The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Respondent Michael Quintana is currently licensed as a general lines agent in Florida. On or about January 18, 1983, respondent went to the home of Shirley W. McLaughlin for the purpose of soliciting insurance. Mrs. McLaughlin agreed to purchase a homeowners insurance policy and "mortgage" insurance was also discussed. She supplied the necessary information and signed the applications for both the homeowner insurance and the "mortgage" insurance. While she did not desire to purchase what she understood to be strictly "life" insurance, she did understand that what she "was getting at that particular time was protection for the house, period." (TR. 32) She further understood that she was applying for coverage that would pay something if either she or her husband died, and that such would be payable to the beneficiaries. While she was given the opportunity to review all the papers she signed on January 18, 1983, Mrs. McLaughlin apparently did not understand that the premium payments for the "mortgage" insurance would be automatically withdrawn from her bank account. Sometime after her application for homeowners insurance was refused because of a space heater in her home, Mrs. McLaughlin learned from her bank of the automatic withdrawal of premium payments for the "mortgage" insurance. She thereafter cancelled such insurance and all monies were refunded to her. The cover sheet for the "mortgage" insurance policy identifies the policy as a "joint reducing term life insurance policy." The inserted printout setting forth the costs and benefits describes the basic policy as "joint reducing term life (20-year mortgage term) with disability waiver benefit." Agents within the company with which respondent was employed on January 18, 1983, typically refer to such a policy as a "mortgage insurance policy" or a "mortgage cancellation policy," as opposed to a "life insurance policy." The term "mortgage" is used to delineate that a specific policy has been purchased for a specific loss. The beneficiary of such a policy has the option of either paying off the mortgage or using the money for any other purpose.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Administrative Complaint filed on June 11, 1984, be DISMISSED. Respectfully submitted and entered this 25th day of January, 1985, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1985. COPIES FURNISHED: William W. Tharpe, Jr. 413-B Larson Building Tallahassee, Fla. 32301 Timothy G. Anderson 620 E. Twigg Street Tampa, Fla. 33602 Bill Gunter Insurance Commissioner The Capitol Tallahassee, Fla. 32301
The Issue The issue is whether respondent's license as a life and health insurance agent should be disciplined for the reasons stated in the administrative complaint.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Thomas Keith McOwen, was licensed and eligible for licensure as a life and health insurance agent by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was a sales representative for Western and Southern Life Insurance Company (WSLIC), an insurance firm having headquarters in Cincinnati, Ohio. Respondent's contractual agreement with WSLIC began on April 18, 1988. Under the agreement, respondent was required to account for and remit all premiums collected and received on behalf of WSLIC. On March 3, 1993, WSLIC terminated respondent's appointment as a sales representative, thereby cancelling his agent's contract. In August 1988, Ruth Houston, a/k/a Tracy Houston, purchased a WSLIC life insurance policy from respondent. In 1991, respondent collected around $440.00 in cash from Houston as premium payments but remitted only $128.00 to WSLIC. In an affidavit given to petitioner's investigator, respondent acknowledged that he failed to account for the remaining $312.00 and had converted it to his own personal use.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of violating Subsections 626.561(1), 626.611(4), (7), (9), (10) and (13), and 626.621(2), Florida Statutes, and that his licenses and eligibility for licensure be revoked. The charge as to Subsection 626.611(8), Florida Statutes, should be dismissed. DONE AND ENTERED this 13th day of March, 1995, in Tallahassee, 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 13th day of March, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-4189 Petitioner: 1-4. Partially accepted in finding of fact 1. 5. Partially accepted in finding of fact 2. 6-8. Partially accepted in finding of fact 3. 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. COPIES FURNISHED: Honorable Bill Nelson Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Lisa S. Santucci, Esquire Department of Insurance 612 Larson Building Tallahassee, FL 32399-0300 Daniel Y. Sumner, Esquire General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Mr. Thomas Keith McOwen 2913 Langley Ave., #107 Pensacola, FL 32504
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and if so, what penalty should be imposed.
