The Issue The issue for consideration in this case is whether the Respondent's license as a viatical settlement provider in Florida should be disciplined because of the matters alleged in the Administrative Complaint dated June 29, 2000.
Findings Of Fact At all times relevant to the issues herein, the Petitioner, Department of Insurance (Department), was the state agency in Florida responsible for the licensing of viatical settlement providers and the regulation of the viatical settlement industry in this state. The Respondent, Accelerated Benefits Corporation (ABC), was licensed as a viatical settlement provider in Florida. Pursuant to an investigative subpoena issued by the Department, in November and December 1999, investigators of the Department examined the records of the Respondent, as well as other viatical settlement providers operating within the state, looking into the viatical settlement industry's practices in Florida. As a part of the investigation, Janice S. Davis, an examiner/analyst with the Department, copied records of the Respondent relating to at least six individual viatical settlement transactions in which the Respondent was involved. These files relate to Counts 5 through 7 and 9 through 11 of the Administrative complaint. Ms. Davis also obtained from the Respondent the information regarding the location of several other cases, the files for which had been confiscated by the Statewide Prosecutor as a part of an ongoing investigation into the viatical settlement industry, and subsequently obtained copies of those files from the office of the Statewide Prosecutor. Those files relate to Counts 1 through 4 and 8 of the Administrative Complaint. As outlined in Count Five of the Administrative Complaint, in May 1998, D.K. applied to The United States Life Insurance Company (US Life) for a $250,000 life insurance policy. As a part of the policy application, D.K. stated that he had not consulted with any physician or other practitioner within the five years prior to the application. On July 29, 1998, Life Benefit Services (LBS), a viatical settlement broker used by ABC, obtained a "Confidential Application Form" completed by D.K. which revealed that sometime in 1982, D.K. had been diagnosed as HIV positive. LBS prepared a "Policy Summary Sheet" regarding D.K.'s application on which it noted that D.K. had been diagnosed with HIV/AIDS. LBS also had records from D.K.'s physician reflecting that D.K. had been under a doctor's care during the preceding five years. The policy was issued to D.K. on or about August 1, 1998. Notwithstanding the information it had on hand, LBS brokered the sale of the instant policy to ABC. On or about August 25, 1998, D.K. and the Respondent entered into a contract which called for the Respondent to purchase D.K.'s $250,000 life insurance policy for $25,000. At that point, the policy was still contestable. As a part of the transaction, the Respondent gave D.K. written instructions not to contact his insurance company until advised to do so by ABC. The Respondent also had D.K. sign an addendum to the purchase contract in which he agreed to not advise US Life that he had sold his policy and acknowledged his recognition that his life insurance policy was still contestable. D.K. was also asked and agreed to sign an undated change of ownership form for use by ABC at the expiration of the period of contestability. While the policy was still contestable, an employee of the Respondent, Jennifer Grinstead, paid the annual premium on the policy out of her personal checking account. This served to conceal the fact that D.K. had sold the policy to the Respondent. Ms. Grinstead was reimbursed for the premium payment by American Title Company of Orlando. American Title was the Respondent's trustee. The Respondent did not report any of the information it had regarding D.K.'s actual health history to US Life or the Department. A review of the documentation related to this transaction reflected that the Respondent purchased the policy rights from D.K. after it knew, or with the exercise of reasonable diligence should have known, that D.K. had made material misrepresentations regarding his health to US Life, and nonetheless attempted to conceal those misrepresentation from US Life. With regard to Count Six, the evidence of record indicates that on May 4, 1997, W.E. applied for a $45,000 life insurance policy from Life USA Insurance Company (Life USA). On the application form he signed and submitted, W.E. specifically stated he had not received any medical or surgical advice or treatment within the preceding five years, had not been advised by a medical doctor that he had AIDS or ARC, and was not, at the time, taking any medication. Based on the representations made by W.E., the policy was issued on November 12, 1997. Notwithstanding the representations made by W.E. to Life USA, W.E. also advised United Viatical Settlements (UVS), the settlement broker used by the Respondent, on December 17, 1997, through a corollary application form, that he had been diagnosed with HIV "a few years ago," and several different other forms utilized by the Respondent reflect that the Respondent knew W.E. had AIDS or HIV, and was under a doctor's treatment for the condition during the preceding five years. Nonetheless, UVS brokered the sale of this policy to the Respondent. In late December 1997, at which time the policy was still contestable, the Respondent entered into a contract with W.E. for the purchase of the $45,000 policy for $4,914.25. As a part of the sales procedure, the Respondent issued to W.E. instructions not to contact his insurance company until instructed to do so by the Respondent's representative, and it also had W.E. sign an addendum to the purchase agreement in which W.E. acknowledged that the policy in issue was still contestable. W.E. was also asked to agree not to inform Life USA of the sale of the policy to the Respondent and to sign an undated change of ownership form for use by the Respondent to transfer ownership when the contestability period had expired. The arrangement between the Respondent and W.E. called for Jennifer Grinstead to pay the annual premium on the policy for W.E. from her personal account and to receive reimbursement for those payments from American Title Company, the Respondent's trustee. This arrangement served to conceal from Life USA the fact that W.E. had sold the policy to the Respondent. The Respondent did not report the fact that it had knowledge of W.E.'s medical condition to the Department. The evidence of record reflects that at the time of the purchase of W.E.'s policy, the Respondent knew or should have known that W.E. had made material misrepresentations regarding his medical state to Life USA on his application for life insurance from that company, and it thereafter took actions which served to conceal those material misrepresentations from the company. In the Case of Count Seven, on April 26, 1997, A.T. applied for a life insurance policy from Lincoln Benefit Life (Lincoln) in the amount of $48,000. On the application form, A.T. specifically stated that he had not been under medical observation or treatment within the preceding five years, and that he had not been diagnosed as having AIDS or ARC, or tested positively for HIV. The policy was issued by the company on or about June 2, 1997. Notwithstanding those representations, on January 14, 1998, Medical Escrow Society, a viatical broker used by the Respondent in its dealing with Lincoln, received an application form from A.T. on which A.T. indicated he had tested positive for HIV on August 8, 1989, had been diagnosed with AIDS ON August 10, 1994, and was under the care of a physician. Medical Escrow Society nonetheless brokered the sale of the policy to the Respondent. Shortly after the contestability period on this policy expired. On June 25, 1999, the owner of the policy, Ralph Cahall, entered into a contract with the Respondent whereby the Respondent bought Cahall's interest in the proceeds for $29,238.72. At the Respondent's request, ownership of the policy was changed from Cahall to American Title Company of Orlando, the Respondent's trustee without either Lincoln or the Department being informed of the transfer. The file relating to this policy indicates that the Respondent brought about the transfer from Cahall after it knew or, in the exercise of reasonable diligence should have known, that A.T. had made material misrepresentations regarding his health on the application to Lincoln, and that the Respondent, though it did not report what it knew to the Department, also thereafter undertook a course of action which was designed to conceal that information from Lincoln. With regard to Count Nine, the evidence indicates that on or about September 30, 1996, R.M. submitted an application for a $100,000 life insurance policy to Interstate Assurance Company (Interstate). On the application, R.M. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, and the policy was issued on October 9, 1996. Notwithstanding that representation, on July 18, 1997, R.M. completed an application form for Benefits America, a broker used by the Respondent with regard to this policy, in which he stated he had been tested positive for HIV on February 11, 1994. A "Policy Acquisition Worksheet" utilized by the Respondent on or about July 22, 1997, when R.M. was dealing with Benefits America regarding the viatication of his life insurance policy, reflects that the company was aware at that time that R.M. had been diagnosed with HIV in 1994. Even with that knowledge, the Respondent went through with the viatication, and on July 31, 1997, while the policy was still within the contestability period, bought the policy for $15,430. On August 4, 1997, R.M. executed an addendum to the purchase agreement at the behest of the Respondent, wherein he recognized the policy was still contestable and agreed, among other things, not to contact his insurance company or tell them he had sold the policy to a viatical settlement provider. He also was asked to sign, and signed, an undated change of ownership agreement for use by the Respondent at the end of the contestability period. Jennifer Grinstead, an employee of the Respondent, paid R.M.'s annual premium on the policy during the contestibility period out of her personal checking account. This action, when done in conjunction with R.M.'s failure to advise the insurance company of the sale, served to conceal the transfer of ownership from R.M. to the Respondent. Ms. Grinstead was reimbursed for the premium payments by the Respondent's trustee. The Respondent did not report to Interstate or to the Department that R.M. had made material misrepresentations regarding his health in procuring the issuance of the policy even though it knew or, in the exercise of due diligence, should have known that the material misrepresentations had been made. As to Count Ten, on May 12, 1997, J.R. submitted an application to Interstate for a life insurance policy on his life in the amount of $980,000. On his application, J.R. