The Issue The issue presented is whether Respondent, a licensed insurance agent, is guilty of violating the statutes regulating the conduct of an insurance agent, and if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been eligible for licensure and licensed as a life and health insurance agent and as a dental health care contract salesman. For many years, Respondent had also been licensed to solicit general lines -- property, casualty, surety, and miscellaneous lines -- insurance in this state. Respondent was unaware that this license expired on March 24, 1987. At all times material hereto, Respondent was, however, eligible for licensure as a general lines agent. At all times material hereto, Respondent was one of the officers of Johnson's Model City Insurance Agency #1, Inc., a Florida corporation. That corporation was involuntarily dissolved on November 4, 1988. On December 30, 1986, Respondent telephoned Petitioner to discuss the propriety of an insurance agent charging a consulting fee. Following that telephonic conversation, an attorney for Petitioner directed correspondence to Respondent confirming that telephone conversation, advising that a consulting fee could legally be charged under certain circumstances. Those circumstances included the use of a separate consulting contract between the agent and the insured so that the insured would fully understand that he or she was entering into a separate contract and paying a separate consideration in advance of the performance of consulting services. Additionally, the services rendered must be other than those normally provided by an insurance agent. Further, if a separate consulting contract were effectuated, an agent could set up a separate consulting corporation to enter into such contracts. Hartford Insurance Company sells automobile insurance in the State of Florida by use of a toll-free telephone number. People who know the telephone number can call Hartford directly, obtain a quote for automobile insurance, and purchase a policy directly from Hartford. Hartford has no insurance agents in the State of Florida and pays no commissions to insurance agents in Florida for the obtaining of automobile insurance customers. A person can obtain a quote in writing from the Hartford in advance of purchasing a policy. Sometimes, the quotation card and the policy are issued and mailed simultaneously by Hartford to its new insureds. On September 20, 1987, Patricia Moss telephoned J. M. C. Insurance Consultants pursuant to an ad in the telephone yellow pages. She inquired about obtaining automobile insurance to replace her current policy which would expire on September 22, 1987. She spoke with an employee named Betty who advised her that she could obtain replacement insurance at a cost of $927. Since the cost quoted to her was substantially lower than the prices she had been quoted by the other agencies she had consulted, Moss went to the offices of J. M. C. on September 21, 1987. Betty presented Moss with a number of documents to sign. She signed a Power of Attorney appointing Johnson's Model City Insurance, Inc., doing business as JMC Insurance Consultants as her attorney-in-fact to obtain insurance for her, specifically ratifying and confirming actions taken on her behalf by J. L. Johnson- consultant. She also executed an Agreement with Consultant specifying the services that JMC Insurance Consultants would perform on her behalf. She signed a further statement which provided that: "I understand that JMC Insurance is acting as Consultants for my insurance placement and is entitled to any and all consultation fees." She also signed a document written in boldfaced type which states: IMPORTANT NOTICE THIS LETTER IS TO INFORM YOU THAT JMC INSURANCE CONSULTANTS ARE NOT AGENTS NOR DO WE REPRESENT HARTFORD INSURANCE COMPANY IN ANY WAY WHATSOEVER. WE REPRESENT "YOU" THE CLIENT AND WE ACT IN YOUR BEHALF WITH THE RIGHT THAT YOU GIVE US THROUGH A POWER OF ATTORNEY. WE ENDEAVOR TO PLACE YOUR AUTO INSURANCE FOR YOU ON YOUR BEHALF. WE ARE YOUR CONSULTANT. IF YOU HAVE A PROBLEM PLEASE CALL US WE ARE HERE TO HELP AND ACT IN YOUR BEHALF. CALL US FIRST. LET US HANDLE IT. CLIENT. I HAVE READ AND I UNDERSTAND. Moss gave JMC Consultants a check in the amount of $262.50 for which she was given a receipt which carried the specific notation that the money she had paid was for an insurance consultant's fee. She was also given a small card entitled Insurance Identification Card on which Betty filled in information showing that she would be insured by Hartford effective on the following day and specifically describing the coverage provided, the automobile insured, and the name and address of Moss. Within a week she received directly from the Hartford an insurance policy for the benefits which she sought. The policy itself reflected that the premium for the policy was $632 and that she would be receiving a bill from Hartford for that amount. She telephoned Betty, demanding a refund of her $262.50, which demand was refused. Betty explained to her that the amount was for the consultant's fee for obtaining the low- cost coverage for Moss. Hartford's direct marketing program does allow people to purchase insurance on someone else's behalf utilizing a Power of Attorney. Although Hartford's records do not reflect a Power of Attorney from Moss to J. M. C. Consultants or Respondent, Hartford's records regarding their policyholder Moss are not accurate. For example, they erroneously reflect that they quoted a rate to Moss on September 15, a week before they received any contact on her behalf. Although Moss testified that Betty told her the $262.50 was the down payment on her insurance premium, her testimony is not credible in view of the numerous documents that she signed stating that she fully understood that Respondent was not an agent for Hartford, that Respondent would be acting on her behalf pursuant to the Power of Attorney and Consultant's Agreement which she had signed, and the other documents reflecting that the $262.50 was a consultant's fee which she was paying to Respondent to act on her behalf. Her testimony that she did not understand is refuted by the documents she signed saying that she did. There is no allegation that Moss, a retired registered nurse, was unable to read. Rather, it is concluded that Moss voluntarily chose to pay the Hartford premium plus Respondent's consulting fee since the total price for the two charges was still substantially less than she could have obtained insurance for from other sources. Allstate Insurance Company is an insurer which sells insurance policies through their agents in the State of Florida. It also has a division which participates in Florida's Joint Underwriting Association (hereinafter "FJUA"), a program through which high-risk drivers who cannot obtain insurance in the regular voluntary insurance market can obtain automobile insurance. Prior to the time that his general lines agent license expired, Respondent participated in that program and was assigned to write insurance for Allstate for policyholders participating in the program. The Producers Contract entered into between Respondent and the FJUA, which assigned him to Allstate Insurance Company, provided that it would automatically terminate if an agent's general lines license expired. On July 22, 1988, James Tillie came to the office of J. M. C. to procure automobile insurance for the van that he used in his business. After meeting with Respondent, Tillie gave Respondent a check in the amount of $204 as a down payment on an automobile insurance policy. The check was endorsed and deposited into the business bank account of J. M. C. Respondent gave James Tillie an automobile insurance binder which reflected that his insurance policy was to be issued through Allstate Insurance Company. Under the terms of Respondent's contract with the FJUA, Respondent was required to submit James Tillie's application and premium to Allstate within 24 hours. The FJUA application acts as a binder. Once the application is completed and the premium is paid to the agent, the insured has automatic coverage for 30 days during which time the carrier, Allstate in this case, can act on the application. There is no evidence as to when Respondent forwarded James Tillie's application to Allstate; however, Allstate has no record of ever receiving the application. Respondent did tell James Tillie that within a couple of months he would receive from Allstate his policy and instructions for payment of the balance of his premium. After a month or two had elapsed, James Tillie became concerned since he had not yet received his insurance policy. He contacted Respondent who assured him that he did have insurance coverage. Shortly thereafter, James Tillie received in the mail from Respondent a card entitled Insurance Identification Card. On that card information had been filled in showing a policy number, the effective date, the insurance company as Allstate Insurance Company, a description of the insured vehicle, and the name and address of James Tillie. This is not an official Allstate identification card, and no one purported it to be such. An official Allstate Insurance card is issued by Allstate as part of the policy issued by it. On September 23, 1988, Sina Tillie, James' mother, visited J. M. C. for the purpose of purchasing automobile insurance for her new automobile. Sina Tillie is an elderly person who had never before owned an automobile or possessed a driver's license. She wished to purchase insurance on a brand- new automobile. Sina Tillie gave Respondent $1,828 in cash as full payment of the policy's annual premium. Respondent gave her an insurance binder which reflected that her insurance was placed with Allstate. Allstate has no record of receiving Sina Tillie's application and premium from Respondent. Subsequently, Sina Tillie became concerned when she had not yet received her insurance policy. She asked her daughter to contact Respondent. Respondent advised her daughter not to worry. He then mailed to Sina Tillie an Insurance Identification Card similar to the one which he had provided to James Tillie reflecting James' coverage. He also telephoned Sina Tillie to assure her that if anything happened, all she would need to do would be to show the card saying that she was covered and to contact him. Since neither he nor his mother had received a policy from Allstate, James Tillie called Allstate. He did not know that there were, in effect, two Allstates. The Allstate office which he contacted was a regular Allstate office which markets insurance to customers who call or come in, and not an office affiliated with the FJUA program. The person with whom he spoke told him that neither he nor his mother were insured by Allstate and that the policy numbers reflected on the Insurance Identification Cards given by Respondent to James and his mother were not Allstate policy numbers, but rather were binder numbers. James Tillie then contacted Respondent who consistently maintained that both James and Sina were insured. Respondent contacted Allstate regarding James' and Sina's policies. James Tillie came to the office of J. M. C. and met with Respondent. He advised Respondent that he and his mother had obtained insurance elsewhere and requested refunds of the premiums that he and his mother had paid. Respondent told Tillie that he could not refund the premiums since both James and his mother were insured in exchange for those premiums. Respondent eventually told James Tillie that he would refund the premiums if the Tillies would sign releases. James Tillie maintained that he would sign releases only after he had received the refund of the premiums. The meeting ended in stalemate. James Tillie contacted Petitioner, and Petitioner contacted Respondent. Respondent maintained that he would refund the premiums in exchange for a release. Petitioner forwarded a copy of Respondent's letter to James Tillie. Respondent eventually made arrangements with James and his mother to refund the premiums in monthly payments since he did not have the money to refund the premiums in full. By the time of the final hearing in this cause, Respondent had only refunded the total amount of $600 to the Tillies. At the time that Respondent's general lines agent license with Integrity Insurance Company was cancelled on March 24, 1987, he believed that he was being re-licensed by Fortune Insurance Company. However, he never received a license for or from Fortune and never checked to ascertain why.