submitted with the medical underwriting information required for the first application. Clearly, LNL did not refuse to issue insurance to this applicant solely because of his national origin. Its decision to decline to issue insurance on the first application was based on the lack of required medical information. The second application was not processed because the required medical information was not submitted with the second application. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 3 Count 3 alleged that, in June 2004, LNL refused to issue a $15,000 life insurance policy to a 23-year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for less than 10 years. No proof of income was submitted with the application. Vague underwriting notes in the file indicate the underwriter referred to this application as a “Haiti case.” However, the underwriter did not testify as to what was meant by this reference. Ms. Saxon, the Chief Underwriter for LNL, testified that she interpreted the reference to be the underwriter’s shorthand method of noting that the underwriting guidelines for “C” and “D” countries applied to this application. OIR argues, without evidence, that the quoted phrase means that the underwriter based the decision to decline this application on the applicant’s national origin. Given the vagueness of this phrase, its presence in the file does not support a conclusion that LNL refused to issue insurance to this applicant based solely on national origin. The better evidence demonstrated that this applicant was declined insurance on her application because she had not resided in the United States for 10 consecutive years, and had provided no proof of income at the time the underwriting decision was made. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 4 Count 4 charged that, in May 2004, LNL refused to issue a $21,000 life insurance policy to a 32-year-old Haitian- born female who was residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for less than 10 years and was a homemaker. The application file reflected the application was declined because the applicant failed to meet LNL underwriting rules after review by LNL’s legal department. No further explanation is contained in the file regarding the reason the application was declined. However, the evidence demonstrated that this applicant had also applied for a “critical illness policy” at the same time she applied for the $21,000 life insurance policy. The application was batch processed and the “critical illness policy” was issued to the applicant, indicating national origin was not a consideration for LNL. On the other hand, OIR, who has the burden of proof on this issue, offered no competent or convincing evidence that LNL refused to insure this applicant solely because of national origin. To conclude that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, from the lack of information in the file is pure conjecture and inappropriate especially given that this file was underwritten in 2004. Given these facts and the lack of convincing evidence, OIR failed to establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 5 Count 5 in the OIR Order alleged that, in May 2004, LNL refused to issue a $50,000 life insurance policy to a 27- year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for over 10 years, but had recently started her own business. The uncontradicted evidence demonstrated that this application was declined because proof of recent income was not supplied at the time of the underwriting decision. The applicant had supplied an affidavit from her former employer showing her income for 2002 and 2003. However, there was no information regarding her income since she had started her own business, leaving her ability to pay the premium in doubt. Again, OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 6 Count 6 charged that, in May 2004, LNL refused to issue a $20,000 life insurance policy to a 63-year-old Haitian- born male who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had resided in the United States for more than 10 years and was retired. The unrefuted evidence showed that the application was cancelled and not processed by LNL because there was no documentation by the immigration authorities of the applicant’s legal residency status in the United States. Similarly, no proof of income was provided by the applicant. There was a notation in the file which read, “non[-]receipt of W2.” However, this phrase does not demonstrate that the applicant did not receive a W-2 or some other employer proof of retirement income or that LNL had any knowledge that the applicant was unable to provide such a document. In fact, in July 2004, the applicant submitted a second application for which a policy of life insurance was issued. Clearly, LNL did not refuse to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 7 Count 7 alleged that, in April 2004, LNL refused to issue a $25,000 life insurance policy to an 18-year-old Haitian- born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The applicant had been in the United States for at least 12 months and was a student. A notation in the file indicated that the agent was requested to ask the applicant to provide information on how long she had been in the United States. However, for unknown reasons, the requested information was not provided. As a consequence, the file was not processed and was cancelled for incompleteness. Such cancellation does not demonstrate that LNL refused to issue insurance but that the processing of the application was stopped due to incomplete information. Handwritten notes in the file indicated that the application would be declined if the applicant had not been in the United States for more than 10 years. However, the note writer did not testify at the hearing. This handwritten note does not support the conclusion that LNL based its decision solely on the basis of the applicant’s national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 8 Count 8 of the OIR Order alleged that, in May 2004, LNL refused to issue a $50,000 life insurance policy to a 39- year-old