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, had not been treated by a member of the medical profession in the preceding five years, and was not, at the time, on medication or undergoing treatment or therapy. The policy was issued on May 19, 1997. Notwithstanding those representations, on July 9, 1997, J.R. filled out an application form for the Respondent's broker for this transaction, Life Benefit Services, on which he indicated he had been diagnosed as HIV positive in May 1996. A "Mortality Profile" provided to the Respondent by AVS indicated that J.R. was first diagnosed as being HIV positive in August 1995, nine months or so earlier than he admitted, and that he had been undergoing treatment by a doctor and receiving medications well within the five years preceding the application. On August 20, 1997, J.R. entered into a contract with the Respondent calling for the sale of this insurance policy to ABC for a net sum of $107,800. At this point, the policy was still contestable. At that time, the Respondent instructed J.R. in writing not to contact his insurance company until told to do so by the Respondent's representative. The Respondent also had J.R. sign an addendum to the purchase agreement in which he acknowledged the policy was still contestable, that he would not inform Interstate of the sale, and that he would sign an undated change of ownership form for use by ABC when the contestability period expired. Notwithstanding that the Respondent knew of the material misrepresentations made by J.R. as to his health when he procured the policy, it did not report what it knew to the Department, and took steps to insure Interstate was not informed of what was going on. With regard to Count Eleven, on May 16, 1996, the same J.R. applied to Massachusetts General Life Insurance Company, later, Conseco Life Insurance Company (Conseco), for a $99,900 life insurance policy. On his application, J.R. stated he had never had any medical tests or any known indication of diseases, conditions, or physical disorders which were not mentioned on the form. AIDS, ARC, and HIV positive were not mentioned on the form, and if known to have been present, should have been noted. About a year and three months later, on July 9, 1997, J.R. submitted an application form to Life Benefit Services, the broker used by ABC on this policy, on which he stated he had tested positive for HIV in May of 1996. By letter dated July 28, 1997, Life Benefit Services advised ABC that J.R. was terminally ill and had been on medication and undergoing treatment by a physician within the preceding five years. In addition to this information, the Respondent had available to it the information regarding J.R.'s condition discovered as a result of the purchase of the Interstate policy. Notwithstanding this knowledge, on September 17, 1997, while the policy was still contestable, ABC purchased the Conseco policy from J.R. for the net sum of $13,986. By letter dated September 17, 1997, the Respondent advised J.R. not to contact his insurance company until instructed to do so by Ms. Holman, the Respondent's Director of Contracts, and requested he execute an addendum acknowledging those instructions and that the Conseco policy was still contestable. He was also asked to agree to sign an undated change of ownership assignment for use by ABC after the contestability period had expired. While the policy remained contestable, the annual premiums due from J.R. were paid from her personal checking account by Ms. Grinstead, an ABC employee, who was reimbursed therefor by American Title, ABC's trustee. None of the above information was reported by the Respondent to Conseco or the Department even though it knew or, with the exercise of reasonable diligence should have known that J.R. had made material misrepresentations regarding his physical health in his application for life insurance to Massachusetts General Life Insurance company, and it appears the Respondent attempted to conceal those misrepresentations from Conseco.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance enter a Final Order dismissing Counts One through Four and Eight of the Administrative Complaint, but finding the Respondent guilty of Counts Five though Seven and Nine through Eleven of the Complaint, and both revoking its license and its eligibility for licensure as a viatical settlement provider in Florida. DONE AND ENTERED this 28th day of December, 2000, in Tallahassee, Leon County, Florida. ___________________________________ ARNOLD H. POLLOCK 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) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2000. COPIES FURNISHED: Michael H. Davidson, Esquire Department of Insurance 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Mark K. Logan, Esquire Smith, Ballard & Logan, P.A. 403 East Park Avenue Tallahassee, Florida 32301 The Honorable Bill Nelson State Treasurer/Insurance Commissioner The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made: At all times material to the allegations of the administrative complaint, the Respondent, Arthur A. Pappas, was licensed in the State of Florida and authorized to solicit life and health insurance on behalf of New York Life Insurance Company. The Respondent is currently licensed and eligible for licensure as a life and health insurance agent. On or about September 29, 1972, Benefit Plans Association, Inc. (BPA) was organized under the laws of Florida. At all times material to the allegations of the administrative complaint, Respondent was the president and sole director for BPA. On or about December 20, 1983, BPA was authorized to operate as an administrator pursuant to Sections 626.879- 626.8858, Florida Statutes. In attaining this authorization, Respondent was the only individual identified on the application for certification who was licensed by the Department. The corporation was involuntarily dissolved on October 13, 1989. On or about May 20, 1986, New York Life Insurance Company and BPA entered into an agreement whereby BPA was to act as a broker/administrator for a group life insurance contract. This agreement, which was executed on behalf of BPA by Respondent, provided, in part: PART V PREMIUM It is understood that BPA, a licensed broker, will receive payments toward premium from Participating Employers on behalf of the Trust and will remit to New York Life, on behalf of the Trust, timely premium payments under the group policies. BPA warrants that all payments toward premium received by BPA on behalf of the Trust shall be deposited in a fiduciary account or accounts in the name of the Trust with Commercial Bank of Kendall and that withdrawals from each such account shall be made only (a) to pay the premium due under the group policy held by the Trust, (b) to pay compensation due BPA from New York Life as determined pursuant to Part XI of this Agreement and (c) to remit return of insurance premiums to persons entitled thereto. Pursuant to Part XI of the agreement, BPA was to receive 24 percent of the premium for each policy year of each policy for which the premium was received by New York Life. In executing the agreement, BPA was to serve as administrator on behalf of a multiple employer trust, a group of employers who joined together to participate in a group life and health insurance contract. In addition to being the administrator, BPA was to also participate as an employer/member of the group. This group policy was designated by the number G- 7920. In early March, 1988, Respondent notified New York Life Insurance Company that there was a problem with the funds on deposit in the BPA premium trust account. In connection with the problem, Respondent requested a meeting which took place in New York on or about March 4, 1988. At that time, Respondent advised officials of New York Life Insurance Company that he had been using premium money to operate his business. More specifically, Respondent admitted that premiums, which had been remitted to BPA from employers participating in the group, had been diverted to pay business overhead expenses. The use of such premiums in the manner described was done with Respondent's knowledge and consent. At the time of the meeting described in paragraph 7, Respondent estimated that the premium shortfall was approximately $300,000. Effective March 7, 1988, Respondent executed a form and BPA resigned as administrator for group policy G- 7920. Subsequent to the meeting described in paragraph 7, New York Life sent a team of auditors to the BPA offices in Miami in order to review the accounts for policy no. G- 7920. As a result of that audit, the shortfall in the premium trust account, for the period from July 1, 1986 through March 4, 1988, was calculated to be $390,923.59. As of the date of the hearing, these monies had not been remitted to New York Life. Portions of the shortfall were premium amounts which BPA had not paid for its group membership in the policy. BPA had credited itself with a commission on the unpaid premiums it should have remitted to New York Life. Further, although its membership should have been terminated, BPA employees continued to make claims against the policy as if fully entitled to do so. The amount of those claims, which were paid by New York Life, was approximately $72,000. Respondent knew that BPA was not remitting its premium, but did not take action to terminate the policy. During the last twelve years, Respondent has enjoyed an excellent reputation in the insurance community. Respondent was the only licensee who served as an officer or director for BPA. Respondent's poor business judgment and indifference to comply with the terms of the administrator agreement and relevant laws resulted in premium funds being inappropriately used for business expenses. As a result of the acts described in paragraph 8, 9, 11 and 12, New York Life Insurance Company sustained a financial loss.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Office of the Treasurer, Department of Insurance enter a final order revoking the license and eligibility for licensure of the Respondent. DONE and ENTERED this 31st day of January, 1990, in Tallahassee, Leon County, Florida. Hearings Hearings 1990. JOYOUS D. PARRISH Hearing Officer Division of Administrative The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative this 31st day of January, APPENDIX RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE DEPARTMENT: Paragraphs 1 through 11 are accepted. With regard to paragraph 12, while New York Life did not allow "advances," it did permit "allowances"' which were computed by BPA on a month-to-month basis. Paragraphs 13 through 21 are accepted. Although the amount listed in paragraph 22 differs from the various amounts described in the audit papers, it is accepted that a sum in excess of $392,000 was owed by BPA to New York Life. Paragraphs 23 through 33 are rejected as irrelevant, cumulative or unnecessary to the resolution of the issues of this case. See comment in 4. above as to amount owed New York Life. Paragraphs 34 through 44 are accepted. RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE RESPONDENT: Paragraphs 1 through 9 are accepted. Paragraph 10 is rejected as contrary to the weight of the was evidence. The Department established that Respondent responsible for the solicitation of the group members, including BPA, and such group was brought to New York Life for their approval. Paragraphs 11 through 13 are accepted. With regard to paragraph 14, it is accepted that the agreement between the parties did not specify the time frame for remittances; however, by procedure and acceptance of the parties, the amounts were remitted monthly. Moreover, BPA did not remit all premiums due New York Life even to the date of the formal hearing. With regard to paragraph 15, it is accepted that BPA was to receive 24 percent (as stated in finding of fact), the balance of the paragraph is rejected as argument or comment. Paragraph 16 is rejected as contrary to the weight of credible evidence. Paragraph 17 is accepted. Paragraph 18 is rejected as contrary to the weight of credible evidence. Paragraph 19 is accepted. Paragraphs 20 and 21 are rejected as argument or unsupported by the record. Paragraph 22 is accepted. Paragraph 23 is accepted. Paragraph 24 is rejected as irrelevant or contrary to the weight of the evidence. Paragraph 25 is rejected as irrelevant or immaterial and contrary to the weight of credible evidence. Neither the agreement nor statutory guidelines allowed a withdrawal for the purposes expressed by Respondent. Respondent transferred funds in excess of those he was entitled to claim under even the most generous interpretation of the agreement. Paragraph 26 is accepted. Paragraph 27 is rejected as irrelevant. Paragraph 28 is rejected as nonsense. Paragraphs 29 and 30 are accepted. Paragraph 31 is rejected as irrelevant. That group members (including the BPA employees) reaped a windfall at the expense of the insurer does not justify the nonpayment of premiums. By law, since they had paid the administrator there was a presumption of payment to New York Life which it was obligated to honor. Paragraphs 32 through 34 are rejected asirrelevant. Paragraph 35 is rejected as irrelevant, argument or comment. Paragraph 36 is rejected as irrelevant to the resolution of the issues of this case. Paragraphs 37 through 42 are rejected as irrelevant, cumulative, or unnecessary to the resolution of the issues of this case. Paragraph 43 is rejected as contrary to the weight of the credible evidence. Paragraphs 44 and 45 are rejected as irrelevant, supposition, or argument. COPIES FURNISHED: James A. Bossart Division of Legal Services Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 John P. Kelly FLEMING, O'BRYAN & FLEMING Broward Financial Centre 500 East Broward Boulevard 7th Floor Fort Lauderdale, Florida 33394-3071 Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issue to be resolved in this proceeding concerns whether the Respondent violated various provisions of the Florida Insurance Code, as alleged in the Amended Administrative Complaint, and if so, what penalty, if any, is warranted.