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding Respondent guilty of statutory violations as set forth in this Recommended Order and suspending Respondent's licensure and eligibility for licensure for a period of 60 days from the date of the Final Order entered in this cause. DONE and ENTERED this 13th day of June, 1990, at Tallahassee, Florida. LINDA M. RIGOT, 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 13th day of June, 1990. APPENDIX TO RECOMMENDED ORDER Petitioner's proposed findings of fact numbered 1-3, 7-9, 14-19, 21-26, and 28-32 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 4-6, 10, 11, 13, 20, and 27 have been rejected as not being supported by the weight of the credible evidence in this cause. Petitioner's proposed finding of fact number 12 has been rejected as being unnecessary for determination of the issues in this cause. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance and Treasurer Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Johnny L. Johnson 17120 Northwest 27th Avenue Opa Locka, Florida 33056 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Ralph Edward Carter, was licensed and eligible for licensure as a life and health insurance agent and general lines agent - property, casualty, surety and miscellaneous lines by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was licensed as a property and casualty insurance agent for Bankers Insurance Company (BIC) and Underwriters Guarantee Insurance Company (UGIC). In March 1987 respondent purchased an insurance franchise and began operating an insurance firm under the corporate name of Mr. Auto of South St. Petersburg, Inc. Records on file with the Department of State reflect that effective June 25, 1988 the name of the corporation was changed to Reliable Insurance of South St. Petersburg, Inc. Since February 1989 the business has been located at 3135 18th Avenue, South, No. C- 3, St. Petersburg, Florida. The corporation was primarily engaged in doing business as a general lines insurance agency. Respondent has been licensed as an agent since 1968, and during his tenure as an agent, has worked in sales with several large insurance companies. In January 1988 Betty Andrews purchased from respondent liability and property damage coverage on her two automobiles, a 979 Ford station wagon and a 1980 Chrysler. The insurance was written through UGIC and was effective for the year beginning January 8, 1988. Shortly after May 16, 1988 Andrews received a notice from UGIC reflecting that she owed an additional $38.90 on her policy. For some undisclosed reason, Andrews did not pay the additional premium owed. On July 6, 1988 Andrews visited respondent's office for the purpose of adding comprehensive and collision coverage on her two automobiles. After respondent quoted a rate, she agreed to purchase the additional coverage, filled out an application, and gave respondent two checks totaling $166. These monies were deposited into respondent's business account. The balance was to be paid in three monthly payments of approximately $55 each month through a finance company. Respondent gave Andrews a document entitled "Receipt and Binder Certificate" reflecting she had comprehensive and collision coverage with "Bankers" effective from July 6, 1988 to January 6, 1989. "Bankers" was in fact Bankers Insurance Company. When Andrews did not receive a policy from BIC, she attempted to contact respondent on several occasions to ascertain its whereabouts. Andrews could not recall when or how many times she telephoned respondent's office but indicated she was never able to reach him. This was probably because respondent operated a one-man office with no clerical help and was frequently absent from his office. In late August 1988 Andrews received a notice from UGIC advising that UGIC intended to cancel her policy effective September 7, 1988 because she failed to pay the $38.90 premium still due. At about this same time Andrews' husband sold the station wagon and purchased a truck. Accordingly, Andrews needed to transfer her insurance to the new vehicle. She went to respondent's office in early September 1988 and asked him why she had never received the new policy. She also asked him to find out why her existing policy was being cancel led and requested him to transfer coverage from the station wagon to the new truck. In Andrews' presence, respondent made a telephone call to UGIC and learned that Andrews' husband had failed to disclose on the insurance application that he had received a traffic ticket. This in turn caused a $38.90 increase in the annual premium, and because that amount had not been paid, the policy was being cancelled. Respondent attempted to persuade UGIC to reinstate the policy but was unsuccessful. Dissatisfied, Andrews told respondent she intended to file a complaint with the Department of Insurance. Respondent then wrote her a check for $166 which represented a full refund of her monies. There is no evidence to establish that respondent intended to defraud Andrews or to evade the requirements of the insurance code. Despite the fact that Andrews did not receive a policy, she was covered until September 1988 by her original policy and respondent's errors and omissions policy. Through testimony by an underwriting manager for BIC, David R. Wardlow, it was established that respondent had entered into a correspondent agreement with an agent of BIC. Wardlow's review of BIC's records reflected that BIC had never received Andrews' application and premium nor was a policy written on her behalf. However, there was no evidence to establish how promptly respondent was required to remit a new application and premium to BIC or whether respondent violated BIC policy by retaining the application and monies for some sixty days until he learned that the existing policy had been cancel led. Respondent readily conceded that he never forwarded the application and premium monies to BIC. He explained his actions by pointing out that after Andrews left his office he decided to secure the coverage from UGIC rather than BIC in order to have the entire coverage with one company at a cheaper rate. When he later learned that UGIC intended to cancel Andrews' policy for nonpayment of premium, he thought he might be able to persuade UGIC to reinstate the policy but was unsuccessful. He offered no excuse except inadvertence as to why he had not promptly followed up on Andrews' application. Petitioner also presented the testimony of Johnnie Ruth Bell who purchased automobile insurance from respondent in October 1988. Although Bell's testimony was often vague and confusing, the following facts were established. On or about October 1, 1988 Bell went to respondent's office to purchase full insurance coverage on her 1987 Toyota Corolla. After discussing various options with respondent, Bell agreed to purchase a policy issued through Redmond-Adams, a Sarasota underwriter for UGIC. Bell gave respondent a check in the amount of $227 as a down payment and agreed to finance the balance through a finance company at a rate of $78 per month for eight months. These monies were deposited into respondent's bank account. Respondent issued a "Receipt and Binder Certificate" reflecting coverage with "Underwriter - Redmond Adams". Because Bell had financed the car with a local bank, it was necessary for respondent to furnish the bank with evidence of insurance. Through inadvertence, but not intentionally or willfully, respondent misplaced the application and never forwarded the application and premium to the insurance company nor did he notify the bank of Bell's insurance coverage. However, Bell was covered during this period of time by respondent's errors and omissions policy. After Bell did not receive a copy of her policy from Redmond-Adams, but received a number of telephone calls and notices from her bank, she met with respondent around December 2, 1988. Respondent accepted an additional $156 in cash from Bell and issued her a new binder effective that date which was identical to the first binder except for the date. It is unknown why the additional money was collected. He then tore up the first binder. When Bell had still not received her policy by April 1989, she filed a complaint with petitioner. After respondent learned that Bell had filed a complaint, he contacted her in May 1989 and refunded all of her monies. There was no evidence to establish how promptly respondent was required to submit applications and premiums to UGIC or how that company construed the term "in the regular course of business" in the context of agents remitting applications and premiums. Respondent blamed his problems on the fact that he is the sole employee of his office and, according to his estimate, services some 500 active clients per year and more than 1,500 accounts. He desires to continue in the insurance profession and points to the fact that, of the many insurance transactions handled by him over the last twenty-two years, the Andrews and Bell transactions are the only two that have spawned any significant problems. Moreover, he has never been disciplined by petitioner during his tenure as an agent. Respondent asks that any penalty be limited to a period of probation during which time he can have the opportunity to improve his management and bookkeeping skills. There was no evidence to establish whether respondent's conduct demonstrated a lack of fitness or trustworthiness to engage in the insurance profession. As to respondent's knowledge and technical competence to engage in the transactions authorized by his licenses, he conceded he lacks training in bookkeeping and management skills, both needed for a general lines agent, but denied that he lacks the necessary skills in the sales part of the business. This was not contradicted. Finally, respondent has taken curative steps to insure that applications are not misplaced and the customer receives the requested insurance.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of violating sections 626.611(8) and 626.734 and that his general lines license be suspended for thirty days. All other charges should be dismissed with prejudice. DONE AND ORDERED this 13 day of March, 1990, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13 day of March, 1990. APPENDIX Petitioner: 1-4. Partially adopted in finding of fact 1. 5-7. Partially adopted in finding of fact 3. 8-11. Partially adopted in finding of fact 6. Note - Where a finding has been partially adopted, the remainder has been rejected as being irrelevant, unnecessary, cumulative, subordinate, not supported by the evidence, or a conclusion of law. Respondent: A Partially adopted in findings of fact 5 and 6. Rejected as being irrelevant. Partially adopted in finding of fact 3. Partially adopted in finding of fact 5. Partially adopted in finding of fact 6. Rejected since respondent did not move his office until February 1989. Partially adopted in finding of fact 4. Partially adopted in finding of fact 6. I. Partially adopted in findings of fact 3 and 8. Partially adopted in findings of' fact 7 and 8. Partially adopted in findings of fact 6 and 7. Partially adopted in finding of fact 10. Partially adopted in finding of fact l. Partially adopted in finding of fact 10. Partially adopted in finding of fact 1. Note - Where a finding has been partially used, the remainder has been rejected as being irrelevant, cumulative, unnecessary, subordinate, not supported by the evidence or a conclusion of law. COPIES FURNISHED: Honorable Tom Gallagher Insurance Commissioner Plaza Level, The Capital Tallahassee, FL 32399-0300 Willis F. Melvin, Jr., Esquire 412 Larson Building Tallahassee, FL 32399-0300 Richard J. DaFonte, Esquire O. Box 41750 St. Petersburg, FL 33743-1750 Donald A. Dowdell, Esquire General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 =================================================================
The Issue The issues in this case are whether Respondent, Joan Lorraine Dragone, committed the offenses alleged in an Amended Administrative Complaint, issued by Petitioner, the Department of Financial Services and, if so, what penalty should be imposed.