Haitian-born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that this application was the applicant’s second application (A005491240). At the top of the computer information screen that summarizes actions taken on this file, there was a handwritten note, “Haiti.” At the bottom of this screen, by the initialing dates on the screen, there was a handwritten note “cancel.” There was no evidence that the two notes are associated with each other or were entered at the same time. Whoever wrote the notes did not testify at the hearing regarding these, otherwise vague, notes. The uncontradicted evidence demonstrated that the first application (A005458685), dated February 14, 2004, was not processed because the applicant did not provide proof of income and other underwriting information. The application was cancelled on March 15, 2004. Likewise, the second application, dated April 18, 2004, was not processed and was canceled for failing to submit an acceptable proof of income that was required on the first application. In this case, the applicant provided with the second application an affidavit from her employer that she had been employed since December 2003 and was paid $7.00 an hour. However, the employer’s affidavit was considered insufficient as proof of income because it did not show how many hours she worked. Such information was critical in calculating income for this applicant and the application was cancelled. Such cancellations do not constitute a refusal to insure by LNL, but only reflect that the application cannot be processed without the required or requested information. Later, in August 2005, the applicant applied for life insurance a third time (A006467227) and was issued a policy of insurance. Clearly, LNL did not refuse to issue insurance to this applicant solely because of national origin since the applicant’s national origin had not changed and they later issued such insurance. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 9 Count 9 of the OIR Order alleged that, in May 2004, LNL refused to issue a life insurance policy to a 52-year-old Haitian-born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that processing of this application was canceled because a telephonic interview to explore unclear and questionable written information submitted by the applicant was not completed and because proof of income was not submitted. Indeed, the file reflected that the telephone number for the applicant was disconnected when the telephone interview was attempted. The file also reflected that the person paying the premium did not have the same last name as the applicant which raised legitimate questions regarding the payor’s interest in the policy and the relationship between the payor and the applicant. It was appropriate for LNL to seek to clarify these discrepancies. The applicant's file, also, contained an “Underwriter Support Summary” computer screen. The screen contained handwritten notes stating, “Haiti, Cancel-unemployed, non-US citizen.” Again, the writer of these vague notes did not testify at the hearing and the notes do not support a conclusion that LNL refused to issue insurance to this applicant based solely on her national origin. As indicated, necessary underwriting information was not submitted by the applicant and processing of the application was stopped, and the application was cancelled. OIR offered no competent evidence that LNL either refused to insure this applicant or that such alleged refusal was solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 10 Count 10 of the OIR Order alleged that, in March 2004, LNL refused to issue a $50,000 life insurance policy to a 34- year-old Haitian-born male who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that the applicant had lived in this country for more than 10 years, was a permanent resident and was a self- employed taxi driver. The application file reflected that processing of this application was cancelled because additional information that the agent was requested to obtain was not returned. Additionally, no proof of income was submitted by the applicant. The file was not clear whether the additional information being sought was related to proof of income or medical issues. Later, blood work information was received that indicated this applicant had some medical risks that were outside of LNL’s underwriting guidelines. OIR offered no competent evidence that LNL either refused to insure this applicant or that such alleged refusal was solely because of national origin. Given these facts and the general lack of evidence in this applicant’s file, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 11 Count 11 of the OIR Order charged that, in May 2004, LNL refused to issue a $20,000 life insurance policy to a 61- year-old Haitian-born female who resided in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The applicant had resided in the United States for more than 10 years and had high blood pressure. She had applied for United States citizenship, but was unemployed. Her sister was listed as the person paying the premiums on the policy. The file also reflected that the applicant was single and that she was supported by her husband. This inconsistent information legitimately needed to be clarified in order for the underwriting process to continue. The underwriter requested an IBU. The request for the IBU was sent to a company that performs such interviews for LNL. The application file does not reflect whether the company attempted to perform the interview. However, information from that request was never submitted to LNL and processing of the applicant’s file was stopped, resulting in the cancellation of the application. As with other cancellations, terminating the processing of a file and cancellation of the application for lack of legitimate underwriting information was not a refusal by LNL to insure the applicant. The process simply could not move forward without the requested information. OIR offered no competent evidence that LNL either refused to insure this applicant or that such alleged refusal was solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 