Findings Of Fact The Petitioner is an agency of the State of Florida charged with regulating and licensing the entry of insurance agents into the profession of insurance and with regulating the practice of agents and other insurance professionals already licensed by the State of Florida. The Respondent, at all times pertinent hereto, was and is licensed by the State of Florida as a non-resident life and health insurance agent. The Respondent procured applications for life insurance to be issued from Pacific to the 30 named individuals and entities set forth in the Amended Administrative Complaint in its 25 counts. Pacific was not authorized to transact insurance business in the State of Florida because the company was not yet licensed. However, it was in the process of becoming licensed and licensure was imminent. The company Regional Director, C. Manley Denton, and other company officials, when they recruited the Respondent to sell insurance policies in Florida, assured him that licensure was imminent, that there was no impediment to finalization of the licensure procedures in the very near future, and that the Respondent could legally obtain life insurance policy applications and sell policies in Florida if he took the applications and dated them in and from his Tulsa, Oklahoma, office. He was assured that this procedure would render his activities legal. In reliance on these representations by officials of Pacific, the Respondent undertook to and did obtain the applications for, and sell the insurance policies, referenced above and in the Amended Administrative Complaint. The Respondent, for many years, has transacted insurance business as a general agent of life and health insurance in Oklahoma and in Florida. He is a resident of both states, spending part of each year in each state. Many of the policyholders referenced above and in the Amended Administrative Complaint were clients of the Respondent, who had already had other insurance policies issued by him through companies he represents. In the particular instances involved in this proceeding, many of these clients had been policyholders of the First Capital Life Insurance Company, which had experienced financial difficulties and gone into receivership. Because of his policyholders' concern and his own concern about the possibility of the future inability to pay claims by the company in receivership, the affected clients and the Respondent were desirous of replacing those policies with policies in a different and sounder insurance company. This desire dovetailed neatly with the desire by the executives at Pacific to obtain a large block of insurance policy business in Florida and in other states in the mainland United States. This desire by Pacific executives was due to a recent merger of that company with the Hawaiian Life Insurance Company, a company which was owned by Meiji Mutual Life of Tokyo Japan (Meiji). The resulting merged company, Pacific, was owned by Meiji. The executives at Pacific, which had historically been headquartered in San Jose, California, desired to continue to maintain the company domicile and their own personal residences in California and avoid having to relocate to Hawaii. This was the reason they desired to secure a large block of insurance business very rapidly in order to enhance the sales record of the "stateside branch" of the company. They believed that this would insure that their relocation would not have to be accomplished. With this interest in the forefront of their plans, the executives of Pacific began to search for the best insurance agents in the nation who have a record of successfully writing large volumes of life insurance policy business. The Respondent is such an insurance agent. He had recently achieved a nationally-recognized ranking as one of the highest volume life insurance producer agents in the country. Because the Respondent was desirous of placing a high-dollar volume of life insurance policies for the clients referenced above, who had had policies in the financially-troubled First Capital Life Insurance Company, the Respondent agreed, at the behest of the officials of Pacific, to attempt to write a large block of life insurance business in the State of Florida. The Respondent is a well-respected general life insurance and health insurance agent. He is widely known throughout the insurance profession and industry, throughout the United States, as an ethical, competent and successful life insurance policy producer. He has no blemish on his licensure and practice record as an agent, throughout the approximate 40 years he has engaged in the profession. When the Respondent obtained the insurance policy applications and policies at issue in this proceeding, he engaged in one course of conduct. That is, he contacted the clients and obtained their applications and arranged for the sale of the insurance policy contracts to them, as either new policies and clients, or as replacement policies for his existing clients, as the case might be. He engaged in this essentially-identical transaction with all 30 of these policyholders, in the genuine, good-faith belief that he was legally writing insurance policy business in the State of Florida based upon the circumstances related to him by officials of Pacific, upon which he relied. He candidly acknowledges, through counsel, that, in so relying, he knew that the company was not actually licensed in the State of Florida, but that that eventuality was imminent in the very near future, and that based upon the method the company assured him of writing the policies through the Tulsa, Oklahoma, office, he would be obtaining and transacting this business in a legally acceptable way. He also candidly acknowledges that, in fact, he understands, from his contact with the Department since that time, this was not the case and that he was writing the business for a company not legally authorized to do business in the State of Florida. The Respondent has freely admitted these above-found facts and does not dispute that he was in violation of the portion of the charges that do not depend on intent. He has established, however, through the exhibits admitted as explanatory hearsay and the agreed-upon proffer of his counsel, that the transactions at issue, all of which were the result of one essentially-identical course of conduct, were accomplished with no intent to defraud the policyholders, the company, or the Florida Department of Insurance. There was no willful, dishonest or deceitful intent by the Respondent during the course of his engagement in these transactions. There was no such willful wrongful intent in the course of his contact and relations with the company, those policyholders, or the Department of Insurance since that time. No policyholder or company suffered any financial detriment as a result of the Respondent's conduct, nor did any insurance coverage lapse at any time. Although there were some 30 policyholders who were sold insurance by the Respondent, as the agent for a company not actually licensed in the State of Florida, that circumstance had no effect on the validity of the policy coverages involved and there were no actual "victims" of the Respondent's conduct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Petitioner, Department of Insurance, finding the Respondent, Wayne Harland Creasy, guilty of a violation of Section 626.901(1), Florida Statutes, in the manner found and concluded above and that a penalty of $3,000.00 be imposed, together with the award of $500.00 in attorney's fees. DONE AND ENTERED this 1st day of April, 1996, in Tallahassee, Florida. P. MICHAEL RUFF, 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 1st day of April, 1996. APPENDIX TO RECOMMENDED ORDER Petitioner's Proposed Findings of Fact 1-32. Accepted. Rejected, as constituting a conclusion of law and not a finding of fact. Accepted, in part, but subordinate to the Hearing Officer's findings of fact on this subject matter. Accepted, in a technical sense, but not in the sense that any overt, intentional effort to circumvent Florida law was committed by the Respondent. Rather, it was a negligent failure to act in a legal way due to being misled by Pacific Guardian Life Insurance Company, Ltd. or its officers or employees. Accepted, as to the factual allegations of the Administrative Complaint, but not as to their legal import, and subordinate to the Hearing Officer's findings of fact on this subject matter. Respondent's Proposed Findings of Fact The Respondent's proposed findings of fact are not ruled upon or considered because they were not timely filed, being approximately one month out of time with no motion for extension of time, during the originally-set time period, being filed. Consequently, the Petitioner's motion to strike the Respondent's proposed findings of fact and conclusions of law is granted. COPIES FURNISHED: Willis F. Melvin, Jr., Esquire Department of Insurance and Treasurer Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 C. Rabon Martin, Esquire Martin and Associates 403 South Cheyenne Avenue Tulsa, Oklahoma 74103 Bill Nelson, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner, Acting General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue A notice and order to show cause, issued to Respondent on January 15, 1992, seeks to terminate Respondent's grandfathered status under Section 626.988, F.S., and seeks to suspend or revoke Respondent's certificate of authority pursuant to Section 626.891, F.S. Various violations are alleged, including expanding the scope of functions being performed on April 2, 1974; soliciting prospective insurance customers by placing enclosures and solicitations in First Union Bank customers' bank statements; adding resident life agents; and allowing an unlicensed individual to solicit applications of insurance in Florida. The issues for resolution in this proceeding are whether the alleged violations occurred and if so, what discipline or remedial action is appropriate.