Findings Of Fact The Parties. Petitioner, the Department of Financial Services (hereinafter referred to as the "Department"), is the agency of the State of Florida charged with the responsibility for, among other things, the investigation and prosecution of complaints against individuals licensed to conduct insurance business in Florida. Ch. 626, Fla. Stat. Respondent Joan Lorraine Dragone is currently and was at the times relevant, licensed in Florida as a Health (2-40) and General Lines (Property & Casualty)(2-20) insurance agent. Ms. Dragone was first licensed in December 1992. Ms. Dragone’s license identification number is A071793. At all relevant times, Ms. Dragone operated and owned All Neighbors Discount Insurance, Inc. (hereinafter referred to as “All Neighbors”). Ms. Dragone is and was the president and a director of All Neighbors. All Neighbors’ principal address is 7116 Stirling Road, Davie, Florida 33024. Ms. Dragone, who was first licensed by the Department in December 1992, has worked in the insurance business for approximately 23 years. Part of that time she worked with her sister, Nancy Rice, who also became a licensed insurance agent. Ms. Rice left All Neighbors in April 2004. Employment of Jose Corilloclla. Sometime in 1997, Jose Corilloclla, a native of Peru, was employed at All Neighbors. Mr. Corilloclla, who was an illegal alien at the time, was paid weekly in cash at an hourly rate of $6.00. Although Ms. Dragone denied knowledge of Mr. Corilloclla’s status and employment, it is inferred that she had knowledge that he was not legally in the United States. Initially, Mr. Corilloclla was employed as a file clerk and to do odd jobs for All Neighbors. Mr. Corilloclla also acted as an interpreter of Spanish-speaking customers for All Neighbors. After Ms. Rice’s departure in April 2004, Mr. Corilloclla was employed full-time at All Neighbors until his departure in 2005. Ms. Dragone was his only supervisor during this time. While directly under Ms. Dragone’s supervision, Mr. Corilloclla usually arrived at the office at about 10:00 a.m. and departed at about 6:00 p.m. On most days, Ms. Dragone began work at approximately 11:00 to 11:30 a.m. On occasion, Ms. Dragone did not arrive until noon. Ms. Dragone also, on occasion, would leave the office for an hour or more during the afternoon. On all of these occasions, Mr. Corilloclla was left alone, unsupervised, at All Neighbors. From at least April 2004 until his departure, Mr. Corilloclla’s duties at All Neighbors increased dramatically. Mr. Corilloclla answered the telephone and met with customers, describing the benefits of insurance coverage, giving interpretations of insurance coverage and/or policies, describing the terms of insurance coverage, including premiums, inviting customers to contract for insurance, quoting premiums and binding coverage, recommending insurance options, and completing applications. Mr. Corilloclla also conducted vehicle inspections. Mr. Corilloclla generally held himself out to be an insurance agent. At some time after April 2004, Ms. Dragone encouraged Mr. Corilloclla to obtain an insurance license. While Mr. Corilloclla began the process of obtaining a license, completing approximately eight of a 40-hour insurance agent course, he did not complete the process. As the agent in charge, Ms. Dragone agreed to supervise Mr. Corilloclla during the process of obtaining his license. Ms. Dragone’s testimony that Mr. Corilloclla’s activities after April 2004 were limited to those for which she fully supervised him was not credible. Mr. Corilloclla, having been with All Neighbors since 1997, had learned how the business operated and Ms. Dragone simply allowed him to operate as if he were already an insurance agent, essentially unsupervised. Suresh Parmanand’s Automobile Insurance Purchase. In 2002, Suresh Parmanand (hereinafter referred to as “Suresh”), a resident of New York, purchased a 2002 Mercedes- Benz S430 (hereinafter referred to as the “Vehicle”) from somewhere in Virginia (Suresh was unable to recall where exactly in Virginia the purchase took place). The Vehicle was a used one. Suresh decided to insure the Vehicle in Florida, at least in part, because of lower insurance rates than he could obtain in New York. Utilizing his brother’s name, Hemchand Parmanand (hereinafter referred to as “Hemchand”), and his brother’s Florida address, Suresh obtained insurance for the Vehicle through All Neighbors. Suresh insured the Vehicle by telephone conversations with Mr. Corilloclla, who also obtained a Florida title in the name of Hemcharnd for the Vehicle for Suresh. After speaking with Mr. Corilloclla by telephone about insuring the Vehicle, Mr. Corilloclla, who was fully aware that the vehicle was located in New York, had never been in Florida, and would not be located in Florida, completed an application for insurance from Gainsco Insurance Group (hereinafter referred to as “Gainsco”). Mr. Corilloclla filled out a Gainsco application for insurance on the Vehicle, signing it with Hemchand’s name as applicant, Ms. Dragone’s name as agent, and binding the insurance effective December 18, 2004. While an explanation as to why it took approximately two years to bind the coverage was given, like many issues surrounding Suresh’s questionable automobile insurance dealings, that explanation was not convincing enough on which to make a finding. Mr. Corilloclla also completed a Vehicle Pre-insurance Inspection Form, signing Hemchand’s name and Ms. Dragone’s name. No inspection was ever conducted by Mr. Corilloclla or Ms. Dragone. Suresh paid for the insurance with three separate, sequentially numbered checks dated the same day and all made payable to Mr. Corilloclla. Mr. Corilloclla deposited those checks into his personal bank account, keeping part of the payments (approximately $200.00) for himself, and placed the premium with the application for insurance at All Neighbors. The application and premium were processed by Ms. Dragone. While the evidence failed to prove clearly and convincingly that Ms. Dragone was fully aware of the nature of this transaction, she was aware that Mr. Corilloclla had obtained the insurance and had signed the documentation on her behalf. Ms. Dragone, at the time of the foregoing transaction, had an agency agreement with National Specialty Lines, the Managing General Agent subsidiary of Gainsco. Pursuant to that agreement, Ms. Dragone was appointed and authorized to solicit and submit applications for insurance, and to deliver policies and binders consistent with the insurance company’s underwriting guidelines. Those guidelines limited the binding of coverage to Ms. Dragone and required that she conduct the vehicle inspection and complete and sign the inspection form. Ms. Dragone did not comply with either of these requirements. Ultimately, the Vehicle was allegedly involved in an accident for which Suresh submitted an insurance claim. As a result of the claim, an investigation was begun by Gainsco Insurance Group which led to the discovery that the Vehicle had been fraudulently insured.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department finding that Joan Lorraine Dragone violated the provisions of Chapter 626, Florida Statutes, described more fully in this Recommended Order; dismissing all other charges; and suspending her license and appointment for a period of between 18 and 24 months. DONE AND ENTERED this 21st day of August, 2009, in Tallahassee, Leon County, Florida. LARRY J. SARTIN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this day 21st day of August, 2009. COPIES FURNISHED: David J. Busch, Senior Attorney Division of Legal Services Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Joan Lorraine Dragone 3100 Southwest 20 Court Fort Lauderdale, Florida 33312 Tracey Beal, Agency Clerk Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Benjamin Diamond, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307
The Issue The issues are whether Respondent is guilty of various violations of the Insurance Code and, if so, what penalty should be imposed.