12 Count 12 alleged that, in February 2004, LNL refused to issue a $50,000 life insurance policy to a 47-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. However, the evidence demonstrated that this application was declined due to the applicant’s announced foreign travel plans. At the time of this application, Florida’s “Freedom to Travel Act,” Subsection 626.9541(1)(dd), Florida Statutes, had not been passed and would not be enacted until July 1, 2006, some two years later. The Act has no retroactive effect. Therefore, declining to insure a Florida applicant for such plans before the effective date of the “Freedom to Travel Act” was not prohibited at the time of the underwriting action on this application. OIR argues that the absence of a specific notation in the file that it was declined based on foreign travel plans demonstrated that LNL refused to issue insurance based solely on national origin. However, this argument ignores OIR’s burden of proof in this case. The lack of such notation demonstrates nothing and does not provide either a clear or convincing basis to draw any inferences from the absence of such notations. Additionally, such an inference ignores the unrefuted testimony in this case that the application was declined based on the applicant’s foreign travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 13 Count 13 alleged that, in January 2004, LNL refused to issue a $100,000 life insurance policy to a 45-year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. Information in the file reflected that the applicant was a United States citizen. The evidence demonstrated that this application was declined because the applicant did not furnish proof of her United States citizenship. Additionally, the required telephonic interview was not completed. Again, OIR argues that the absence of specific notations in the file that the application was cancelled based on the missing information demonstrates that LNL refused to issue insurance based solely on national origin. As noted above, this argument ignores OIR’s burden of proof in this case. The lack of such notations does not provide a clear or convincing basis to draw any inferences to support OIR’s position. Additionally, OIR’s argument ignores the unrefuted testimony in this case that the application was cancelled based on the fact that required information was not supplied. Finally, the evidence demonstrated that this application was cancelled, not declined. As with other cancelled applications, such cancellations do not constitute a refusal to insure and OIR offered no other competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 14 Count 14 alleged that, in January 2004, LNL refused to issue a $50,000 life insurance policy to a 31-year-old female born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, the applicant had not resided in the United States for more than 10 years. The applicant had also recently had a baby and was unemployed. As a consequence, the applicant’s mother was the person who would be paying the premium on the policy. The evidence demonstrated that LNL declined to issue insurance on this application because the applicant was not employed and had no income. As discussed earlier, LNL’s underwriting rules limit the amount of coverage that may be issued to an amount equal to the applicant’s annual income for the preceding year. Since the applicant reported no income, LNL’s underwriting rules did not permit the issuance of coverage. However, on April 10, 2006, the applicant submitted a second application (A007241169) that met OIR’s underwriting rules and LNL issued insurance to the applicant. Clearly, LNL did not refuse to issue insurance solely based on national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 15 Count 15 alleged that, in February 2004, LNL refused to issue a $25,000 life insurance policy to a 41-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence showed that a telephonic interview was required to be completed under LNL’s underwriting rules. Handwritten notes in the file state, “IBU ordered due to client being Haitian. Canceled-IBU not received.” Again, the writer of these handwritten notes did not testify at the hearing and they do not support a conclusion that LNL refused to issue insurance based on national origin. The evidence did demonstrate that because the telephonic interview was not completed as required, the application could not be processed further and the application was cancelled. Such a cancellation is not a refusal to insure. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. There was no evidence that the IBU request was a ruse by LNL to cover up its alleged desire to refuse insurance based on national origin. Even in some of the Counts contained in this case, the evidence showed that LNL issued insurance to Haitian applicants when they met its underwriting rules. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 16 Count 16 alleged that, in February 2004, LNL refused to issue a $25,000 life insurance policy to a 63-year-old male born in Haiti and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that processing of this application was canceled because the applicant had not completed a required telephonic underwriting interview. A handwritten notation on the file stated, “Find a way to cancel/decline.” The note was from the person who reviewed pending files that had not been handled within the timeframe established by LNL for life insurance applications. This application had exceeded those timeframes since it had been pending for six weeks. The note was intended to finalize the processing of the file and remove it from the pending files list. There was no evidence that the note demonstrated an intention to refuse to issue insurance based solely on the applicant’s national origin. Moreover, the evidence demonstrated that LNL reinstated a life insurance policy previously issued to this applicant after that policy had lapsed. Clearly, LNL did not refuse to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 19 Count 19 alleged that, in June 2004, LNL refused to issue