Findings Of Fact Respondent, First Union Mortgage Corporation (FUMC), is a North Carolina corporation with its principal place of business at 301 South Tryon Street, Charlotte, North Carolina. FUMC is a "financial institution agency" as defined in Section 626.988(1)(c), F.S. FUMC is a wholly-owned subsidiary of First Union Corporation, a registered bank holding company with headquarters in Charlotte, North Carolina. First Union Corporation is also a financial institution as defined in Section 626.988(1)(a), F.S. First Union National Bank of Florida, N.A., is a national bank authorized to do business in Florida and is a sister corporation of FUMC. Until February 8, 1987, FUMC was known as Cameron Brown Mortgage Company. Under that name it had engaged in certain insurance activities in Florida since the late 1960's. When Cameron Brown became FUMC there was no change in ownership, affiliation or corporate structure. Before and after the name change the company was owned by First Union Corporation. THE DECLARATORY STATEMENT On April 2, 1974, Section 626.988, F.S., took effect, prohibiting insurance agents or solicitors licensed by the Department of Insurance (DOI) from engaging in insurance agency activities as employees, officers, directors, agents or associates of a financial institution agency. The same section includes a "grandfather" provision for continued operation of financial institution agencies which were in existence and engaged in insurance agency activities as of April 2, 1974. FUMC represented to DOI that it was entitled to the grandfather exemption for its pre-1974 insurance agency activities, and in February 1988, FUMC filed a petition for declaratory statement pursuant to Section 120.565, F.S. for determination of its status. After notice to FUMC and to the public, a proceeding on the petition was conducted on March 30, 1988 by a staffperson of DOI appointed as hearing officer. On August 5, 1988, a declaratory statement was issued, and on September 2, 1988, an amended declaratory statement was issued. The latter statement finds in pertinent part: First Union Insurance Group (formerly the insurance division of Cameron Brown Company) was engaged in insurance agency activities prior to April 2, 1974. First Union Mortgage Corporation through First Union Insurance Group has continuously [word apparently deleted here] licensed agents and conducted insurance agency activities in Florida since and before April 2 1974. The scope of insurance agency activities continuously conducted by First Union Mortgage Corporation has been limited to: One life and health insurance agent, (Mr. Winifred Eugene Strickland), who served as an agent for the insurance division of Cameron-Brown Company while also serving as a salaried employee of American Heritage Life Insurance Company. Although Mr. Strickland apparently had one or more additional sub- agents involved in soliciting Cameron-Brown Customers, their involvement was sporadic and does not meet the test for "continuously engaged" so as to entitle First Union Mortgage Corporation to more than one life and health insurance agent. One non-resident property and casualty agent, (Charles Johnson). Mr. Johnson has been licensed as the successor agent for Mr. Hubert Reid Jones. Mr. Jones and Mr. Johnson sold, through countersignature relationships with Florida agents, property and casualty insurance prior and subsequent to April 2, 1974. The solicitation and servicing of customers of Cameron-Brown Company (now First Union Mortgage Corporation) was the focus of its insurance agency activities. . . . (Petitioner's Exhibit A Pages 3-4) The amended declaratory Statement also provides: . . . But for application of the "grandfathering" provisions of Section 626.988(5), Florida Statutes, any insurance agent or solicitor licensed by the Department of Insurance (the Department) would be prohibited from association with First Union Mortgage Corporation in insurance agency activities. . . . (Petitioner's Exhibit A Page 5) The amended declaratory Statement concludes as follows: . . . Pursuant to Section 626.988(5), Florida Statutes, the Petitioner's subsidiary, First Union Mortgage Corporation, is entitled to continue to engage in insurance agency activities through First Union Insurance Group by utilizing one licensed non-resident property and casualty insurance (Class 9-20) and one licensed resident life and health insurance agent. This recognition of grandfather status for Petitioner's subsidiary First Union Mortgage Corporation does not extend to Petitioner's subsidiary, First Union National Banks of Florida. First Union Mortgage Corporation may solicit prospective insurance customers so long as neither the Petitioner, First Union Corporation, nor any subsidiary bank plays an active role in such insurance solicitation through endorsements, bank mailings, providing space within bank offices, or similar activities. . . . (Petitioner's Exhibit A Pages 7-8) emphasis added. CERTIFICATE OF AUTHORITY AS "THIRD PARTY ADMINISTRATOR" In addition to its activities described in the amended declaratory statement, FUMC (then, Cameron Brown) was engaged in other insurance related activities prior to 1970. Under contracts with various life and health insurers Cameron Brown provided third party administrator services including receiving and reviewing applications, issuing policies, explaining and collecting premiums and accounting for and remitting premiums to the insurance companies. The insurance companies with whom Cameron Brown contracted handled the actual solicitation and sale of the policies. The contracts in effect in 1968, 1970 and 1978 between Cameron Brown and Minnesota Mutual Life Insurance Company were typical of the arrangements with other companies, according to Charles Johnson, Jr., retired vice president in charge of insurance agency operations at Cameron Brown. (Transcript, p. 102). As provided in the contracts with Minnesota Mutual Life Insurance Company, the administrative services were in connection with the mortgage insurance program made available by the insurance company to borrowers of Cameron Brown. (Respondent's Exhibits number 1, 2, 3). This included borrowers in the State of Florida, although the services were being provided out of Cameron Brown/FUMC's principal offices in Charlotte, North Carolina. Prior to 1983, when Chapter 626 Part VII, Florida Statutes was enacted, Florida did not regulate third party administrators as such. Section 626.8805, F.S. now requires a certificate of authority to be issued by the Department of Insurance (DOI). On or about September 26, 1986, Cameron Brown applied to DOI for authorization to operate in the State of Florida as a third party administrator. The application was prepared by Peter Nagle, senior vice-president of FUMC who had just recently joined what was then Cameron Brown. On the application, and later in October, in response to DOI's request for additional information, Nagle indicated that Cameron Brown had operated as an administrator of insurance plans since December 1983 and that the company was not providing such services on plans for Florida residents. This information was an inadvertent error, primarily the result of Nagles unfamiliarity with the company's history. There is no evidence that the information was material to a determination of the company's eligibility for certification. Nor is there evidence of any scheme by the company to conceal its past practices at the time of application in 1986. In its application Cameron Brown disclosed its affiliation with First Union Corporation, and further provided that First Union National Bank of Florida conducted only credit insurance activities in First Union Corporation locations in Florida. DOI issued a certificate of authority for Cameron Brown to operate as an administrator in the State of Florida on October 14, 1986. The cover letter provides, "the certificate is perpetual and shows no expiration date contingent upon your annual filing, due March 1st". (Petitioner's exhibit B, p.17) Those annual filings have been made, and on May 18, 1987, the certificate of authority was reissued in the name of FUMC. During the declaratory statement proceeding, the company's third party administrator status was never an issue. DOI never asked about, and FUMC never mentioned, the existence of its certificate or the company's insurance administration activities. The staff of DOI involved in the declaratory statement proceeding did not know about their agency's grant of the certificate to FUMC. Their pique at FUMC"s failure to affirmatively raise the certificate issue, however, is misplaced in the absence of any evidence that the outcome of the declaratory statement would have been altered with that knowledge. At most, the staff can only say that their investigation would have been different had they realized that FUMC was providing insurance administration services. INVESTIGATION AND ALLEGED VIOLATIONS After the third party administrator certificate was issued, and after the amended declaratory statement was issued, sometime in 1989, DOI began investigating all financial institutions claiming grandfathered status under Section 626.988, F.S. This included FUMC, and during a two day visit to the Charlotte, North Carolina headquarters, DOI staff, obviously other than staff involved in the certificate process, learned for the first time that FUMC was operating as an administrator of insurance plans. Even then this did not trigger further investigation of the administrator activities, as there was no evidence that the company was out of compliance with its amended declaratory statement. Approximately a year later, in the summer of 1990, DOI's Bureau of Agent and Agency Investigations began receiving inquiries regarding Monumental General Insurance solicitations mailed to First Union Bank customers in Florida. Gail Connell, DOI Analyst II, opened her investigation. A few months later complaints were received from insurance agents who were also customers of First Union Bank regarding solicitations done by American Heritage Life. The brochure from Monumental General sent to First Union Bank customers listed a toll-free number for the plan administrator, First Union Insurance Group, a division of FUMC. The mailing included letters from the president of Monumental General and the senior vice-president of First Union National Bank of Florida, with an enrollment form for a $1,000 no-cost accidental death group policy and optional additional coverage. Benefits and premiums for the additional coverage were explained in the brochure. A pre-paid postage reply envelope was addressed to "First Union Insurance Group, Plan Administrator, Attn: Daniel J. McPherson, Licensed Resident Agent, P. O. Box 2678, Jacksonville, Florida 32203-9851". (Petitioner's Exhibit C; pp. 157-163.) Daniel McPherson is not one of FUMC's grandfathered agents nor a successor to a grandfathered agent. The American Heritage Life mailings were stuffed in bank statements of customers of First Union National Bank. These mailings included a simple check- off form for the customer to return for more information and for a personalized quotation for term life insurance. Some mailings indicated return to "C. Dennis Wiggins, Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203- 9851", and others required return to "Robert T. Jones, Sr. Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203-2678" (Petitioner's Exhibit C, p 141, 154). Neither of these agents are FUMC's grandfathered agents or their successors. The American Heritage mailings also included a toll-free number for information. Gail Connell called that number and was eventually connected to a person identified as Sheila Auten, an insurance specialist for FUMC in North Carolina. Ms. Connell said to Ms. Auten that she was interested in more information about the term life policy addressed in the brochure. Ms. Auten asked questions about Ms. Connell's name, address, age, occupation and general health. Ms. Auten gave some history about American Heritage Life, estimated a premium for Ms. Connell, and offered to take her application over the phone. In response to Ms. Connell's question, she indicated that the completed application would be mailed to American Heritage Life in Jacksonville. Ms. Connell did not reveal her occupation as DOI investigator. Ms. Connell said she needed to think about the decisions and asked Ms. Auten to mail her something. A few days later Ms. Connell received a brochure explaining the product, a premium rate sheet and an application form. A few weeks later, when Ms. Connell did not return the application she received this letter from Sheila Auten: Dear Ms. Connell: Recently we sent you a proposal for term life insurance from American Heritage Life Insurance Company. I regret I have been unable to reach you by telephone to discuss it and answer any questions you may have. This term insurance is one of the best values on the market today. You can be sure it will provide you with a high level of life insurance protection at a very competitive rate. Once you decide to apply for this valuable insurance coverage, I would be happy to answer your questions or help you apply. Don't delay. Call me now at 1-800-366-8703. (Petitioner Exhibit C, p. 176) Ms. Auten is not licensed in Florida as an insurance agent or customer account representative. DOI considers it necessary for third party administrators to use licensed agents if they are engaged in solicitation of insurance. Based on her investigation, including a review of the compensation paid to FUMC for its agency activities compared to its administrator activities, Ms. Connell concluded that FUMC was using its administrator status to perform functions beyond the scope of its amended declaratory statement. She also concluded that FUMC was using unlicensed agents (Sheila Auten) to solicit insurance. These conclusions form the basis for the allegations in the agency's Notice and Order to Show Cause issued to FUMC on January 15, 1992. FUMC concedes that no grandfathered agent participated in the Monumental and American Heritage solicitations which triggered Ms. Connell's investigation. The two insurance companies solicit customers through direct mailings conducted by their licensed agents, which mailings go to customer lists provided by First Union National Bank of Florida or are enclosed in bank statements sent out by that institution. The bank has endorsed some of the products offered by the insurance companies. Other than provide marketing advice to the insurance company, FUMC plays no part at all in the sending or preparation of the mail solicitations. The bank sends out its statements; the insurance company or its agent, unaffiliated with FUMC, sends the inserts to the place where the bank statements are prepared; and a machine stuffs the inserts. The returned inquiry forms go to a Florida post office box, as indicated in paragraphs 18 and 19 above, and are forwarded to FUMC for its administrative support services. Those services include the further response to inquiries (as evidenced by Ms. Connell's encounter with Sheila Auten), review and approval of applications based on the insurance company's underwriting guidelines, entry into the administrative system, issuance of the policy and explanation to the customer, drafting the premiums out of the customer's account, and general servicing of the policy. These functions are consistent with administrator agreements between FUMC and Monumental General effective October 1, 1986; and FUMC and American Heritage Life effective November 1, 1989. There is no evidence that FUMC has been subject to discipline in the past, has operated unprofessionally or has caused harm or risk of harm other than through what DOI asserts is the impermissible involvement of a financial institution in the insurance business. It is primarily its status as a financial institution that has resulted in this proceeding against FUMC.