Findings Of Fact At all relevant times, Respondent has been licensed as a Life & Variable Annuity Agent (2-14), Life, Health and Variable Annuity Agent (2-15), Life Agent (2-16), Life and Health Agent (2-18), General Lines, Property and Casualty Agent (2-20), and Health Agent (2-40). Respondent holds license number A164221. Petitioner has disciplined Respondent on two prior occasions. By Consent Order filed November 28, 2000, Petitioner imposed an administrative fine of $7500 against Respondent and placed her licenses on probation for two years. The Consent Order arose out of allegations that Respondent failed to place insurance coverage and failed to supervise adequately her employees. By Consent Order filed April 30, 2002, Petitioner imposed an administrative fine of $2000 against Respondent. The Consent Order does not describe the underlying allegations. At all relevant times, Respondent has been a director, officer, and sole owner of AIA. She has owned the corporation since 1993. At all relevant times, Respondent was the only signatory on the AIA bank accounts. Customarily, Respondent markets the insurance and then sends customers to one of the AIA customer service representatives. A high-volume agency with over 15,000 active clients, AIA, which employs 10 persons, has issued about 50,000 policies since November 2001. For most, if not all, of the relevant period, AIA employed Tony Decambre as the primary agent, and customer service representatives performed much of the work in processing insurance applications. Petitioner attempted to prove that Respondent was the primary agent. Rather than produce copies of forms by which Respondent may have designated herself as the primary agent, Petitioner offered only copies of prints of screens of data maintained by Petitioner. The Administrative Law Judge excluded from evidence these data compilations. Respondent testified that Mr. Decambre was the primary agent. Petitioner's investigator testified that Respondent was the primary agent, at least the last time that he had checked. The investigator's testimony failed to establish by clear and convincing evidence that Respondent was the primary agent. On December 28, 2001, Fernando Gomez visited AIA to pay for a workers' compensation insurance policy to be issued by Florida United Businesses Association/Workers Compensation (FUBA). Respondent met with Mr. Gomez, who required the presence of another employee to translate into and from Spanish. As the producer, Respondent signed the application. FUBA bound the coverage on December 31, 2001. Among the three persons present on December 28, only Respondent testified. The application bears the date "December 28, 2001," although this handwriting is lighter than the remainder of the handwriting on the application and could have been written at a date subsequent to the date on which the application was taken. Petitioner contends that Respondent took the application on November 6, 2001, or somehow tried to bind FUBA as of November 6, 2001. The sole evidentiary basis for this contention is Petitioner Exhibit 9, which purports to be a certificate of liability insurance, bearing a date of December 28, 2001, but showing effective dates for general liability and workers' compensation coverage for Mr. Gomez of November 6, 2001. The certificate holder is stated to be Universal Drywall & Plastering, and the producer is stated to be AIA. The workers' compensation insurer is stated to be FUBA. Petitioner Exhibit 9 was admitted solely to prove what Universal Drywall & Plastering sent to FUBA to confirm the existence of Mr. Gomez's workers' compensation coverage. The certificate is false because it confirms workers' compensation insurance as of a date that neither FUBA nor AIA contends is correct. However, the failure to obtain testimony from Mr. Gomez, the AIA employee who translated, or an employee of Universal Drywall & Plastering who could explain how he or she obtained a copy of the certificate precludes a determination that Respondent is in any way responsible for the production or transmission of this false certificate. The certificate suggests that the person responsible for its preparation may not have had Respondent's presumed level of familiarity with FUBA. The person preparing the false certificate used a policy number that is not of a type used by FUBA to identify the workers' compensation policies that it issues. The false certificate bears an expiration date of November 6, 2002. In fact, the actual coverage issued by FUBA ended on April 1, 2002, because all of its workers' compensation policies expire each year on April 1. It appears that Universal Drywall & Plastering presented the false certificate to FUBA on January 2, 2002, so, as of that date, Mr. Gomez had workers' compensation coverage from FUBA. The record also fails to disclose why Mr. Gomez might have desired an earlier effective date. The information might have facilitated a determination of who was responsible for the fraudulent preparation of the certificate. Petitioner has failed to prove the material allegations of Count I. On October 25, 2002, AIA issued an Evidence of Property Insurance to Meryl Levin, showing an effective date of October 25, 2002 for homeowners and flood insurance in the amount of $114,000. The document states that "United" would provide the homeowners insurance at $910 per year and flood insurance at $247 per year. On October 30, 2002, AIA received a check in the amount of $910 from Stephen J. Allocco, P.A., and AIA deposited that check into its noninterest-bearing bank account at Wachovia Bank. On November 8, 2002, United Property & Casualty Insurance Company (United) sent Mr. Levin a notice that he owed $810 for his insurance policy, which bore an effective date of November 8, 2002. The due date is "upon receipt." On January 14, 2003, United canceled the insurance because it never had received the $810. United received a check for $810 on February 26, 2003, but the accompanying package failed to contain a "no loss" statement, which would have assured United that the insured had not suffered a loss between the purported coverage date and the date of receipt of the premium check. Absent such an assurance, United routinely declines to provide coverage because it will not cover losses retroactively. United thus returned the check. Mr. Levin did not testify as to this transaction, nor did anyone from AIA except Respondent, who disclaimed any direct involvement with the matter. There is no evidence of any loss suffered by Mr. Levin, nor is there any evidence of any intentional wrongdoing by Respondent. The determination as to whether Respondent negligently failed to satisfy all applicable duties imposed on her is frustrated by Petitioner's failure to call an expert witness who could have explained office practices in insurance agencies and proved what is reasonable and unreasonable to expect of Respondent. The record does not establish that United sent a copy of its November 8 statement to AIA. Count II portrays a single case in which AIA failed to pay a premium to an insurer for over three months--nothing more. The determination of whether Respondent has demonstrated unfitness for this omission is impossible absent a basis for determining an appropriate minimum standard of agency office practice. Petitioner has failed to prove the material allegations of Count II. On October 9, 2002, Respondent sent a letter to Gerald Kirby bearing the letterhead of AIA stating that "we" have reviewed your homeowner needs and "determined the best possible rate for you." Showing homeowners coverage of $518,000, as well as associated coverages, the letter quotes a total policy premium of $3278. The letter warns that "this quotation is an estimate and is not legally binding." At the bottom of the letter is: "Thanks!!!Joanne." The record reveals no other persons employed at AIA named "Joanne" besides Respondent. On the same date, AIA produced an evidence of property insurance, which shows homeowners and flood insurance with the same effective date of October 11, 2002, in the respective amounts of $518,000 and $250,000, and bearing respective premiums of $3278 and $411 annually. On October 11, 2002, AIA received a check in the amount of $3278 from Capital Abstract & Title and deposited that check into its noninterest-bearing bank account at Wachovia. AIA was to use these funds to purchase homeowners insurance from United, with coverage of $518,000 and an effective date of November 11, 2002 (according to the parties' stipulation, which misstates the year as "2001"). However, the premium for $518,000 of coverage from United was $1890 at the time. The proper amount of premium due for $518,000 of coverage was mooted by the fact that AIA, like all of United's agents at the time, lacked authority to bind United to more than $300,000 coverage without specific approval from a United representative. Such approval required, among other things, documentation of the value of the insured property. AIA sent United a check for $1777, which United received on November 12, 2002. This check was the proper premium for $300,000 of coverage. At the same time, AIA sent paperwork for the issuance of coverage to $587,000, but failed to send the documentation that United required. Thus, United issued only $300,000 of coverage, and Mr. Kirby was due a refund of $1501, which is the difference between the premium that he paid and the cost of the insurance that he received. AIA paid Mr. Kirby $1501 on February 24, 2003. After AIA or a United marketing representative submitted the required documentation, United approved on February 19, 2003, the increase of coverage to $518,000. It is unclear who paid the additional premium--AIA or Mr. Kirby. For the same reasons discussed in Count II, Petitioner has failed to prove the material allegations of Count III. Although AIA's handling of the Kirby transaction was flawed, again, the acts and omissions are not so stark as to eliminate the necessity of expert testimony to establish the minimum standard, against which to measure Respondent's performance of her duties. Mr. Kirby appears to have suffered no loss, and there is no evidence of intentional wrongdoing. Even though, as to this transaction, Respondent clearly had some personal involvement, it is impossible to determine her degree of responsibility for the uneven handling of the insurance transaction and short delay in sending the refund to Mr. Kirby or even whether these two aspects of the transaction demonstrate unfitness to transact insurance business. The remaining counts involve refunds from Pro Premium Finance Company (Pro Premium) to AIA and refunds from AIA to its customers. Pro Premium provides financing to persons purchasing insurance. Several customers of AIA borrowed money from Pro Premium to pay for insurance they were buying through AIA. For various reasons--typically, the cancelation of coverage--Pro Premium refunded portions of the premium to AIA, which subsequently refunded the unearned portion of the commission to the customer. Every two weeks, Pro Premium sends AIA refunds and statements, which clearly identify the insured, date of cancelation, amount of refund, and amount due the insured. The time that elapsed from when AIA received the refunds from Pro Premium to when AIA sent the customers their share of the refunds ranged from two to twelve months. AIA received the refunds from Pro Premium between April 15, 2003, and February 15, 2004, and AIA sent its customers their shares of the refunds between April 5, 2004, and May 12, 2004. The customer refunds are concentrated in a relatively short period of time because AIA discovered all of the unrefunded monies during a self-audit that it conducted during this six-week period. AIA performed the self-audit due to an audit underway at Pro Premium. Except as noted below, Respondent was not personally involved in any of these refund transactions. At the time of all of the Pro Premium transactions described in this recommended order, the policy of AIA was for the customer service representative to write the client within one week of receiving the refund from Pro Premium and ask for directions whether to apply the refund to new or existing insurance or to pay it to the customer. The customer service representatives were supervised by the agency manager, not Respondent. It is unclear what AIA's policy was if the customer did not respond. When AIA paid refunds, its policy at the time was for the agency manager to prepare the refund check, which Respondent would sign. In May 2004, AIA changed its handling of refunds by directing all Pro Premium refunds directly to the bookkeeper, who expedites the preparation of the refund checks, which can now be signed by Respondent or one of two other employees. As to Count IV, on April 15, 2003, Pro Premium sent AIA a check in the amount of $1361.03, which AIA deposited on May 7, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$117.21--represented unearned commission, which was due the insured, Erikna Guzman. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Guzman of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Ms. Guzman did not respond. On May 10, 2004, AIA sent Ms. Guzman a check for $117.21. Twelve months elapsed from when AIA received the refund and when it sent Ms. Guzman the money due her. As to Count V, on May 31, 2003, Pro Premium sent AIA a check in the amount of $1538.36, which AIA deposited on June 10, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$43.83--represented unearned commission, which was due the insured, Shannon Campbell. By letter sent after obtaining the Pro Premium refund, AIA informed Ms. Campbell of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Ms. Campbell did not respond. On April 17, 2004, AIA sent Ms. Campbell a check for $43.83. Ten and one-half months elapsed from when AIA received the refund and when it sent Ms. Campbell the money due her. As to Count VII, on an unspecified date, Pro Premium sent AIA a check in the amount of $720.38, which AIA deposited on July 8, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$347.35--represented unearned commission, which was due the insured, Marie Philippe. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Philippe of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Ms. Philippe did not respond. On April 5, 2004, AIA sent Ms. Philippe a check for $347.35. At least nine months elapsed from when AIA received the refund and when it sent Ms. Philippe the money due her. As to Count VIII, on June 30, 2003, Pro Premium sent AIA a check in the amount of $1729.80, which AIA deposited on July 8, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$380.40--represented unearned commission, which was due the insured, Fernando Garcia. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Mr. Garcia of the refund and asked him to instruct AIA as to whether to apply it to new insurance or send her a refund. The first letter was returned by the postal service as undeliverable. Mr. Garcia had sold his house and moved. However, on April 7, 2004, AIA sent Mr. Garcia a check for $380.40. Nine months elapsed from when AIA received the refund and when it sent Mr. Garcia the money due him. As to Count IX, on August 31, 2003, Pro Premium sent AIA a check in the amount of $1552.84, which AIA deposited on September 9, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$102.07--represented unearned commission, which was due the insured, Girline Reid. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Reid of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Ms. Reid instructed AIA to apply the refund to insurance issued to her husband, which AIA did. However, Respondent did not testify when AIA applied the refund to the account of Ms. Reid's husband. On May 7, 2004, AIA sent Ms. Reid a check for $102.07. Eight months elapsed from when AIA received the refund and when it sent Ms. Reid the money due her. As to Count X, on August 31, 2003, Pro Premium sent AIA a check in the amount of $1552.84, which AIA deposited on September 9, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$169.06--represented unearned commission, which was due the insured, Guillermo Diaz, who is a significant customer of AIA. Respondent spoke with him shortly after AIA received the refund, and he instructed her to apply the refund to other insurance issued to him. Again, Respondent did not testify when Mr. Diaz instructed her to apply the refund to other insurance, but, given his importance as a repeat customer, he probably spoke with her shortly after AIA received the refund. However, on April 17, 2004, AIA sent Mr. Diaz a check for $169.06, to which he may not have been entitled. Eight and one-half months elapsed from when AIA received the refund and when it sent Mr. Diaz the refund check. As to Count XI, on November 30, 2003, Pro Premium sent AIA a check in the amount of $4994.25, which AIA deposited on December 9, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$143.18--represented unearned commission, which was due the insured, Bernardo Archibald. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Mr. Archibald of the refund and asked him to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Mr. Archibald directed AIA to keep the money to apply to insurance for which he owed additional premium because he had not yet obtained a four-point inspection (heating, wiring, roofing, and plumbing) of an older home, so as to be entitled to a reduced premium. However, Respondent did not testify when AIA received this direction from Mr. Archibald, although only five months elapsed from AIA's receipt of the refund from Pro Premium to its issuance, on May 7, 2004, of a check to Mr. Archibald for $143.18. As to Count XII, on an unspecified date, Pro Premium sent AIA a check in the amount of $3881.67, which AIA deposited on January 13, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$488.83--represented unearned commission, which was due the insured, Danette Piscopo. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Piscopo of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that AIA sent a refund check, but Ms. Piscopo never cashed it. However, Respondent did not testify when it sent the earlier check, although only about three months elapsed from AIA's receipt of the refund from Pro Premium to its issuance on April 15, 2004, of a check to Ms. Piscopo for $488.83. As to Count XIII, on December 31, 2003, Pro Premium sent AIA a check in the amount of $1988.58, which AIA deposited on January 13, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$294.60--represented unearned commission, which was due the insured, Allam Masief. Respondent testified that AIA mistakenly issued two policies to Mr. Masief for the same coverage from two insurers and mistakenly paid Pro Premium twice, even though Mr. Masief paid only one premium. Both policies were canceled. Mr. Masief asked AIA to reinstate one policy, but it was unable to do so. Respondent did not testify when these discussions with Mr. Masief took place, but only four and one-half months elapsed from AIA's receipt of the refund from Pro Premium and to its issuance, on May 12, 2004, of a check to Mr. Masief for $294.60. As to Count XIV, on January 31, 2004, Pro Premium sent AIA a check in the amount of $3260.03, which AIA deposited on February 10, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$886.74--represented unearned commission, which was due the insured, Geraldine DeStefanis. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. DeStefanis of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Ms. DeStefanis "probably" asked AIA to try to reinstate the canceled policy, but AIA was unable to do so. On May 7, 2004, AIA sent Ms. DeStefanis a check for $886.74. Three months elapsed from when AIA received the refund and when it sent Ms. DeStefanis the money due her. As to Count XV, on an unspecified date, Pro Premium sent AIA a check in the amount of $4750.53, which AIA deposited on March 9, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$343.38--represented unearned commission, which was due the insured, Leslie Ramrattan. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Ramrattan of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Ms. Ramrattan asked AIA to try to reinstate the policy, but AIA was unable to do so. On May 7, 2004, AIA sent Ms. Ramrattan a check for $343.38. About two months elapsed from when AIA received the refund and when it sent Ms. Ramrattan the money due her. Petitioner has failed to prove the material allegations of Counts IV-V and VII-XV, with one exception each as to Counts VI, V, and VII. In general, there is no evidence of any intentional wrongdoing by anyone at AIA, nor is there evidence that Respondent should have known of the failure of her staff to promptly refund the monies due their insureds. In several of these transactions in which AIA held the customers' refunds for relatively long periods of time, the record demonstrates that this was in accordance with the customers' directions or otherwise justified. For the shorter periods-- five months or less--the record provides no basis for determining that Respondent should have known of this failure within this relatively short period of time. In several counts, AIA failed to meet its obligation, under Florida Administrative Code Rule 69O-196.010(2)(b), which is cited below, to refund or apply the unearned commissions within 15 days of receipt of the refund and statement from Pro Premium. These are Counts IV, V, VII, XIV, and XV. It is impossible to determine if AIA violated this rule in Count VIII, where the insured had moved; Counts IX-XI, where the insureds told AIA to apply the refunds to new or other insurance and presumably AIA did so, perhaps within the required 15 days; and Count XIII, where AIA appears to have paid for one policy out of its own funds and the insured may have received a windfall. As to Counts IV, V, VII, XIV, and XV, the question is whether Respondent is professionally responsible for the violations by AIA. These counts fall into two groups. In Counts IV, V, and VII, AIA wrongfully retained the refunds for long periods--12 months, 10 and one-half months, and at least nine months, respectively. In Counts XIV and XV, AIA wrongfully retained the refunds much shorter periods--less than three months and less than two months, respectively. Perhaps expert testimony could have established that Respondent should have detected, within a period of less than 90 days, the wrongfully retained funds, but, absent such testimony, an inference to this effect is impossible, especially when the standard is clear and convincing evidence. However, expert testimony is unnecessary to establish Respondent's professional responsibility for failing to detect this situation for 9-12 months. Given the long durations of time, the clarity of the Pro Premium's refund statements, the relatively small number of employees, Respondent's integral involvement in the daily operations of AIA as the only person authorized to sign checks, and the importance of restoring funds of customers to customers promptly, it is a reasonable inference that Respondent should have known that AIA staff had wrongfully failed to send these refunds to its customers for 9-12 months. Any suggestion by Respondent that the absence of a response from these customers justified retaining these moneys fails to account for the fact that AIA later sent the refund checks to the customers, even though they had still not contacted AIA, according to the record. Thus, for Counts IV, V, and VII, Petitioner has proved by clear and convincing evidence that Respondent has demonstrated her unfitness to transact insurance business.
Recommendation It is RECOMMENDED that the Department of Financial Services enter a final order dismissing Counts I-III and VIII-XV of the Administrative Complaint; finding Respondent guilty of three violations (Counts IV, V, and VII) of demonstrating unfitness to engage in the insurance business, in violation of Section 626.611(7), Florida Statutes; and suspending her insurance licenses for 30 days. DONE AND ENTERED this 15th day of November, 2006, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of November, 2006. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Sevices The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Carlos G. Muñiz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307 Robert Alan Fox Department of Financial Services Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Thompkins W. White White & Chang, P.A. 1650 Summit Lake Drive, Suite 1013 Tallahassee, Florida 32317
Findings Of Fact At all times pertinent to this hearing, Petitioner held a license issued by the Florida Department of Insurance as a general lines insurance agent. On or about April 3, 1979, Steven B. Atkinson entered the Okeechobee Insurance Agency in West Palm Beach, Florida, from whom he had purchased his auto insurance for approximately three years. His intention at this time was to purchase only that insurance necessary to procure the license tags for his automobile, a seven-year-old Vega. He told the person he dealt with at that time at the insurance agency that this was all he wanted. He did not ask for auto club membership, did not need it, and did not want it. He asked only for what he needed to get his tags. However, he was told by a representative of the agency that he needed not only "PIP" insurance, but also auto club membership and accidental death and dismemberment insurance. Of the $144 premium, $31 was for the required "PIP" coverage, $75 was for auto club membership (not required), and $38 was for accidental death and dismemberment (AD&D) (not required). Representatives of the agency told him that he needed all three to get the tags and, though he knew what he was getting and knew he was purchasing all three, he agreed because he was told by the agency representatives that he needed to have all three in order to get his tags. 3 Diane Phillipy McDonald contacted the Okeechobee Insurance Agency in April, 1979, because she had heard on the radio that their prices were inexpensive. All she wanted was personal injury protection (PIP), which was what she thought the law required to get tags on her automobile. When she first called the agency and asked how much the coverage she wanted would be, she was told she could pay a percentage down and finance the rest. When she entered the agency, she was waited on by a man whose name she cannot remember. However, she did not ask for auto club coverage or accidental death and dismemberment coverage, nor did those subjects ever come up in the conversation. She asked only for PIP, and she paid a $50 deposit on her coverage. In return for her deposit, she was given a slip of paper that