Findings Of Fact At all times material to this case, Respondent is licensed as a life insurance agent and as a life and health insurance agent. Respondent operated through his agency listed as Tax Saving Concepts, Inc., 1003 10th Lane, Lake Worth, Florida 33463-4354. Petitioner is the agency of the State of Florida vested with the statutory authority to administer the disciplinary provisions of Chapter 626. This case was initiated by an anonymous complaint submitted by fax on August 23, 1999, to a Department office. The anonymous complainer faxed a copy of a newspaper ad from that day's edition of The Palm Beach Post. The ad reads as follows: “85% OFF TERM LIFE INSUANCE COMMISSIONS! LEGAL SAVINGS per Florida Statute 626.572 PERSAVE (sic) $1,000’s. Call 800-2-save-75. www.lifeinsurancediscounts .com Tax Saving Concepts Since 1986” The web page advertisement reads: 90% OFF 2ND-TO-DIE LIFE INSURANCE COMMISSIONS LEGALLY! YOU CAN SAVE $100,000+ IN YOUR POCKET! Save 90% off your 2nd-to-die life insurance commission costs legally when you sign your application in Florida with Tax Saving Concepts, Inc., a registered legal rebating broker since 1986. Our tax-free rebates can save you $100,000+. References from our happy clients will prove to you that you too will save thousands of dollars on your 2nd-to-die life insurance commission costs. We also offer deep discounts on term life insurance. Tax Saving Concepts, Inc. Of Florida America’s Oldest & Deepest Discount Life Insurance Broker Since 1986™ Registered Legal Rebating Broker Since 1986 We have never had a consumer complaint Email us: since 86@gate.net 561-439-6974 “Palm Beach agent Barry H. Small offers a 90% commission rebate. ” The Wall Street Journal March 25, 1993 By letter dated August 31, 1999, the Department, through an authorized representative, requested that Respondent get in touch to discuss the newspaper ad and website. Respondent answered by letter dated September 9, 1999, wherein he stated, “ABSOLUTELY NO life insurance companies are mentioned at my seminar.” He further stated, “I have not and do not intend to run this Palm Beach Post listing again.” After receiving this non-response, the case was referred to William Darryl May (May) of the Department’s Bureau of Agent and Agency Investigations for follow-up. May initiated the Department's investigation with a call to Small on January 26, 2000. May was successful in making telephone contact, but the conversation was unproductive due to Small's distrust of the Department's staff and unwillingness to provide information. Small believes himself to be the victim of a conspiracy between the Commissioner of Insurance and insurance agents who do not rebate commissions; he therefore felt justified in refusing to cooperate with May in answering questions concerning whether and to whom he had rebated commissions to customers, saying only, “You know the companies I am licensed with.” More specifically, Small would not provide the names of any customers he had rebated commissions to. Small feared adverse impacts upon his relationship with any customers state investigators might choose to contact. Small elaborated on his fears in a letter to May dated October 15, 1999 which states in part: I am writing the following facts from a consciousness that I can be killed at any moment. There is a contract on my life to have me killed, taken out by business competitors. On 6 occasions in the last 3 years, mafia hitmen, paid for by these business competitors have tried to kill me. Taking Small up on his implicit suggestion that the state deal directly with companies with whom Small had contractual relationships, May sent identical letters to the insurance companies for which Small was then authorized, or appointed, to sell insurance. May later received responses from companies, as follows: Banner Life Insurance Company, responded on January 26, 2000, through its legal department, with a letter to Small, which stated in pertinent part: We are in receipt of the enclosed newspaper advertisement and Internet website advertisement from the Florida Department of Insurance. Since these advertisements could potentially result in the sale of Banner Life Insurance Company products, they should have been submitted to our company for prior approval. We have thoroughly reviewed our records and advertising logs, and have determined that you never received permission from us to use the enclosed advertisements. Furthermore, if these advertisements had been submitted, they would not have been approved for use. First Colony Life Insurance Company, through its law department, wrote to May on December 15, 1999, and stated that it did not approve of the newspaper and website advertisements; did not authorize Small to rebate commissions; and had no record of a rebate schedule filed by Small. Unum Life Insurance company, through its customer relations manager, wrote to May on December 14, 1999, and stated that it did not approve of the newspaper and website advertisements; did not authorize Small to rebate commissions, and had no record of a rebate schedule filed by Small. Lincoln Benefit Life Company, through its Vice President and Assistant General Counsel, by letter to May dated December 14, 1999, stated that it did not approve of the newspaper and website advertisements and did not authorize Small to rebate commissions. The letter also stated that Lincoln Benefit's file research revealed a letter from Small to a general agent for Lincoln Benefit detailing his rebating schedule, but did not supply any details regarding that document. Transamerica Life Companies, through a compliance officer, wrote to the Insurance Commissioner on December 7, 1999, stating that it had not approved the newspaper or web site advertisements, and further noting that ". . . when Mr. Small was recontracted as a producer in June 1999, the company had him sign a document acknowledging [its strict anti- rebating policy].” Midland National Life Insurance Company, through its Consumer Affairs Associate, wrote to May on February 2, 2000. The letter stated that Small had produced little business for the company and that the company was in the process of terminating Small's appointment. It further stated that