Recommendation Based upon the foregoing, it is hereby RECOMMENDED that the amended notice and order to show cause be dismissed. DONE AND ENTERED this 22nd day of October, 1992, in Tallahassee, Leon County, Florida. MARY CLARK 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 22nd day of October, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1476 The following constitute rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Fact Adopted generally in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 1. Adopted in paragraph 14. Adopted in paragraph 6. Adopted generally in paragraph 7, but the implied characterization of that order as establishing the only way that insurance activities might be conducted is rejected as discussed in the conclusions of law. Rejected as irrelevant. Rejected as an inappropriate characterization as a grant of exemption, as discussed in the conclusions of law. Adopted in part in paragraph 7, but the characterization of the order as a permit is rejected. See paragraph 8, above. Rejected as contrary to the evidence and law. Rejected as improperly precluding the possibility of Respondent's later presenting evidence of other activities in which it engaged as of April 2, 1974, if it is determined that third-party administrator status must also be grandfathered in order to continue. This was not an issue in the prior proceeding. Rejected as contrary to the evidence, as to deliberate concealment. Adopted in paragraph 14. Adopted in part, as to the first sentence. Otherwise, rejected as unsupported by the evidence. Rejected as argument rather than proposed finding of fact. Adopted in paragraph 12. 17-18. Adopted generally but Respondent's contention as to evidence in this proceeding is rejected, as provided in conclusions of law, paragraph 32. 19. Rejected as unnecessary. 20-27. Rejected as argument. 28-29. (not included in the filing). 30-33. Rejected as contrary to the weight of the evidence. Adopted in paragraphs 20-22, except for the characterization of the activity as "soliciting". Rejected as unsubstantiated by the evidence. This case establishes only that the department now interprets FUMC's administrator activities as solicitation, not that it is a policy supported by rule, procedure or reason. Rejected as contrary to the evidence. The level of compensation did not establish the association the department theorizes. Rejected as unsupported by the weight of the evidence. The response given by the witness on page 189 was a qualified, inconclusive response. Respondent's Proposed Findings of Fact Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 7. Adopted in paragraph 8. Adopted in paragraph 3. Included in Conclusions of Law. Adopted in paragraph 11. Adopted by implication in paragraph 11. 9-10. Adopted in paragraph 8. 11-14. Adopted in substance in paragraph 9. 15. Rejected as unnecessary. 16-17. Adopted in paragraph 12. Adopted in paragraph 14. Adopted in paragraph 12. Adopted in paragraph 13. Adopted in substance in paragraph 9, but there is no competent evidence that the same kinds of services were being provided since 1970. Rejected as unnecessary. Adopted in paragraphs 4 and 14. Adopted in paragraph 7. 25-26. Adopted in substance in paragraph 6. 27-31. Rejected as unnecessary. Adopted in paragraph 13. Adopted in paragraph 15. Adopted in substance in paragraph 7. Adopted in paragraph 15. 36-37. Adopted in paragraph 7. Addressed in Conclusions of Law. Rejected as unnecessary and cumulative. Adopted in paragraph 25. 41-42. Adopted in paragraph 26. 43-44. Rejected as cumulative and unnecessary. 45. Adopted in paragraph 26. 46-49. Adopted in paragraphs 20-22. Included in Conclusions of Law. Rejected as cumulative and unnecessary. 52-53. Adopted in paragraph 27. COPIES FURNISHED: Lisa S. Santucci, Esquire Dennis Silverman, Esquire Department of Insurance Division off Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 J. Thomas Cardwell, Esquire Virginia B. Townes, Esquire Akerman, Senterfitt & Eidson, P.A. Post Office Box 231 255 South Orange Avenue Orlando, Florida 32802 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-2152 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner Donna Danzis is a retired state employee and is entitled to reinstatement of her policy of State Life Insurance Plan.
Findings Of Fact The Petitioner was an employee of the Florida Department of Children and Family Services (DCF) through October 28, 2005. On October 28, 2005, she voluntarily terminated her employment. At the time she terminated employment she had been covered under the Plan. The Plan is made available to state employees and retirees through the DSGI, in accordance with Section 110.123, Florida Statutes (2006). The terms and conditions of employee participation in the plan are provided for in Florida Administrative Code Rule Chapter 60P-3. The Petitioner was a cancer patient at times pertinent hereto and that may have played a role in her decision to terminate her employment. In any event, her employment termination was voluntary and occurred during a time apparently when she was undergoing chemical therapy concerning her cancer issues. Prior to the time she terminated her employment on October 28, 2005, the Petitioner did not discuss her plans to retire with DCF Human Resources Personnel. She had, however, apparently applied for disability retirement, although that disability retirement status had not yet been determined or granted at the time she terminated her employment. After termination of employment, on or about November 24, 2005, the Petitioner contacted DCF personnel office and spoke with Mr. Harvey Whitesides. During that conversation, Mr. Whitesides determined that the Petitioner had had deductions from her paycheck to cover premiums for three types of insurance coverage: state health insurance, a group life insurance plan, as well as state security insurance. The later type of insurance is an optional supplemental life insurance that is not a part of the Plan. In that November 24, 2005, conversation with Mr. Whitesides, the Petitioner told him that she had terminated her employment with the state but did not inform him that she had applied for disability retirement. During their conversation she told Mr. Whitesides that she wanted refunds that she was entitled to from the state health insurance and group life insurance plans. Mr. Whitesides was supervisor of payroll for DCF and its predecessor agency from 1993 through 2002. In that position his duties included management of the benefit section and retirement operations within the DCF. While her performed his duties as supervisor he would commonly assist employees in their preparation of the forms necessary to affect retirement. Mr. Whitesides retired in 2003, but returned to DCF as an employee in March 2004. Beginning in June 2004, he assumed the duties of DCF personnel services specialist. In July 2005, his position and duties were transferred to the Agency for Persons With Disabilities. Since returning to state employment in March 2004, Mr. Whitesides duties have been substantially the same as those he performed from 1993 through 2002. These included the processing of benefits and retirement requests submitted by employees. In the course of performing those operations he has always assisted employees in the completion of the form required to apply for retirement. Since 1993, Mr. Whitesides has used a "continuation/termination form," for retiring employees who upon retirement wished to continue their state group life insurance. Beginning in March 2004 when he returned to state employment, Mr. Whitesides had access to and used that same continuation/termination form. He did not offer the form to the Petitioner during their conversation on November 24, 2004, however, because the Petitioner did not then inform him that she had applied for retirement. Mr. Whitesides did not learn that the Petitioner had applied for retirement until he received a letter from the Division of Retirement (DMS) dated December 14, 2005, which asked that the DCF provide information and data necessary to calculate Ms. Danzis retirement benefits. Mr. Whitesides provided the date requested by DMS, including the "Florida Retirement System Pension Plan Salary Certification." Prior to the receipt of the letter dated December 14, 2005, the Petitioner had not informed anyone in the DCF personnel office that she had applied for disability retirement. Florida Administrative Code Rule 60P-3.014 requires that an employee who retires and is covered under the life insurance plan must elect one of the following options: (1) submit a request to continue coverage during retirement accompanied by a personal check or money order for one full month's premium, which must be received by the employee's former agency and forwarded with the original application no later than 31 calendar days after the last day of employment; or (2) that the retiring employee must submit a request to terminate coverage under the life insurance plan no later than 31 calendar days after the employee's last day of employment. That rule goes on to provide that an employee who applies for disability retirement and has not received approval of that prior to his last day of employment but who is covered under the life insurance plan on that last day of employment has the option to continue coverage in the life plan pending such retirement disability approval or rejection by submitting a request to continue coverage in accordance with Florida Administrative Code Rule 60P-3.014(1)(a) and by paying the full premium for each month's coverage by personal check or money order to his or her former personnel office. Concerning employees or retirees off the payroll, if it is determined that none of the required contribution by the end of the coverage month the coverage will be cancelled and the retirees coverage will be terminated effective the first day of that month. A retired employee whose coverage is terminated in accordance with subsection (1) or (2) of Rule 60P-3.010 may not re-enter the Plan. The Petitioner did not submit a continuation/termination form within 31 days of the date of her termination of employment stating that she wished to continue her participation in the plan, and provide the other information required by Florida Administrative Code Rule 60P-3.014(1)(a). The Petitioner did not submit a month's premium for life insurance within 31 days after the last date of her employment. The only notice that Ms. Danzis gave, or attempted to give, was notice that she was voluntarily terminating her employment and that her last date of work would be October 28, 2005. Because she did not elect to continue her participation in the life insurance plan through the proper procedure and filing, the Agency canceled her life insurance, thus generating the subject dispute.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Management Services, Division of State Group Insurance determining that the Petitioner failed to properly elect to remain a covered retiree of the State Life Insurance Plan, and that the Petition be dismissed. DONE AND ENTERED this 4th day of April, 2007, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with Clerk of the Division of Administrative Hearings this 4th day of April, 2007. COPIES FURNISHED: Donna Danzis 7744 State Road 100 Keystone Heights, Florida 32656 Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florid 32399-0950 Sarabeth Snuggs, Director Division of Retirement Department of Management Services Post Office Box 9000 Tallahassee, Florida 32315-9000 John Brenneis, General Counsel Division of Retirement Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
The Issue The issue for consideration is whether Respondent's licenses and eligibility for licensure as a life agent, a life and health agent, a general lines agent, a health agent and a dental health care contract salesman in Florida should be disciplined because of the matters set forth in the Administrative Complaint filed herein.