reflected that she had purchased PIP coverage. She was not told she was charged for auto club membership or accidental death and dismemberment. The forms that she signed, including those which reflect a premium for all three coverages in the total amount of $137, bear her signature, and though she admits signing the papers, she denies having read them or having them explained to her before she signed them. In fact, she cannot recall whether they were even filled out when she signed them. In regard to the papers, the premium finance agreement signed by the witness on April 3, 1979, reflects in the breakdown of coverage total premium of $137. However, immediately below, the total cash premium is listed as $158, $21 more than the total of the individual premiums for the three coverages, and the financing charge is based on that amount1 less the down payment. Marvin W. Niemi purchased his auto insurance from the Okeechobee Insurance Agency in March, 1979, after he heard their advertisement on the radio and went in to get the insurance required by the State in order to get his license tags. When he entered the agency, he asked personnel there for the minimum insurance required to qualify for tags because he was strapped for money at the time and could not afford anything else. He definitely did not want auto club membership. In fact, discussion of that did not even arise, nor did he want the accidental death policy. When he left the agency, he thought he was only getting what he had asked for; to wit, the PIP minimum coverage. All the forms that he signed were blank when he signed them. This application process took place very quickly during his lunch hour from work. He admits giving his son's (David Robert) name as the beneficiary on his insurance, but did not realize at the time that he was purchasing coverage other than the minimum coverage required. His rationale for giving his son's name as beneficiary was that agency personnel asked and the witness felt if there was any money involved, it should go to his son. In fact, Mr. Niemi was sold not only the PIP, but membership in an auto club and PIP coverage with an $8,000 deductible. Again, the total premium was $137, when the actual premium for the coverage he asked for was only $24. Frank Johnson purchased his insurance from Okeechobee Insurance Agency in April, 1979, because he had heard and seen their advertisement on radio and television and it appeared to be reasonable. He wanted only PIP coverage as required by law sufficient to get his license tags. When he entered the agency, he spoke with a man whose name he does not know, who after consulting the books came up with the premium for the coverage to be purchased. During this meeting, the question of motor club or AD&D coverage was not mentioned. His signature does not appear on the statement of understanding, which outlines the coverage and the premium therefor. In this case, because Mr. Johnson had had some prior traffic tickets, his total premium came to $243. His coverage, however, included bodily injury liability, property damage liability, PIP, and auto club. After paying a $50 down payment, he made two additional payments which totaled approximately $50, but thereafter failed to make any additional payments. On August 1, 1980, Marguerite and Steven von Poppel entered the Federal Insurance Agency in Lake Worth, Florida, to purchase their automobile insurance coverage. They purchased policies which included bodily injury and property damage liability, PIP coverage, and comprehensive and collision coverage. The PIP coverage had a deductible of $8,000, and the comprehensive and collision coverage both had $200 deductibles. Mrs. von Poppel indicates that it was not their intention to have such large deductibles on their coverage. In any event, on that day, they gave a check for down payment in the amount of $320 and advised the employee of the agency that upon billing for the balance due of the $915 total premium, they would send the check. Neither Mrs. von Poppel nor Mr. von Poppel desired to finance the balance due of $595, and Mrs. von Poppel did not affix her signature to an application for premium financing with Devco Premium Finance Company dated the same day which bears the signature of Kevin D. Cox as agent. This premium finance agreement lists a cash premium of $966, as opposed to $915. The receipt given to the von Poppels initially reflects a down payment of $320, which is consistent with the receipt, and an amount financed of $646, as opposed to $595, which would have been the balance due under the cash payment intended and desired by the von Poppels. Somewhat later, Mrs. von Poppel received a premium payment booklet from Devco in the mail. When she received it, she immediately went to the Federal Insurance Agency, told them she did not desire to finance the payments, and that day1 September 3, 1980, gave them a check in the amount of $595, which was the balance due on their insurance coverage. This check was subsequently deposited to the account of Federal Insurance Agency and was cashed. This did not end the von Poppel saga, however, as subsequently the von Poppels were billed for an additional amount of $116.18, which reflects the interest on the amount ostensibly financed. When the von Poppels received this statement, they contacted the Federal Insurance Agency and were told that there was some mistake and that the matter would be taken care of. They therefore did not make any further payments, except a total payment of $20, which they were told was still owing. This $20 payment was made on May 29, 1981, after their insurance had been cancelled for nonpayment of the balance due on the finance agreement. The policy was, however, subsequently reinstated, back-dated to the date of cancellation, after the von Poppels complained. Their complaints, however, did nothing to forestall a series of dunning letters from a collection agency to which Devco had referred the von Poppels' account. It is obvious, therefore, that Federal Insurance Agency did not notify Devco of the fact that the amount due and payable had been paid, and did not clear the von Poppels with Devco or with the collection agency thereafter. As a result, the von Poppels filed a complaint with the Insurance Commissioner's office. That terminated their difficulty on this policy. On September 15, 1980, Federal Insurance Agency submitted a check in the amount $595, the amount paid to them by the von Poppels in full settlement of their account, to Devco. There appears to have been no additional letter of explanation, and though Devco credited this amount to the von Poppel account, it did not know to cancel the finance charges since the von Poppels' decline to finance their premium. Of the total amount of the von Poppel premium, the majority, $636, was attributable to the basic insurance in the amount of $10,000-$20,000 liability written by American Risk Assurance Company of Miami, Florida. The supplemental liability carrying a premium of $180 and covering $40,000-$80,000 liability was written by Hull and Company, Inc., out of Fort Lauderdale for Empire Fire and Marine Insurance Company. The third portion of the coverage carrying a charged premium in the amount of $150 covered the AD&D covered by Reliance Standard Life Insurance Company (RSLIC) of Philadelphia, Pennsylvania. This coverage, in the principal sum of $10,000 in the case of Mr. von Poppel and $5,000 in the case of Mrs. von Poppel, was included without the knowledge or the cosnet of the von Poppels. The policies, numbered 10753 R and 10754 R, were never delivered to the von Poppels as, according to an officer of RSLIC, they should have been, but are in the files of the Federal Insurance Agency. Further, the von Poppels were overcharged for the coverage. Respondent, however, did not remit any of the premium to Reliance Standard Life Insurance Company Instead, on August 1, 1980, the same day the von Poppels were in to purchase their insurance, he issued a sight draft drawn on Devco Premium Finance Company to Reliance Standard Life in the amount of $150. Reliance Standard Life was not the same company as Reliance Standard Life Insurance Company, was not controlled by Reliance Standard Life Insurance Company, and in fact had no relation to Reliance Standard Life Insurance Company. Reliance Standard Life was a corporation duly organized and existing under the laws of the State of Florida in which Kevin D. Cox was president and Howard I. Vogel was vice president-secretary. Of the $150 premium, 90 percent was retained by Respondent or his company as commission and 10 percent was transmitted to Nation Motor Club along with a 10 percent commission on policies written for other individuals. Nation Motor Club would then transmit the bona fide premium of 24 cents per $1,000 coverage to RSLIC. More than a year later, on October 16, 1981, Federal Insurance Agency reimbursed the von Poppels with a check for $42.50, representing the unearned portion of the unordered AD&D coverage. Clifford A. Ragsdale went to the Federal Insurance Agency in Lake Worth on April 19, 1982, to purchase his auto insurance because after calling several agencies by phone and advising them of the coverage he wanted, this was the least expensive. To do this, he would read off the coverage from his old policy and get a quote for the identical coverage. After getting this agency's quote, he went to the office where, after talking with two different ladies to whom he described the coverage he desired, he got to the person with whom he had talked on the phone and read his current coverage, and who already had some of the paperwork prepared. During all his discussions with the agency's employees on the phone and in person, he did not speak of, request, or desire auto club membership. He has been a member of AAA since 1977, and his membership there covers all the contingencies he is concerned with. Additional auto club membership in another club would be redundant. He gave the agency representative a check for $247 as a down payment and agreed to finance the balance due through Premium Service Company. Though he was given a receipt for the $247 deposit, the premium finance agreement he signed that day at the Federal Insurance Agency reflected a cash down payment of only $147, thus falsely inflating the balance due to be paid by the client. The $100 difference was refunded to Mr. Ragsdale by Federal Insurance Agency on October 25, 1982, some six months later after he complained to the Insurance Commissioner's office and was told that the $100 difference was for membership in a motor club that he did not desire or agree to. As late as December 29, 1982, over eight months later, the agency had still not remitted the $147 to Premium Service Company, who then added this deposit already paid by the client back to the account balance. Mr. Ragsdale did not read all the documents he signed at the agency, and he never received the policy he ordered. He was told he was signing an application for insurance and signed several instruments in blank at the request of the personnel at Federal Insurance Agency. He was told they would later fill in what wad needed. Respondent was the general lines agent of record for the Okeechobee Insurance Agency, located at 1874 Okeechobee Boulevard, West Palm Beach, Florida, during March and April, 1979, and at the Federal Insurance Agency, 3551 South Military Trail, Lake Worth, Florida, during the period which included August, 1980, and April, 1982. In each agency, he had instructed his' personnel how to serve and handle customers who came to the agency requesting the lowest minimum required insurance in which the agency specialized and which the agency, through its advertising program, purported to offer. As testified to by Linda Holly, an employee of Federal Insurance Agency, and as admitted by Respondent, when a prospective customer entered the agency requesting the minimum required coverage, the agent was to ask if the customer knew what the minimum was. The agent would then explain what was required and quote a premium which included not only the minimum required insurance, but also some additional service which, depending on the time, could be AD&D, towing, motor club, or the like, none of which was required by the State of Florida. Respondent instructed his employees to do this on the rationale that the premiums and commissions on the minimum required insurance were so low that the agency could not make sufficient profit on the sale of it, alone, to stay in business.
Recommendation Based on the foregoing, it is RECOMMENDED: That Respondent's license as a general lines agent in the State of Florida be revoked. RECOMMENDED this 3rd day of August, 1983, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings Department of Administration 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of August, 1983 COPIES FURNISHED: Daniel Y. Sumner, Esquire William W. Tharpe, Jr., Esquire Department of Insurance Legal Division 413-B Larson Building Tallahassee, Florida 32301 Mr. Kevin Denis Cox 1483 S.W. 25th Way Deerfield Beach, Florida 33441 The Honorable Bill Gunter State Treasurer and Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue Whether the School Board of Broward County's award of a contract for Excess General and Auto Liability insurance coverage to United National Insurance Company is barred because of illegality?