a $100,000 life insurance policy to a 26-year-old male born in Colombia and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. Colombia was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. A residency questionnaire was also submitted with the application. The questionnaire revealed that the applicant was employed and had an annual income of $40,000. The application also indicated that the applicant was a permanent resident of the United States, but had lived in the United States for less than 10 years. The residency questionnaire reflected that the applicant was unsure of his VISA number and that it had either expired or was about to expire. The applicant hoped to have it reinstated next year. Additionally, the official Immigration and Naturalization Service residency status documentation that was provided with the application showed that the applicant’s residency status had expired. The applicant, therefore, had not submitted the required documentation that he was a current legal resident of the United States. However, because the application was for a $100,000 policy, LNL’s underwriting rules required that the application be submitted to a re-insurance company to insure the risk. Direct insurance companies often utilize re-insurance companies to shift the risk of an insurance application to the re- insurance company. Such companies follow their own underwriting rules to determine whether they will issue insurance on an application. This application was forwarded to one of the re- insurance companies that LNL utilizes for re-insurance. The re- insurance company declined to issue insurance on the application and returned the application to LNL. Thereafter, LNL declined to issue insurance on this application because the documentation submitted with the application showed that the applicant’s legal residency status in the United States had expired and the re- insurance provider utilized by LNL declined to re-insure the applicant. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 20 Count 20 of the OIR Order alleged that, in May 2004, LNL refused to issue a $25,000 life insurance policy to a 20- year-old female born in South Africa and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. At the time of the application, South Africa was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The applicant in this case was the daughter of an LNL insurance agent. At the time of the application, she was a full-time student, unemployed and had no income. The evidence showed that LNL’s underwriting rules limited the amount of coverage to an amount equal to the applicant’s annual income for the preceding year. Since the applicant had no income, LNL’s underwriting rules did not permit the issuance of coverage and the policy was declined. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. Count 21 Count 21 of the OIR Order alleged that, in April 2004, LNL refused to issue a $100,000 life insurance policy to a 42- year-old male born in Colombia and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence demonstrated that the applicant had lived in the United States for less than 10 years, but was a resident because he had received political asylum in the United States. Political asylum is a non-permanent status that could result in the resident being returned to his or her country of origin. Political asylum status was considered by LNL’s underwriters to constitute too tenuous a residency status in the United States to warrant undertaking the risk of issuing insurance to an individual who may at any time be returned to residency in his country of origin, with its attendant severe mortality risks. However, because the application was for a $100,000 policy, LNL sent the application to one of the re-insurance companies that it uses for re-insurance. The re-insurance company declined to issue insurance on the application based on the temporary nature of the applicant’s residency status and returned the application to LNL. Thereafter, LNL declined to issue insurance to this applicant because he had resided in the United States for less than 10 years and his residency in the United States was based on political asylum status. OIR offered no evidence to refute LNL’s position on political asylum and offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. Count 22 Count 22 of the OIR Order alleged that, in April 2004, LNL refused to issue a $25,000 life insurance policy to a 17- year-old male born in Ghana and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. Ghana is listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The evidence showed that the applicant had indicated on his application that he had a work visa which permitted him to remain a resident of the United States. However, the applicant, also, indicated he was a full-time high school student. The file also indicated that his sister, who is a contingent beneficiary, paid the initial application amount. On the other hand, the application indicated that the applicant’s fiancée would be the person responsible for payment of the insurance premium. Because of these inconsistencies, a telephonic interview was requested, but, for unknown reasons, was not completed. Because the interview was not completed, LNL declined to issue insurance on this application because the information that would have been supplied in a telephone interview was not provided before the underwriting decision was made. Again, OIR argues that the absence of specific notations in the file that it was cancelled based on missing documentation demonstrates that LNL refused to issue insurance based solely on national origin. This argument ignores OIR’s burden of proof in this case. The lack of such notations does not provide either a clear or convincing basis to draw any inferences regarding the reason for not issuing a policy. Additionally, OIR’s argument ignores the unrefuted testimony in this case that the application was declined based on the lack of information that would have been supplied if the required telephone interview had been completed. Other than its argument, OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 