Findings Of Fact At all times pertinent to the matters in issue herein, the Department of Insurance and Treasurer was the state agency in Florida responsible for the licensing of insurance agents and regulation of the insurance industry in this state. Respondent, Michael Charles Peppe was and is currently licensed and eligible for licensure in Florida as a life insurance agent, a life and health insurance agent, a general lines agent and a health insurance agent. He was an officer and director of M. Peppe Agency, Inc., a Florida corporation. During the period in issue herein, Respondent's agency had a brokerage agreement with William Sanner and Mary Lou Sanner who were employed as sub- agents. Constance Abraham, an 85 year old widow first met William Sanner when she moved to Ft. Lauderdale, some 20 or so year ago. They were neighbors in the same apartment building. At that time she was insured with Mutual of Omaha and her policy was transferred to him, an agent for that company, for service. Over the years she purchased quite a bit of other insurance from him. They were all different kinds of health insurance policies and over time, she estimates, she purchased somewhere around 50 policies. During the period between 1985 and 1991, Mrs. Abraham purchased numerous health policies for both herself and her son through Mr. and Mrs. Sanner, though she does not recall ever having dealt with Mrs. Sanner. Records disclose that her coverage was placed with nine different companies and provided coverage in such areas as Medicare Supplement, nursing home insurance, cancer insurance, and hospital expense - indemnity insurance. Over the years approximately 60 policies were issued through Respondent's agency to either Mrs. Abraham or her son. The applications were taken by Sanner who would collect the initial premiums and forward both to Respondent's agency for processing to the various insurers. Some policies were signed by Sanner as agent of record and some were signed by Respondent in that capacity. Only a few were signed by Mrs. Sanner. Mrs. Abraham claims she didn't realize how much health insurance she had. Mr. Sanner would come to her apartment and talk to her about a new policy and she would abide by his advice. Her purchases amounted to approximately $20,000.00 per year in premiums which she would pay by check to Mr. Sanner. At no time did she ever deal with or meet the Respondent, Mr. Peppe. She did not question Sanner deeply about why he was selling her so much insurance. Whenever she asked about a new policy, he would usually have what appeared to he to be a good reason for it such as something was lacking in her coverage. Even when she recognized he was selling her duplicate coverage, he told her it was a good idea to have more. At no time did he or anyone else tell her she had too much insurance. Mrs. Abraham claims to know nothing about insurance herself. However, she was cognizant of the nature of the policies she had, utilizing without prompting the terms, "indemnity", "supplemental", and "accident." Mr. Sanner would come to her home at least once a month She trusted him to help her with her health insurance and would talk with him whenever a policy came up for renewal. On some occasions he would recommend she renew and on others would recommend she drop that policy in favor of another. At no time was she aware, however, of the fact that she was duplicating policies. She also claims she never had to tell Mr. Sanner what she wanted from her coverage. He always seemed to know and would handle not only the purchase of her policies but also the filing of her claims. She can recall no instance where she asked for any coverage and he tried to talk her out of it. Mrs. Abraham denies she was the person who complained to the Department. It was her daughter who noticed what was going on and took matters into her own hands. At no time did either Sanner or the Respondent attempt to contact her after the complaint was filed. Mrs. Abraham and her husband had four children. Her son, Lewis, who is somewhat retarded, lives with her and she also purchased some policies for him. Over the years she has had many occasions to file claims under her policies. It is important to her that she have protection to provide full time care if necessary because she has no family locally to provide that care for her. She had coverage that provided nursing care, a private room in the hospital, and some policies which provided for extended or nursing home care. She recognizes that such care is expensive and wanted enough policies to give her total coverage without out of pocket expense if the care was needed. She keeps track of the policies she has on her personal computer and has been doing so for some six or seven years. She apparently is sufficiently computer literate that she knows what she has and what she is doing. Mrs. Abraham owns a condominium at the Galt Ocean Mile apartment in Ft. Lauderdale. The $20,000.00 figure in policy premiums she mentioned were for her policies only. Those for her son were extra. She has sufficient income from stocks and bonds to pay her premiums, pay her mortgage, and still live comfortably. Her son has his own income from a trust fund and his own investments. At one point in time, when Mrs. Abraham had some recurring health problems and was in and out of hospitals regularly, she received in benefits far more than her actual expenses and made a tidy profit. Nonetheless, she adamantly disclaims she purchased the policies she had for that purpose claiming instead that she wanted merely that both she and her son be able to pay for the best medical care possible in the event it is needed. To that end, Lewis Abraham has filed very few claims against his carriers. Most, if not all, of the companies which provided the coverage for Mrs. Abraham and her son have limits on the amount of total coverage any one policy holder can have in any line of insurance. The limit is cumulative and not limited to policies with a specific company. Taken together, the policies in force for Mrs. Abraham in some cases exceeded that limit and had the insurers been made aware of the totality of her coverage, their policies would not have been issued. This information was not furnished to the companies, however, by either Sanner or Respondent. In addition, on many of the policies the mental condition of a policy holder must be disclosed if that person is retarded or not fully competent. Respondent did not know of Lewis' condition though Mr. Sanner was fully aware of it both as it related to his retardation and his drop foot. On none of the policy applications relating to him, however, was either ever mentioned. Some companies indicated that if Lewis's mental and physical condition had been properly disclosed on the application, they either would not have issued the coverage or, at least, would have referred the matter to the underwriter for further evaluation and a determination as to whether to issue the policy and if so, at what premium. Even more, Lewis' physical and mental condition may have caused the company to decline payment of a claim within two years of issuance of any policy actually written. Respondent received monthly statements from the various insurers with whom his agency did business detailing the transactions for that month. Commissions on each sale were paid by the insurers to Respondent's agency and thereafter, pursuant to an agreement between Respondent and Sanner, the commissions were divided. The commissions paid to Respondent's company by the insurers on all these policies amount to in excess of $18,000.00. Respondent asserts that Mrs. Abraham knew exactly what she was doing and was, in effect, conducting if not a scam, at least an improper business activity through the knowing purchase of duplicative policies and redundant coverage. This well may be true, but even if it is, Mr. Sanner was a knowing accomplice and participant. In addition, while it is accepted that Respondent might not know the status of every policy purchased through his agency or the total activity with any particular client, when his name appears as signatory on policy applications forwarded to a company for whom he accepts or solicits business, as here, it is hard to find he did not have at least a working familiarity with the business written by his sub-agents . This finding is supported by the analysis done of Respondent's pertinent activities here by Milton O. Bedingfield, a 39 year insurance agent and broker for 10 companies, a Certified Life Underwriter, and an expert in life and health insurance. Mr. Bedingfield concluded, after a review of all the policies written for the Abrahams through Respondent's agency, there was a gross oversale of policies and repeated omissions of pertinent information on policy applications. He found a duplication of benefits and overlapping coverage, all without legitimate purpose, especially for an 85 year old woman. Since the average hospital stay is less than 2 weeks, she would not likely benefit from her insurance for the stay. He could not see where Mrs. Abraham would get back in benefits what she has paid in premiums. In Mr. Bedingfield's opinion, this is the worst case of oversale he has seen in his 39 years in the insurance business. He contends the agent stands in almost a fiduciary capacity to his clients - especially the aged who rely on their agent to properly advise them on adequate coverage. There is often an element of fear involved that the unscrupulous agent can profit from. Here, he feels, Respondent's practice falls far short of the state's standard of acceptability on the sale of Medicare Supplemental insurance. On balance, however, Mr. Bedingfield does not know if all the policies he saw stayed in force throughout the period of the policy. Many could have lapsed or been cancelled. In all fairness, as well, where insurance is brokered, as here, the ultimate placing agent normally does not meet the client but must rely on what he is told by the offering agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Administrative Complaint filed against the Respondent in this case, Michael C. Peppe, be dismissed. RECOMMENDED this 11th day of December, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-2708 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. & 2. Accepted and incorporated herein. Accepted and incorporated herein. - 9. Accepted and incorporated herein. Accepted and incorporated herein. & 12. Accepted and incorporated herein. 13. & 14. Accepted and incorporated herein. 15. - 18. Accepted and incorporated herein. Accepted. Accepted. & 22. Accepted. Rejected as not supported by evidence or record except for the fact that Respondent sign and processed applications and premium payments and received a financial benefit from the sales. Accepted. FOR THE RESPONDENT: Accepted so far as it relates Ms. Abraham was well informed and aware of her coverage. Not established, but insufficient evidence of actionable misconduct. Accepted. - 6. Not proper Findings of Fact but more Conclusions of Law. Accepted. Not a proper Findings of Fact. COPIES FURNISHED: James A. Bossart, Esquire Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Thomas F. Woods, Esquire Gatlin, Woods, Carlson & Cowdrey 1709-D Mahan Drive Tallahassee, Florida 32308 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue is whether the petitioner's applications for qualification and for examination as an insurance agent should be granted.