the company had not approved either of the advertisements. Finally, the letter made reference to its cooperation in a prior investigation of Small arising out a 1993 advertisement, and noted that it had been informed by the Department in August 1996 that that investigation was being closed. Sun Life of Canada, through its markets [sic] compliance office, wrote to May on November 2, 1999, stating that the company affirmatively requires that ads "used to promote Sun Life products" are subject to review and approval, and that the company does not permit rebating. Hartford Life, through its legal office, addressed a December 17, 1999, letter to May which stated that neither Respondent individually, nor through the Tax Savings Concepts entity, ever sought permission to rebate commissions with that company and no such authorization was ever granted. At a minimum, the language of the advertisements published by Small to readers of The Palm Beach Post and to the entire world via the Internet, demonstrates that Small promotes his business by advertising to the public his willingness to grant rebates. Yet, he feels well justified in his unwillingness to cooperate with regulatory authorities by providing information which would facilitate a determination as to the bona fides of his advertisements, and the details of his rebating practices. Rather, Small insists that the regulators find out what they can from the companies with whom he is authorized. In this case, that procedure compels the conclusion that with the possible exception of Lincoln Benefit, Small has not filed rebate schedules at any time material to this case. AS TO THE COUNT I ALLEGATIONS Respondent’s newspaper advertisement is, when viewed in the light most generous to Small, unclear, ambiguous, and misleading. "85% off commissions" in the context of the entire advertisement doesn't tell the prospective purchasers what he is saving, if anything. Small's representation that the prospective customer will enjoy “Legal Savings per Florida Statute 626.572” is false with respect to at least eight of the companies he represented at all times material to this case. As to these companies, clear and convincing evidence establishes that he was not authorized to rebate pursuant to that statute. In his untimely and unauthorized Motion to Quash, Small asserts that the baffling expression “PERSAVE $1,000’s” is there due to an error by The Palm Beach Post. It should have read, he contends, "You Save $1,000's." Thus, by Small's own admission, the suggestion to readers was intended to be that they stood to realize thousands of dollars in savings by doing business with Small. AS TO THE COUNT II ALLEGATIONS The web site advertisement is similarly unclear to the point of being intentionally misleading. Small is not a "Palm Beach agent." His office is located within his home in Lake Worth, a municipality within the greater Palm Beaches area. Palm Beach is one of the best known playgrounds of some of the world's wealthiest people, and carries a cachet which the truth--that Small never leaves his home in Lake Worth--does not. It suggests to readers that Small's clientele includes the rich residents of Palm Beach, whom he makes richer. The "85% off insurance commissions" advertised in the newspaper is upped to 90% off for Internet readers, and again begs the question, “90% off of what?” In this advertisement, the phrase “$100,000+” of savings “in your pocket,” made without any factual predicate, convincingly suggests an intent to mislead. Beyond self-serving and often incoherent testimony, Respondent's only effort to rebut the Department's case was through testimony that he had once “discussed” with Richard Scalesse (Scalesse), a Hartford Life account executive, “a large insurance case of about $120,000 of annual premium.” Scalesse could not remember details of the case. Assuming the accuracy of Small's testimony, in particular the claim that this case was “a very, very large case,” it does not rebut any element of the administrative charges nor does it support any element of an affirmative defense. The last statement in the web page ad reads: “We also offer deep discounts on term life insurance.” What other type of insurance is being offered? Did the other discounts apply only to whole life? Annuities? Universal life? The advertisement offers no concrete information upon which a consumer could make a rational decision to consider doing business with the advertising agent. Respondent's claims that the newspaper advertisement was placed by mistake and will never be repeated is too little, too late. The advertisement is not benign in that it simply advertises a "seminar," as Small contends. The advertisement says nothing about a seminar, and even if it did, Small, when attempting to attract customers to his insurance business, is at all times bound by the statutes and rules governing the conduct and business practices of state- licensed insurance agents, no matter what he thinks of their constitutionality, or the people whose jobs it is to enforce those statutes and rules. Each of the false and misleading statements contained in The Palm Beach Post ad, as well as on Small's website, was, at all times material to this case, authorized by Small.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order finding the Respondent, Barry Howard Small, guilty of violating Subsections 626.572(1), 626.611(7); 626.611(9); 626.611(13); 626.621(2); 626.621(3); 626.621(6); 626.9541(1)(a)1., and 626.9541(1)(e)1., and Rules 4-150.101; 4-150.105(1)-(4); 4-150.107(1)(a); and 4-150.114(10), and suspending his license for a period of one year. DONE AND ENTERED this 9th day of September, 2002, in Tallahassee, Leon County, Florida. __________________________________ FLORENCE SNYDER RIVAS 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 9th day of September, 2002. COPIES FURNISHED: David J. Busch, Esquire Department of Insurance 200 East Gaines Street Tallahassee, Florida 32399-0333 Barry Howard Small 3200 South Ocean Boulevard Apartment 103D Palm Beach, Florida 33480 Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner Donna Danzis is a retired state employee and is entitled to reinstatement of her policy of State Life Insurance Plan.