23 Count 23 of the OIR Order alleged that, in August 2004, LNL refused to issue a $100,000 life insurance policy to a 27-year-old male born in Colombia and residing in the United States solely because of the applicant’s national origin in violation of Subsection 626.9541(1)(x)1., Florida Statutes. The evidence showed that the applicant was a temporary resident based on a grant of political asylum he received in 2000. As with Count 21, LNL sent the application to one of the re-insurance companies that it uses for re-insurance. The re-insurance company declined to issue insurance on the application based on the temporary nature of the applicant’s residency status and returned the application to LNL. Thereafter, LNL declined to issue insurance to this applicant because he had resided in the United States for less than 10 years and his residency in the United States was based on political asylum status. Again, political asylum status is considered by LNL’s underwriters to constitute too tenuous a residency status in the United States to warrant undertaking the risk of issuing insurance to an individual who may at any time be returned to residency in his country of origin, with its attendant severe mortality risks. OIR offered no competent evidence that LNL refused to insure this applicant solely because of national origin. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(x)1., Florida Statutes, and the Count should be dismissed. COUNT 24 Count 24 of the OIR Order alleged that LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 59-year-old male applicant who was born in Guyana and resided in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsection 626.9541(1)(dd)2., Florida Statutes. Guyana was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The unrefuted evidence demonstrated that underwriting review of this application (A007302898) was postponed because the applicant was going to be out of the country on a mission trip to Liberia and could not complete a required paramedical examination requested by the paramedical examination company until his return to the United States. For unknown reasons, the applicant’s agent submitted a new application (A007313656) when the applicant returned from his trip. Medical tests were completed which revealed the applicant had prostate cancer and abnormal blood lab results. The original application was cancelled and the second application was denied based on the medical risk posed by the applicant. Clearly, neither cancellation of the first application nor denial of the second application was based on the applicant's travel. OIR offered no competent evidence that LNL refused to insure this applicant, or limited the amount, extent, or kind of life insurance coverage available to them, based solely on past lawful foreign travel or future lawful travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1. or 2., Florida Statutes, and the Count should be dismissed. COUNT 25 Count 25 of the OIR Order alleged that in January 2007, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 23-year-old male applicant who was born in Palestine and resided in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Palestine was listed as a “D” country under the country code classifications used by LNL for underwriting purposes. The evidence demonstrated that the applicant applied for a $100,000 insurance policy. The applicant indicated that he traveled to Palestine every few years. The insurance policy was issued but contained a policy endorsement excluding coverage for foreign travel. The policy was also issued with a rate above what would be normally charged for the type of insurance issued. Clearly, LNL did not refuse to issue insurance based on this applicant’s past travel or future travel plans. However, LNL did limit the insurance issued because of the applicant’s future travel plans when it issued the policy with a foreign travel endorsement. This underwriting decision was made after the effective date of Florida’s “Freedom to Travel Act.” In this case, the application was submitted to one of the re-insurance companies used by LNL. The re-insurance company only agreed to re-insure the application if the policy included a foreign travel exclusion endorsement. LNL’s underwriting department was under the mistaken belief that LNL’s re-insurers were underwriting their risks according to the same Florida “Freedom to Travel Act” restrictions imposed by Florida on direct insurers such as LNL. Since the re-insurer to whom this application was submitted required a foreign travel exclusion endorsement, LNL assumed the exclusion was consistent with Florida travel underwriting requirements, and issued the policy with the foreign travel exclusion endorsement. The mistake was admitted by LNL and seems to be an underwriting error due to the inexperience of LNL’s underwriter’s in regard to the relatively new “Freedom to Travel Act.” There was no evidence that LNL’s decision was willful. However, LNL's decision was a violation of the Act. COUNT 26 Count 26 of the OIR Order alleges that in February 2007, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 44-year-old male applicant who was born in Haiti and was a citizen of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. The applicant had applied for a $150,000 policy and indicated in his telephone interview that he traveled to Haiti one or two times a year. The evidence demonstrated that Ms. Saxon’s underwriting unit processes approximately 1,500 applications from Florida a week, in addition to applications from other states. Ms. Saxon admitted that, when she processed this application, she missed the fact that this application was from Florida and subject to the “Florida Freedom to Travel Act.” She issued an ALX policy for $15,000. An ALX policy limits benefits to a return of premiums should an insurable event occur during the first three years of the policy. There was no evidence that Ms. Saxon willfully violated Florida’s “Freedom to Travel Act,” but made a mistake in processing this application. However, LNL did limit the kind or extent