Findings Of Fact Wallace F. Sharrett applied on or about May 14, 1987, for qualification as a general lines agent or solicitor for insurance, and also applied for examination as a life and health insurance agent. On or about July 30, 1987, he filed another application for examination as a life and health agent. On all these applications he listed his social security number as 113- 20-3677. His social security number is actually 113-30-2677. All three applications contain the same question #6, which asks: Have you ever held an insurance license in this or any other state? On all applications Mr. Sharrett answered "no." All three applications also contain question #11: Does any insurer or general agent claim that you are indebted under any agency contract or otherwise? If so, state name of claimant, nature of claim, and your defense thereto. To all three questions, Mr. Sharrett checked the box labeled "no." On all three applications, in response to question 14(b), asking, "What insurance experience have you had?", Mr. Sharrett answered "none." Mr. Sharrett previously had sought and had been issued licenses and qualifications by the Florida Department of Insurance to represent insurance companies as follows: Security Life Insurance Company of Georgia, issued August 26, 1977. Conger Life Insurance Company, issued October 20, 1977. Security Life Insurance Company of Georgia, issued January 31, 1979. Coastal States Life Insurance Company, issued July 12, 1979. Hartford Life and Accident Insurance Company, issued June 26, 1981. Mr. Sharrett has held no Florida licenses or qualifications for licensure for any insurers since 1984. From October 3, 1977, through December 27, 1978, Mr. Sharrett had been employed by Conger Life Insurance Company of Miami, Florida. After his termination, an internal audit of Mr. Sharrett's accounts at Conger Life was performed. The internal audit dated January 31, 1979, showed that Mr. Sharrett owed the company $707.66. Thereafter, Mr. Sharrett made payments of $510.14, and Conger Life's records show that as of March 31, 1979, based on total payments, and additional shortages allocated to Mr. Sharrett's account, he owed Conger Life $388.74. After Mr. Sharrett's termination of employment with Conger Life, he applied to become a salesman with Security Life Insurance Company of Georgia. On February 7, 1979, the agency vice president for that company, J. H. Phillips, wrote to Conger Life for information about Mr. Sharrett, and said: We particularly would be interested in, did he leave your company without a deficiency. On February 12, 1979, Mr. Henry J. Spaman of Conger Life wrote to Mr. Phillips stating He was employed by [us] from 10/3/77 to 12/22/78. He left our employment with a shortage of considerable amount which we are in the process of taking legal action [sic]. We also have reported to the State Department of Insurance the shortage and have been assured that it will be investigated. Nevertheless, Mr. Sharrett thereafter was hired as a salesman by Security Life Insurance Company of Georgia. Apparently the payment which Mr. Sharrett made of $510.14 settled his account with Conger Life Insurance Company to the satisfaction of Security Life Insurance Company of Georgia. Conger Insurance Company still maintains, however, that Mr. Sharrett is indebted to it in the amount of $388.74. No legal action to collect that amount from Mr. Sharrett has ever been taken, nor is there any evidence of a demand for payment being directed to him since his payment of $510.14 to Conger Life during the first quarter of 1979. Mr. Sharrett did not list his prior licenses to sell insurance on his recent applications because he had discussed his applications with a retired insurance agent, Mr. Morrelle, who had been an agent with Independent Life Insurance Company for 27 years, Mr. Morrelle told Mr. Sharrett that it was not necessary to list jobs with insurance companies which were more than five years old. Mr. Morrelle had not looked at the applications themselves, and did not know that the question about whether the applicant ever had been licensed in Florida or any other state has no time limit. Mr. Raines, the district sales manager for Independent Life Insurance Company, the company for which Mr. Sharrett will work if licensed, stated that he did not know that Mr. Sharrett had been employed by five different insurance companies. Independent Life's own background check of Salespeople through Equifax only goes back five years. Mr. Sharrett was employed by Independent Life from May 4, 1987, to January 22, 1988, and was a good employee. After this case began, Mr. Sharrett filed an amended application with the Department, dated February 17, 1988. In that application Mr. Sharrett listed his correct social security number, but with regard to question number 6 (concerning other insurance licenses) he listed only Conger Life Insurance Company, Security Life Insurance Company, and New England Life Insurance Company. He neglected to mention his licensure with Coastal States Life Insurance Company and Hartford Life and Accident Insurance Company. The Department has no record that Mr. Sharrett was qualified to represent New England Life Insurance Company. With respect to question number 11 (concerning whether any insurer or general agent claimed that Sharrett was indebted under any agency contract) on the amended application, he again answered "no." On question 14(b), Mr. Sharrett acknowledged 2 years experience in the insurance business in the amended application. The Hearing Officer finds no material misrepresentation with respect to question number 11 (claims of indebtedness by insurance companies) on any of the applications Mr. Sharrett filed. He had no reason to believe that Conger Life Insurance Company continued to maintain that he was indebted to it. Conger Life has never taken any action to collect the $388.74 it maintains Mr. Sharrett owes it. His payment of $514.14 during the first quarter of 1979, shortly after his termination with Conger Life settled the dispute between Conger Life and Mr. Sharrett. In making this finding, the Hearing Officer is persuaded that the dispute between Mr. Sharrett and Conger Life Insurance Company was made known to Security Life Insurance Company in February 1979, and it is more likely than not that both Security Life Insurance Company of Georgia and Mr. Sharrett were satisfied that an agreement had been reached with Conger Life about Mr. Sharrett's indebtedness to Conger Life before he would have been employed by Security Life. Mr. Sharrett did, however, make material misrepresentations in his applications for licensure. While the transposition of numbers on the portion of the application asking or a social security number would not, by itself, be sufficient proof of an intentional misrepresentation, although it would impede investigation into the applicant's background, the error in the social security number in the three original applications is highly significant in conjunction with two other facts: Mr. Sharrett did not reveal in answer to question 6 that he had been licensed to sell insurance in Florida before. Even crediting Mr. Morrelle's testimony that he told Mr. Sharrett it was not necessary to list insurance licenses more than five years old, a plain reading of the form would show that question 6 has no time limit on it, whereas question 10 asks for a record of employment "for the past five years" and is time limited. Minimal attention to the questions asked on the form would have put Mr. Sharrett on notice that he was required to disclose all past insurance licenses. This would have brought to light Mr. Sharrett's dispute with his prior employer, Conger Life, which he would be required to explain. Mr. Sharrett stated that he had no insurance experience in answer to question number 14(b). All these answers were simply untrue. The error in the social security number, the failure to list past licenses Mr. Sharrett held in Florida on three applications, the failure to correctly list past licenses on the fourth (amended) application, and the failure to acknowledge any past insurance experience, leads the Hearing Officer to find purposeful misrepresentation of Mr. Sharrett's past. These misrepresentations raise questions about Mr. Sharrett's trustworthiness. Although the dispute Mr. Sharrett had with Conger Life in 1979 can be explained and would not, in itself, disqualify him from licensure, several of the items of misinformation on his licensure applications apparently were designed to impede the Department from learning of the settled dispute with Conger Life. This misrepresentation is disqualifying.
Recommendation It is recommended that the applications of Mr. Sharrett for qualification and for examination as an insurance agent be denied. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 27th day of June, 1988. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9765 Filed with the Clerk of the Division of Administrative Hearings this 27th day of June, 1988. APPENDIX The following are my rulings on the proposed findings of fact submitted by the petitioner pursuant to Section 120.59(2), Florida Statutes (1987). Covered in finding of fact 5. General covered in finding 6-9, whether the indebtedness was on the payment bond or is general indebtedness is not relevant. Covered in finding of fact 12. [Introduction] The content of the original applications are recounted in findings of fact 1-4. 4(a). Rejected as unnecessary. 4(b). Sentence 1 covered in finding of fact 1, the remainder rejected for the reason stated in findings of facts 17 and 18. 4(c). Rejected for the reason stated in finding of fact 17(a). 4(d). Accepted in finding of fact 16. Rejected as unnecessary. Covered in finding of fact 13. The following are my rulings on the proposed findings of fact submitted by the respondent pursuant to Section 120.59(2), Florida Statues (1987). Covered in finding of fact 5. Covered in finding of fact 6. Covered in finding of fact 8. 4(a). The name used on the application is not a problem. Concerning the social security, see finding of fact 1. 4(b). See finding of fact 1. 4(c). See finding of fact 1. [Appears to be misnumbering] Rejected as unnecessary. Rejected as unnecessary. Covered in finding of fact 11. Covered in finding of fact 12. Covered in findings of facts 1, 2, 3, 4, and 5. Same as previous ruling. Same as previous ruling. Covered in findings of facts 16, 17, and 18. COPIES FURNISHED: Mr. Wallace F. Sharrett 109 Southwest Third Avenue Hallendale, Florida 33009 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Don Dowdell General Counsel State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times pertinent to this proceeding, the respondent Jules Maxwell Hanken was licensed as an ordinary life, including disability, agent in Florida, and was the President of Gulf Health/Life, Inc. in St. Petersburg, Florida. Though some administrative and supervisory duties were delegated to other individuals, respondent was the ultimate supervisor of insurance agents and employees at Gulf Health/Life. Respondent assumed the primary and major responsibility for training, directing and instructing employees to work as insurance salesmen within the agency. COUNTS I and VI The American Benevolent Society, Inc. was formed by the respondent and others in mid-1978, and was incorporated on November 22, 1978. The organization was described as "a society devoted to the welfare and benefit of independent Americans." Among its stated purposes was the provision of information and referral services dealing with medical, legal, benevolent, financial and recreational matters. The ABS also provided a newsletter and discounts to its members from numerous area businesses and dining establishments, as well as travel discounts and information. The membership fee was $15.00 for an individual and $25.00 for a family. New members were advised that one of the functions of the ABS was to solve the problem of high medical costs, and that members having difficulties with insurance claims could receive aid from the ABS. The offices of the ABS were located in the same building as Gulf Health/Life, Inc., but a separate telephone number and listing was maintained for the ABS. Employees of Gulf Health/Life, Inc. who answered the ABS telephone were instructed to not let callers know that the ABS office was in the Gulf Health office and to inform ABS callers that their insurance agent was not located at that office. In the sale of accident and health insurance, which was a major portion of the insurance sold at Gulf Health/Life, Inc., efforts were made by the respondent to offer insurance which would provide a discount in premium to members of the ABS. Apparently, respondent attempted to have the ABS endorse various insurance companies in return for members of the ABS receiving a "group" or "association" premium which would be less than the premium for an individual purchasing the same insurance. CNA did provide such a plan on one of its policies for individual members of the ABS, as well as for other associations, whereby the premiums for ABS members were slightly lower (approximately $10.00 per individual) than for members of the general public purchasing the same insurance. Neither Massachusetts Indemnity and Life Insurance Co. nor Founders Life Assurance Co. offered any group rate or reduction in insurance premiums to members of the ABS. Insurance salesmen employed at Gulf Health/Life, Inc. were instructed and directed by the respondent to also sell membership in the ABS. They received a commission for each membership sold and most sales were made at the same time as sales of insurance policies were made. It is estimated that approximately ninety-five percent (95 percent) of the ABS members also had insurance with a company represented by Gulf Health/Life, Inc. Respondent's insurance salesmen were directed in writing to always explain to the customer the difference between the ABS and the insurance company, to always collect separate checks and give separate receipts for the ABS membership fee and the insurance premium, and to require new ABS members to sign a form whenever they purchased insurance expressly acknowledging that the ABS was not the insurance company and that the endorsement and recommendation of insurance by the ABS did not imply or guarantee any discount in insurance premium. The respondent's agents were also required to place their signature on this form. In addition, the printed application form for membership in the ABS stated, in relevant part, as follows: I . . . am not joining as a