Findings Of Fact The Parties Ranger Insurance Company, Petitioner, is the holder of a Certificate of Authority dated September 9, 1996 and issued by the Department of Insurance and Bill Nelson, Insurance Commissioner and Treasurer. Good through June 1, 1997, the certificate authorizes Ranger to write in a number of lines of insurance business, including, Private Passenger Auto Liability, Commercial Automobile Liability, Private Passenger Automobile Auto Physical Damage, Commercial Auto Physical Damage and Other Liability. As such, Ranger is an "authorized" or "admitted" insurer in the State of Florida. L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., is a joint venture and co- petitioner with Ranger in this proceeding through whom Ranger proposed to procure the Excess General and Auto Liability (“Excess GL/AL”) coverage. A timely proposal under Request for Proposal 97- 072S was submitted to the School Board of Broward County by the petitioners to provide the Excess GL/AL Insurance Coverage sought by the RFP. United National Insurance Company is an "eligible" surplus lines insurer, approved by the Florida Department of Insurance to transact all surplus lines coverages in the State of Florida and licensed as such. The Department has notified insurance agents of United Nation's eligibility as a surplus lines insurer since 1978. It is the insurer of the Excess General and Excess Auto Liability insurance coverage awarded by the School Board under RFP 97-072S. Arthur J. Gallagher & Company ("Gallagher,") is the eighth largest insurance broker in the world. It has four sales offices, nine service offices, and approximately 150 employees in the State of Florida alone. The office from which it conducted business related to this proceeding is in Boca Raton, Florida, an office for which Area President David L. Marcus is responsible. Gallagher submitted a timely proposal (the "Gallagher proposal,") in response to the RFP on behalf of United National. The School Board of Broward County is the authority that operates, controls, and supervises all free public schools in the Broward County School District, "[i]n accordance with the provisions of s. (4)(b) of Article IX of the State Constitution ...". Section 230.03(2), F.S. In accord with its powers, the School Board may contract directly to purchase insurance. It is not required by its purchasing rules to use a competitive bidding or procurement process to purchase insurance. Nonetheless, on Friday, April 26, 1996, it issued a request for proposals, the RFP at issue in this proceeding, for insurance coverages including for Excess GL/AL insurance coverages. Siver Insurance Management Consultants Siver Insurance Management Consultants ("Siver,") are the drafters of RFP 97-072S. The School Board relied on Siver to draft the RFP, particularly its technical sections. Technical review of the proposals made under the RFP was conducted by Siver. And Siver put together for the School Board's use a summary of the policies proposed by both United National and Ranger. The summary was considered by the School Board's Evaluation Committee when it evaluated the competing proposals. The determination of whether the competing proposers were properly licensed was made by Siver. The School Board's Evaluation Committee, indeed the School Board, itself, played no role in determining the licensing credentials of the proposers while the proposals were under consideration. Under the arrangement between Siver and the School Board, however, the School Board retained the primary responsibility for administering the RFP. The RFP Request for Proposal 97-072S was mailed to 324 vendors (prospective proposers) the same day as its issuance, April 26, 1996. None of the vendors knew the contents of the RFP until it was issued. The RFP sought proposals for seven coverages, each of which was severable from the remainder of the coverages and was allowed to be proposed separately. The scope of the request was described in the RFP as follows: The School Board of Broward County, Florida ... is seeking proposals for various insurance coverages and risk management services. To facilitate distribution of the underwriting data and the requirements for each of the coverages, this consolidated Request for Proposals ... has been prepared. However, each of the coverages is severable and may be proposed separately. The following are included: Boiler & Machinery Excess General and Automobile Liability Excess Workers' Compensation School Leaders Errors & Omissions Crime Including Employee Dishonesty - Faithful Performance, Depositor's Forgery Claim and Risk Management Services (Including Managed Care Services) Statutory Death Benefits Petitioner's Ex. 1, pg. I-1. Since the seven coverages are severable and no proposer had to submit a proposal on all seven coverages, one way of looking at RFP 97-072S is as a consolidated RFP composed of seven, separate proposals, each for a different type of insurance coverage. Of the 324 vendors to whom the RFP was sent, only two, Gallagher, on behalf of United National, and Ranger, through the action of the joint venture, submitted proposals with respect to the Excess GL/AL coverages. Reasons for Using an RFP The School Board, under the auspices of Siver, chose to seek insurance coverage through an RFP rather than an Invitation to Bid, or what is colloquially referred to as a "straight bid," for a number of reasons. As one familiar with RFPs and Invitations to Bid might expect, the School Board and Siver were attracted to the RFP by the increased flexibility it offered in the ultimate product procured in comparison to the potentially less flexible product that would be procured through an invitation to bid. More pertinent to this case, however, Siver chose to use an RFP for the School Board in this case because "as explained ... by the Department of Insurance over the ... years, while there may... [be a] prohibition against any surplus lines agents submitting a straight bid, there would not be a prohibition against a ... [surplus lines] agent responding to a request for proposal " (Tr. 149.) The RFP approach was not chosen, however, in order to avoid any legal requirement or to circumvent the Insurance Code. As explained by Mr. Marshall, the approach was born of hard reality: Id. [O]ne of the primary motivations [for using an RFP rather than an Invitation to Bid] was to allow us [The School Board and Siver] to consider surplus lines companies because of the fact that very often they were the only insurers that would respond on the number of coverages and clients that we were working for. The Insurance Code and the Surplus Lines Law The Insurance Code in Section 624.401, Florida Statutes, requires generally that an insurer be authorized by the Department of Insurance (the "Department,") to transact business in the State of Florida before it does so: (1) No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the department, except as to such transactions as are expressly otherwise provided for in this code. One place in the code where transactions are "expressly otherwise provided for ...," is in the Surplus Lines Law, Section 626.913 et seq., Florida Statues. The purposes of the law are described as follows: It is declared that the purposes of the Surplus Lines Law are to provide for orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law, would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law. Section 626.913(2), F.S. Surplus lines insurance is authorized in the first instance only if coverages cannot be procured from authorized insurers: If certain insurance coverages of subjects resident, located, or to be performed in this state cannot be procured from authorized insurers, such coverages, hereinafter designated "surplus lines," may be procured from unauthorized insurers, subject to the following conditions: The insurance must be eligible for export under s. 626.916 or s. 626.917; The insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918; The insurance must be so placed through a licensed Florida surplus lines agent; and The other applicable provisions of this Surplus Lines Law must be met. Section 626.915, Florida Statutes, and then only subject to certain other conditions: No insurance coverage shall be eligible for export unless it meets all of the following conditions: The full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state ... . Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, to be in compliance with the diligent effort requirement, the surplus lines agent's reliance must be reasonable under the particular circumstances surrounding the risk. Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by-risk basis. It is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount. Section 626.916, F.S. Authorized vs. Unauthorized Insurers Unlike authorized insurers, unauthorized insurers do not have their rates and forms approved by the Department of Insurance, (the "Department.") Similarly, unauthorized insurers are not member of the Florida Insurance Guaranty Association, which guarantees payment of claims if an insurer becomes insolvent. Unauthorized insurers may qualify to transact Florida insurance business under the Surplus Lines Law and so, for purposes of the Surplus Lines Law, be considered "eligible" to transact surplus lines business in Florida. When a Surplus Lines insurer is eligible, Department of Insurance employees refer to the insurer in Surplus Lines terms as "authorized," a term in everyday English that is synonymous with "eligible." But an eligible surplus lines insurer remains an "unauthorized" insurer when compared to an "authorized" insurer for purposes of the Insurance Code and that part of the code known as the Surplus Lines Law. Submission and Review of Proposals Both L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., (the "Joint Venture") and Gallagher submitted timely proposals with regard to Excess GL/AL coverage in response to the RFP. The Joint Venture's proposal was submitted, of course, on behalf of Ranger, an authorized insurer, and Gallagher's was submitted on behalf of United National, an insurer eligible to transact insurance in the State of Florida as a surplus lines insurer but otherwise an unauthorized insurer. The School Board's Insurance Evaluation Committee met on May 30, 1996, to evaluate proposals received pursuant to the RFP. Although briefly discussed by the Evaluation Committee, the issue of proper licensing was not determined independently by the committee. Instead of making that determination, the committee turned to its insurance consultant, Siver. Siver had determined that both proposers, Ranger and United National, were properly licensed for purposes of responding to the RFP and being considered by the committee. Siver communicated that determination to the committee. The committee relied on Siver's determination. Aside from receiving Siver's determination of proper licensing when "briefly discussed" (Tr. 108,) the Evaluation Committee did not address whether either Ranger or United National were properly licensed. Certainly, no issue of whether Ranger should take precedence over United National by virtue that it was an authorized insurer when United National was an unauthorized insurer and a mere eligible Surplus Lines insurer was ever discussed by the committee. In evaluating the proposals, the Committee awarded 73 points to the Gallagher proposal and 69 points to the Ranger proposal. Points were awarded on the basis of three criteria or in three categories: Qualifications (20 points maximum); Scope of Coverages/Services Offered (30 points maximum); and, Points for Projected Costs (50 points maximum.) The Ranger proposal outscored the Gallagher proposal in the "projected cost" category, 50 to 23, but it scored lower in the "qualifications" category, 14 versus 20 for Gallagher, and significantly lower in the "scope of coverages" category, five points versus 30 for Gallagher. The United National coverage was more than twice as costly as Ranger's, a $491,000 annual premium as opposed to Ranger's $226,799, which explains the points awarded in the "projected cost" category. The Gallagher proposal received more points than the Ranger proposal in the "qualifications" category because United National has provided the School Board with Excess GL/AL coverage for a number of years and Ranger has never provided the School Board with such coverage. The Ranger proposal fell so drastically short of the Gallagher proposal in the "scope of coverages/services offered" category primarily because of an athletic participation exclusion appearing in a rider to the specimen policy appearing in its proposal. Ranger had intended to cover athletic participation and the rider was included with the Ranger proposal in error. Ranger notified the School Board of its intent immediately after the tabulations were released. Nonetheless, the Evaluation Committee was never informed of the error and no