of insurance based solely on this applicant’s travel plans, contrary to the Florida “Freedom to Travel Act.” COUNTS 27 AND 28 Count 27 and 28 of the OIR Order alleges around July or August 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage on two insureds who were married, filed applications at the same time and were born in Haiti based solely on their past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. The applications were submitted to LNL on June 12, 2006, prior to the effective date of the “Freedom to Travel Act.” The decisions to issue the policies were made on July 6, 2006, five days after the Act's effective date on July 1, 2006. However, the policies were made effective retroactively to July 1, 2006, the same day the Act came into effect. The insurance policies were issued at a reduced face amount of $33,000 due to the underwriting rule that limited the amount of a policy to an applicant's annual income. Additionally, and more importantly for these Travel Act charges, the policies were issued with a foreign travel endorsement required. Once the underwriting decisions were made, the applicants' files were sent to the issuance department of LNL for finalization of the paperwork on the policies. This process is the standard process used by LNL for the insurance policies it writes. No one from the issuance department testified at the hearing and the evidence was not clear whether part of the policy had been finalized or placed with the insured. However, on July 20, 2006, the foreign travel policy endorsements for the policies were sent to the branch office. Again, the evidence was not clear what the branch office was to do with these endorsements, but it appears that the expectation was to have the endorsements signed by the applicants and returned to the issuance department. The travel endorsements were not accepted or returned by the applicants and the policies were eventually cancelled by LNL. Again, the evidence was not clear why the endorsements were not returned. Based on these facts, the evidence was clear that LNL limited the kind or extent of insurance based solely on these applicants’ travel plans contrary to the Florida “Freedom to Travel Act.” However, the evidence did not demonstrate that these violations were willful given the timeframes involved in the files. COUNT 29 Count 29 of the OIR Order alleges that in June 2006, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 54-year-old female applicant who was born in Honduras and was residing in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Honduras was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. In this Count, the applicant applied for a $50,000 policy. Her telephone interview reflected that her most recent annual income was $6,000. She, also, indicated that she might travel to Honduras in the future for Christmas. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $6,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risks posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 30 Count 30 of the OIR Order alleges that in August 2006, LNL refused to issue life insurance or limited the amount, extent, or kind of life insurance coverage to a 47-year-old male applicant who was born in Haiti and was residing in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. As found earlier, Haiti is listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $50,000 policy. His most recent (2005) tax return reflected an annual income close to $11,000. His telephone interview reflected a current income of 36,000. However, this income was not in line with either of the applicant's 2003 or 2004 tax returns which reflected income closer to the 2005 tax return. Indeed, the evidence indicates that the $36,000 income reported in the telephone interview reflected business income prior to subtracting any business expenses. The applicant also indicated that he had returned to Haiti for a three-month period approximately four years prior to the date of his application to visit his family, but had no travel plans to visit Haiti in the future. The better evidence demonstrated that this policy was issued at a reduced amount of $17,000 based on the best estimate of the most recent annual income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risks posed by a non-citizen applicant who was born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past or future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 31 Count 31 of the OIR Order alleges that in August 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 30-year-old female applicant who was born in Haiti and residing in the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. The applicant had applied for a $100,000 policy. Her W-2 statements reflected an annual income of $42,000. She also indicated that she had traveled to Haiti approximately two years prior to the application, but had no future plans to travel. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $42,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 32 Count 32 of the OIR Order alleges that in September 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 60-year-old female applicant who was born in Colombia and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Colombia was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $35,000 policy. The applicant indicated she had an annual income of $25,000. Her most recent W-2 showed income slightly under $24,000. The applicant also indicated that she traveled to Colombia within the 12 months preceding her application and that she traveled there about every 5 years. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $25,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past travel or future travel plans. In fact, the file contains a specific handwritten note from LNL's legal department on a copy of the OIR's official notification regarding the effective date of the Travel Act that indicated the underwriter could not take adverse actions on the application based on the applicant's travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 33 Count 33 of the OIR Order alleges that in September 2006, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 36-year-old female applicant who was born in Thailand and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Thailand was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant applied for a $75,000 policy. Her most recent income tax return reflects income of $40,000. She also indicated that she regularly travels to Thailand for one week about every five years and intends to continue to travel there. The unrefuted evidence demonstrated that the policy was issued at a reduced amount of $40,000 based on the income of the applicant. As discussed earlier, this reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past travel or future travel plans. As with Count 32, the file contains a specific handwritten note from LNL's legal department on a copy of the OIR's official notification regarding the effective date of the Travel Act. The note indicated that the underwriter could not take adverse actions on the application based on the applicant's travel plans. Given these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1 or 2., Florida Statutes, and the Count should be dismissed. COUNT 34 Count 34 of the OIR Order alleges that in November 2007, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 41-year-old male applicant who was born in India and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. India was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $100,000 policy. His most recent W-2 showed income of slightly more than $12,000. The applicant, also, indicated that he traveled to India every few years and had plans to travel there in the future. The evidence demonstrated that this application was submitted to one of the re-insurance companies used by LNL because the application was for a $100,000 policy. The re- insurance company declined to re-insure the risk based on the travel plans of the applicant and returned the application to LNL. However, LNL recognized that it could not decline the application for the reason the re-insurance company declined the re-insurance. LNL reviewed the policy based on its underwriting guidelines for applicants from "C" or "D" countries. The policy was issued at a reduced amount of $15,000 based on the income of the applicant and rated for a person with diabetes. This reduction was in compliance with LNL's underwriting rules for the risk posed by non-citizen applicants who were born in a "C" or "D" country. Additionally, the rating for diabetes was in line with LNL's underwriting guidelines for medical conditions. There was no competent evidence that either the reduction or rating were related to the applicant's past travel or future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541(1)(dd)1. or 2., Florida Statutes, and the Count should be dismissed. COUNT 35 Count 35 of the OIR Order alleges that in March 2007, LNL refused life insurance to or limited the amount, extent, or kind of life insurance coverage to a 34-year-old male applicant who was born in Nepal and was a resident of the United States based solely on past lawful foreign travel experience or future lawful travel plans, in violation of Subsections 626.9541(1)(dd)1. and 2., Florida Statutes. Nepal was listed as a "D" country on the country code classifications used by LNL for underwriting purposes. The applicant had applied for a $200,000 policy. His most recent W-2 showed income around $10,000. The telephone interview reflected annual income of about $30,000 since he was self-employed. The applicant, also, indicated that he traveled to Nepal about every two years and had plans to travel there in the future. The evidence demonstrated that this application was submitted to one of the re-insurance companies used by LNL because the application was for over $100,000 policy. The re- insurance company declined to re-insure the risk based on the travel plans of the applicant and returned the application to LNL. Again, LNL recognized that it could not decline the application for the reason the re-insurance company declined the re-insurance. The policy was issued at a reduced amount of $30,000 based on the income of the applicant. This reduction was in compliance with LNL's underwriting rules for the risk posed by a non-citizen applicant who was born in a "C" or "D" country. There was no competent evidence that this reduction was related to the applicant's past travel or future travel plans. Based on these facts, the evidence did not establish that LNL violated Subsection 626.9541 (1)(dd)1. or 2., Florida Statutes, and the Count should be dismissed.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that Counts 1 through 24 and 29 through 35 of OIR’s June 3, 2009, Order be dismissed. As to Counts 25, 26, 27, and 28 of OIR’s June 3, 2009, Order it is further RECOMMENDED that OIR enter a Final Order finding four violations of Section 626.9541(1)(dd), Florida Statutes, imposing an administrative fine of $1,000 per violation and ordering Respondent to underwrite the applications of the four affected individuals, and to offer to issue coverage to them from the date the policies were declined in such amount as is consistent with LNL’s underwriting guidelines, in compliance with the underwriting restrictions in Section 626.9541(1)(dd), Florida Statutes. It is further RECOMMENDED that OIR issue a cease and desist order to LNL regarding violations of Section 626.9541, Florida Statutes. DONE AND ENTERED this 9th day of November, 2010, in Tallahassee, Leon County, Florida. S DIANE CLEAVINGER 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 9th day of November, 2010. COPIES FURNISHED Amanda Allen, Esquire Elenita Gomez, Esquire Office of Insurance Regulation Larson Building 200 East Gaines Street Tallahassee, Florida 32399 Daniel C. Brown, Esquire Carlton Fields, P.A. Post Office Drawer 190 Tallahassee, Florida 32302-0190 Kevin M. McCarty, Commissioner Office of Insurance Regulation Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0305 Steve Parton, General Counsel Office of Insurance Regulation Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0305