prerequisite to obtaining insurance . . . and I realize that the A.B.A. insurance endorsement in no way implies or guarantees any discount or deviation from the ordinary premium established for the policies included. It is understood that the Society is not the insurance company." Respondent's salesmen were directed to obtain from each new ABS member the names of other persons who might be interested in ABS membership, and the amount of the salesman's commission for each ABS sale was dependent upon the number of referrals contained in each application. For example, an individual application for ABS membership with no referrals earned the salesperson a commission of $4.50, while an application with three referrals merited a commission of $7.50. Membership agents for the ABS, who were also licensed insurance agents, were required to sign a document acknowledging their understanding that monies collected for ABS were to be maintained separately from insurance premiums, that no preferential recommendations were to be made for insurance plans endorsed by the ABS over other plans which the agent was licensed to represent and "that solicitation of ABS members is in no way connected to or reliant upon insurance plans, programs, or policies, as no person's ability to obtain any insurance is helped or hindered by ABS membership; however, membership must be established prior to insurance solicita- tion through the American Benevolent Society. In contrast to the above-discussed specific written instructions and disclaimer forms requiring the signatures of agents and new customers, several agents employed by the respondent were of the opinion that those written forms and instructions were not consistent with what agents were verbally directed by respondent to use as a sales presentation. These agents believed that respondent, during the training sessions, was instructing them to blur together the presentations for sales of insurance and ABS membership so that the customer would believe that they could obtain better insurance (either in terms of coverage or lower premiums) through membership in the ABS. The agents were instructed in a sales technique which would begin with an explanation to the customer as to how difficult it is, because of the customer's age and/or physical condition, to obtain proper insurance coverage and then to explain that the ABS was formed for the purpose of solving those problems, could help its members in obtaining better and lower cost insurance, and could ultimately help them in their claims with the various companies. These agents admitted that they were instructed to avoid the term "group insurance," but stated that they were to use other terminology to suggest an association or group. Several former agents and employees testified that they received a "negative commission," or a reduction in their usual insurance commission, if they sold insurance to a customer without simultaneously selling that customer a membership in the ABS. No documentary evidence was offered to substantiate this testimony. Some of the respondent's insurance agents did tell customers that they had to be a member of the ABS before they could obtain certain insurance. These agents did, however, sell insurance without ABS membership and did sell ABS membership without insurance. They also sold ABS memberships simultaneously with the sale of insurance policies with companies which offered no benefits for ABS members. As noted above, CNA did offer a slight discount in premium on one of its policies to members of the ABS. The only three customers called as witnesses by the petitioner in this proceeding did join the ABS in order to acquire what they believed to a be a cheaper, group rate for their CNA policies, and to obtain discounts on other products. These customers did receive the discount provided to ABS members on at least one of the CNA policies purchased through respondent's agents. The agent did not explain the exact amount of the discount to them as compared with the ABS membership fee, nor did the agent compare the premiums with individual, as opposed to group, premiums. No other members of the ABS (which at one time had a membership of 700 or 800 persons) or the general public were called by the petitioner to testify in this proceeding. 1/ The only other member of the ABS who testified was called by the respondent, and he testified that he purchased a membership in the ABS after he bought insurance from one of the respondent's agents. He was told membership in the ABS would bring him certain services, benefits and discounts, but was not told he would receive a discount or reduction in his insurance premium. This witness was named in the Administrative Complaint as being one of the victims of the deceptive sales practices directed or authorized by the respondent. Insurance agents at Gulf Health/Life used various titles on their business cards and in reference to themselves. Some utilized the word "counselor," while others were referred to as "Regional Group Director." The purpose of utilizing the term "counselor" was not to disguise the fact that an agent was an insurance salesman, but rather to avoid the often poor public image associated with an insurance salesman. Upon inquiry to the State Insurance Commissioner's Office, the respondent's office was informed by letter dated January 21, 1980, that there was no statutory prohibition against use of the term "counselor" by insurance agents. An Insurance Department rule was referenced which prohibits the representation by an agent that he is a "counselor, advisor or similar designation" for any group or association of medicare eligible individuals, which representation does not reflect the true role of the agent in the solicitation of insurance. Salesmen were encouraged by respondent to avoid discussions with customers regarding the commission they may make on a potential sale. This was emphasized in training sessions for the purpose of illustrating what the proper attitude of an insurance salesman should be; to wit: to sell customers what they need and not what the salesman desires in terms of a commission. Respondent's employees and agents were not instructed to inform customers that they were not insurance salesmen or that they did not receive remuneration by way of commission. COUNT II Some thirty years ago, Earl Jacobs, a professional photographer prior to joining respondent's insurance company, constructed what he calls a "safe light." This is a wooden box which has a lightbulb in it and a glass filter across the face. The light can be openly used in a darkroom while working with light-sensitive photography paper. For some period of time, this device was kept on the premises of Gulf Health/Life, Inc. because the agency was putting together a brochure with each agent's picture. The restroom area was considered to be an ideal darkroom facility for the processing of prints. The "safe light" is referred to as a "light box" in the Administrative Complaint. Former employees and agents observed this device either in the closet of the woman's restroom or under the desk of Lynda C. Rushing, Vice President of Gulf Health/Life, Inc. Five witnesses observed the device in use by Lynda Rushing while either kneeling on the floor near her desk or while in another room. While it appeared to these witnesses that Ms. Rushing was using the device to trace customers' signatures onto insurance documents, no such documents were produced, no insured's name was given, nor did any customer or member of the general public present testimony as to a signature which was not genuine. 2/ Respondent ordered the device removed immediately after he was informed by a secretary that an irate customer had been in the office complaining that a signature on an insurance policy was not his signature. Applications and other insurance documents were frequently returned to respondent's agents for the purpose of obtaining an omitted signature. There was no testimony or other evidence in this proceeding to indicate that respondent Hanken ever used the device known as a "light box," or that he directed other employees to use this device to trace signatures. COUNT III Many, if not most, of the individuals employed by the respondent as insurance agents had no prior insurance experience. Sales techniques and practices were taught them by the respondent through extensive training sessions and the use of a sales manual called Psaleschology, which was primarily authored by the respondent. Agents were instructed to learn and were tested on the concepts expressed in the sales manual. The training sessions involved role- playing between the respondent and an agent, utilizing the concepts expressed in the manual. During the early stages of an agent's training, he was required to complete a form when he did not effectuate a sale, listing which steps in the manual were not followed by the salesman. While some salesmen believed that they were expected to follow the manual "verbatim" in their sales presentation, others, including the respondent, felt that the manual and the concepts expressed therein were simply guidelines or reminders of the principles of the psychology of salesmanship. Respondent considered the manual's purpose to be one of introducing to the salesman a formal attitude about selling and a demonstrative learning instrument. The sales manual under which the respondent's agents were trained does utilize the concepts of "MID/TIA" (Make It Difficult/Take It Away"); fear and greed, and fabrication. As explained by the respondent, these concepts of reverse psychology, motivation by relating to strong human emotion and demonstrations of risk are common techniques in salesmanship. They can as readily be described as concepts concerning the theory of supply and demand, the recognition of people's concerns and desires as motivating factors and the personalization of real events by fabrication of the characters. During a training session, the respondent related to his salesmen that he had once used the technique of telling an insurance customer who was reluctant to speak with him that he had come there to give the customer a Maas Brothers gift certificate. This was cited as an example of a method to persuade the unreceptive customer to open the door. There was no testimony that any of the respondent's salesmen ever actually used that technique or that respondent ever actually directed his employees to use such a technique. Maas Brothers gift certificates were in fact given to customers by Gulf Life/Health employees for a period of time when the customer gave an agent referrals for other sales. The respondent's manual does contain suggested techniques of reinstating lapsed policies by providing option or adjustment alternatives. One agent, who testified that he followed the respondent's manual literally during his early months with the company, stated that he would tell customers whose policies were about to lapse that they had a specific refund or monetary adjustment due them. This technique was utilized to gain entrance to the customer's home and to resell them insurance. This agent's technique was reported to the respondent by another agent, and respondent directed him to cease using the "refund" approach to reinstate lapsed policies. There was no testimony from any purchaser of insurance, potential insurance customer or other member of the general public that the techniques set forth in the respondent's sales manual or emphasized in his training sessions were actually practiced to the extent that the customer was frightened, coerced or deceived into purchasing insurance from the respondent's agency. 3/ COUNT IV Prior to becoming licensed to sell policies for Massachusetts Indemnity and Life Insurance Company, agent Edmund Shoman solicited and obtained applications for insurance with that company. Vice President Lynda Rushing, who was licensed with that company, signed these applications for him. At the time, Mr. Shoman was licensed to sell insurance with another company. There was no evidence to suggest that respondent had any knowledge that Ms. Rushing signed applications brought into the office by Mr. Shoman, or that Mr. Shoman received any commissions on these sales Bradley Wasserman had never sold insurance prior to being employed by the respondent. After one week of training, and prior to receiving his license, according to Bradley Wasserman, he was given leads, made contacts and sold two insurance policies by himself. He signed his brother Phillip's name to the applications and, according to him, received a commission on the two sales. Bradley's brother, Phillip, was employed as a licensed insurance agent by the respondent, was one of the respondent's top producers, and was also in law school at the time. Phillip recalled that respondent gave his approval to this practice, but could not recall whether he knew in advance that Bradley would be signing his name to the applications. During his first two weeks of employment with the respondent, Bradley Wasserman entered into and signed a "Training Agreement," acknowledging that during his training program he would be given a training allowance for his presence with a licensed instructor during a sale. The specific oral agreement was that Wasserman was to receive $25.00 for each presentation of two or more hours which he observed. Between February 20 and March 6, 1981, three checks were made payable to Bradley Wasserman in the amounts of $150.00, $150.00, and $100.00. Each check bore the words "training remuneration" or "training allowance." These amounts do not correspondent with the amounts claimed by Bradley Wasserman as his commission on the two sales of insurance. COUNT V Howard Cunix, at a time when he was not a licensed life agent, referred a life insurance customer, Mr. Miller, to Phillip Wasserman. Phillip Wasserman, who was licensed to sell life insurance, made the sale, but received only one-half of the commission for that sale. What happened to the remainder of the commission was not known by Mr. Wasserman and was not otherwise established. At that time, Mr. Cunix was a salaried employee and received the same amount of remuneration each week. He did receive one-half a production or referral credit on a board maintained at Gulf Health/Life to illustrate the production level of the various agents.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Amended Administrative Complaint dated April 29, 1982, be DISMISSED. Respectfully submitted and entered this 8th day of February, 1983, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of February, 1983.