attempt was made by the School Board to negotiate with Ranger to improve the coverages offered, despite authority in the RFP for the School Board to negotiate with any of the proposers. (The language used in the RFP is "with one or more" of the proposers.) The Ranger proposal also fell short of the Gallagher proposal in the "scope of coverages/service offered" category because the Gallagher proposal was made in several ways. One way was as to only Excess GL/AL coverage. Another way included School Leaders' Errors and Omissions ("E & O") coverage. The E & O coverage was offered by United National in the Gallagher proposal together with the Excess GL/AL coverage in a "combined lines" package, similar to United National coverages already existing for the School Board. Furthermore, the Ranger proposal expressly excluded coverage for Abuse and Molestation, a needed coverage due to the School Board's prior claims history. On June 5, 1996, the Evaluation Committee submitted its recommendations to the School Board's Purchasing Department. With regard to GL/AL coverage, the Evaluation Committee recommended the purchase of the GL/AL/E & O "combined lines" coverage offered by Gallagher through United National. The School Board posted its Proposal Recommendation/Tabulations adopting the recommendation, two days later, on June 7, 1996. Ranger Seeks Redress from the Department Following the School Board's award, Ranger, thinking that it should have received the award under the RFP as the only authorized insurer to submit a proposal for Excess GL/AL coverage, sought redress from the Department. On June 14, 1996, Ranger personnel met with the head of the Department's Surplus Lines Section, Carolyn Daniels, alleging a violation of the Insurance Code's Surplus Lines Law. On June 18, 1996, Ranger reiterated its complaint in writing and asked Ms. Daniels to find a violation that day. On June 24, 1996, Ranger, now through its attorneys, met with Ms. Daniels and her supervisor. Again, on July 4, 1996, Ranger's attorneys wrote to Ms. Daniels, further pleading for her to find a violation and asking for an administrative hearing if Ms. Daniels did not find in favor of the Ranger position. On a fifth attempt, Ranger wrote Ms. Daniels on July 11, 1996, requesting that she adopt Ranger's position. Ms. Daniels reviewed Ranger's five complaints with her supervisor, the Chief of the Bureau of Property and Casualty Solvency and Market Conduct. In a letter dated August 14, 1996, to the School Board's Purchasing Agent, Ms. Daniels announced her determination: I did not find any evidence to indicate that Mr. David L. Marcus of Arthur J. Gallagher & Company or United National Insurance Company violated the Surplus Lines Law in providing a quote for the School Board. Intervenor's Ex. No. 2. Ms. Daniel's determination was based on a number of factors, including the School Board's position in the transaction as an "informed consumer," (Tr. 422-423,) and that the School Board had possessed a United National policy for 13 years. But, the determination was primarily based on the fact that Gallagher had received three declinations from authorized insurers to provide Excess GL/AL coverage and so had performed that which was required prior to deciding that the coverage was eligible for export and provision by a surplus lines insurer: due diligence. Due Diligence Section 626.916(1)(a), Florida Statutes, provides, [n]o insurance coverage shall be eligible for export unless it meets ... the following condition[]: ... [t]he full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers. (e.s.) The statute goes on to require that the diligent effort, "be reasonable under the particular circumstances surrounding the export of that particular risk." Reasonableness is assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by- risk basis. Section 626.916(1)(a), F.S. "'Diligent effort' means seeking coverage from and having been rejected by at least three authorized insurers currently writing this type of coverage and documenting these rejections." Section 626.914(4), F.S. Under this definition, the "producing agent should contact at least three companies that are actually writing the types of clients and the business in the area [that they are] wanting to write." (Tr. 268.) A specific form to help insurance agents document their three rejections is adopted by Department rule. The rule provides: When placing coverage with an eligible surplus lines insurer, the surplus lines agent must verify that a diligent effort has been made by requiring from the retail or producing agent a properly documented statement of diligent effort on form DI4-1153 (7/94), "Statement of Diligent Effort", which is hereby adopted and incorporated by reference. Rule 4J-5.003(1), F.A.C. Fully aware of the requirement for documentation of diligent effort to find authorized insurers, and cognizant that it would be unlikely that an authorized insurer could be found based on experience, Gallagher began soliciting proposals for coverage in the middle of April, 1996, several weeks before the School Board had issued the RFP. In fact, at the time that Gallagher started soliciting bids, the School Board had not yet assembled or distributed the underwriting data needed by bidders. Nonetheless, with good reason based on experience, Gallagher expected that the School Board would seek a "combined lines" package of GL/AL/E & O coverages like the School Board then received through United National, and that it would be unlikely that an authorized insurer would step forward to propose coverage. Gallagher, therefore, used the policy form current in April of 1996, that is the form providing Excess GL/AL/E & O coverage in a "combined lines" package, "as an example of what the School Board had been looking for this type of program and seeking a program similar to that and similar in coverage." (Tr. 242.) But it also sought Excess GL/AL without combination with E & O coverage. As Mr. Marcus testified, when seeking coverage from authorized insurers beginning in April of 1996, Gallagher "would be looking at a variety of different ways, whether they were package or not." (Tr. 243.) One authorized insurer, Zurich-American, declined to quote because it could not offer a combined line SIR program (a package of excess general liability and excess auto liability coverages) as requested by the RFP. Furthermore, the School Board risk was too large for Zurich-American to handle. A second authorized insurer, American International Group, declined to quote due to the School Board's adverse loss experience. A third authorized insurer, APEX/Great American, declined to provide a quote to Gallagher due to the large size of the School Board account. The responses of these three authorized insurers were listed in a Statement of Diligent Effort provided to Ms. Daniels, which she considered in determining that Gallagher and Mr. Marcus had committed no violation of the Surplus Lines Law. Gallagher also provided Ms. Daniels with a second Statement of Diligent Effort. The statement documented the attempt to attract quotes by adding a school leaders errors and omission component to the Excess GL/AL coverage. It, too, was used by Ms. Daniels in making her determination of no violation of the Surplus Lines Law by Gallagher. The same three insurers refused to quote for the "combined lines" program. Attempts by other Authorized Insurers Gallagher requested that any responses to its requests for quotes be submitted by May 10, 1996, so that it could prepare and submit its proposal by the RFP's deadline for submission of original proposals by all vendors, 2:00 p.m. May 16, 1996. One insurer, Discover Re/USF&G attempted to submit a quote on May 15, 1996, one day before the RFP deadline but five days after May 10. By then, Gallagher had already started printing its 625 page proposal. Furthermore, the company failed to provide the required policy forms until the day after the School Board's deadline for filing proposals. Coregis Insurance Company offered coverage of up to $700,000 for each claim and for each occurrence, but like Discover Re/USF&G, failed to provide the required policy forms until after the RFP deadline. Furthermore, definitive coverage under the Coregis policy would only be provided on the condition that the Florida Legislature pass a Legislative Claims bill, a limiting condition not authorized in the RFP or requested by Gallagher. American Home Assurance Company never responded to Gallagher with the School Board's required quote or policy forms. Rather, the company merely provided an "indication" that the company declined to provide a quote. An "indication" consists of an approximate premium rate, without any terms or conditions. A "quote," on the other hand, includes the terms and conditions of a policy. The Department places with the producing agent the responsibility of determining whether an insurer's communication constitutes and "indication" or a "quote." An agent, according to Ms. Daniels, can only violate the Surplus Lines Law if the agent receives a reliable quote. Gallagher even requested a quote from Ranger, despite never having been appointed to transact insurance on its behalf. But Ranger declined. In response to a request by Gallagher's minority business partner, McKinley Financial Services, Ranger, through E. Michael Hoke on American E & S letterhead, wrote in a letter dated May 6, 1996, "[w]e have received a prior submission on this account so we are returning the attached." Intervenor's Ex. No. 7. The Petition Ranger's petition for formal administrative hearing is the letter dated June 19, 1996, to the Director of Purchasing for the School Board under the signature of E. Michael Hoke, CPCU, Assistant Vice President of AES/Ranger Insurance Company. The letter asks its readers to "bear[] in mind we are not attorneys," p. 1 of the letter, before it outlines three protest issues. The third protest issue is the one about which Ms. Daniels made her determination that no violation of the statute had been committed by Gallagher or its employees: "3) Florida Statute 626.901 (Representing or aiding unauthorized insurer prohibited)." The other two issues deal not with the propriety of Gallagher's actions but the legality of the School Board's award to an unauthorized insurer, United National, when coverage was available from an authorized insurer, Ranger: Florida Statute 626.913 (Surplus Lines Law). . . Our Position * * * Ranger Insurance Company is an admitted authorized insurer ... Its proposal for excess general and auto liability is proof that the Board requested coverage was procurable. United National Insurance Company is an unauthorized insurer under the laws of the State of Florida ... . The United National Insurance Company proposal and/or its offer to extend it's current policies appear to us as "unwarranted competition." Ranger Insurance Company is protected from unwarranted competition from United National Insurance Company in accordance with the Florida Statute 626.913. Florida Statute 626.913 (Eligibility for Export) ... Our Position * * * Ranger Insurance Company is an admitted authorized insurer under the laws of the State of Florida. ... It's proposal for excess general and auto liability is proof that the Board requested amounts were available. The proposal and/or contract extensions offered by United National are for the full amount of coverage sought and not excess over the amount procurable from Ranger, an authorized insurer. The petition, therefore, set in issue not just whether Gallagher acted illegally but whether the School Board acted illegally when it made the award to United National, an unauthorized insurer when Ranger, an authorized insurer, had also submitted a proposal. Extension As soon as the School Board was made aware of the Ranger protest, it extended the existing insurance contracts procured under RFP 92-080S, awarded approximately five years earlier. The extension was on a month-to-month basis until resolution of the protest. The extension was necessary to avoid a lapse in the School Board's coverage during this proceeding.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the award to United National under the Gallagher proposal in response to RFP 97-072S be rescinded. DONE AND ENTERED this 28th day of January, 1997, in Tallahassee, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1997. COPIES FURNISHED: Paul R. Ezatoff, Esquire Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman, Marks, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302-1877 Edward J. Marko, Esquire Robert Paul Vignola, Esquire Office of the School Board Attorney K.C. Wright Administrative Building 600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301 A. Kenneth Levine, Esquire Blank, Risby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068 Dr. Frank Petruzielo, Superintendent Broward County School Board 600 Southeast Third Avenue Fort Lauderdale, Florida 33301-3125