Findings Of Fact The Petitioner was an employee of the Florida Department of Children and Family Services (DCF) through October 28, 2005. On October 28, 2005, she voluntarily terminated her employment. At the time she terminated employment she had been covered under the Plan. The Plan is made available to state employees and retirees through the DSGI, in accordance with Section 110.123, Florida Statutes (2006). The terms and conditions of employee participation in the plan are provided for in Florida Administrative Code Rule Chapter 60P-3. The Petitioner was a cancer patient at times pertinent hereto and that may have played a role in her decision to terminate her employment. In any event, her employment termination was voluntary and occurred during a time apparently when she was undergoing chemical therapy concerning her cancer issues. Prior to the time she terminated her employment on October 28, 2005, the Petitioner did not discuss her plans to retire with DCF Human Resources Personnel. She had, however, apparently applied for disability retirement, although that disability retirement status had not yet been determined or granted at the time she terminated her employment. After termination of employment, on or about November 24, 2005, the Petitioner contacted DCF personnel office and spoke with Mr. Harvey Whitesides. During that conversation, Mr. Whitesides determined that the Petitioner had had deductions from her paycheck to cover premiums for three types of insurance coverage: state health insurance, a group life insurance plan, as well as state security insurance. The later type of insurance is an optional supplemental life insurance that is not a part of the Plan. In that November 24, 2005, conversation with Mr. Whitesides, the Petitioner told him that she had terminated her employment with the state but did not inform him that she had applied for disability retirement. During their conversation she told Mr. Whitesides that she wanted refunds that she was entitled to from the state health insurance and group life insurance plans. Mr. Whitesides was supervisor of payroll for DCF and its predecessor agency from 1993 through 2002. In that position his duties included management of the benefit section and retirement operations within the DCF. While her performed his duties as supervisor he would commonly assist employees in their preparation of the forms necessary to affect retirement. Mr. Whitesides retired in 2003, but returned to DCF as an employee in March 2004. Beginning in June 2004, he assumed the duties of DCF personnel services specialist. In July 2005, his position and duties were transferred to the Agency for Persons With Disabilities. Since returning to state employment in March 2004, Mr. Whitesides duties have been substantially the same as those he performed from 1993 through 2002. These included the processing of benefits and retirement requests submitted by employees. In the course of performing those operations he has always assisted employees in the completion of the form required to apply for retirement. Since 1993, Mr. Whitesides has used a "continuation/termination form," for retiring employees who upon retirement wished to continue their state group life insurance. Beginning in March 2004 when he returned to state employment, Mr. Whitesides had access to and used that same continuation/termination form. He did not offer the form to the Petitioner during their conversation on November 24, 2004, however, because the Petitioner did not then inform him that she had applied for retirement. Mr. Whitesides did not learn that the Petitioner had applied for retirement until he received a letter from the Division of Retirement (DMS) dated December 14, 2005, which asked that the DCF provide information and data necessary to calculate Ms. Danzis retirement benefits. Mr. Whitesides provided the date requested by DMS, including the "Florida Retirement System Pension Plan Salary Certification." Prior to the receipt of the letter dated December 14, 2005, the Petitioner had not informed anyone in the DCF personnel office that she had applied for disability retirement. Florida Administrative Code Rule 60P-3.014 requires that an employee who retires and is covered under the life insurance plan must elect one of the following options: (1) submit a request to continue coverage during retirement accompanied by a personal check or money order for one full month's premium, which must be received by the employee's former agency and forwarded with the original application no later than 31 calendar days after the last day of employment; or (2) that the retiring employee must submit a request to terminate coverage under the life insurance plan no later than 31 calendar days after the employee's last day of employment. That rule goes on to provide that an employee who applies for disability retirement and has not received approval of that prior to his last day of employment but who is covered under the life insurance plan on that last day of employment has the option to continue coverage in the life plan pending such retirement disability approval or rejection by submitting a request to continue coverage in accordance with Florida Administrative Code Rule 60P-3.014(1)(a) and by paying the full premium for each month's coverage by personal check or money order to his or her former personnel office. Concerning employees or retirees off the payroll, if it is determined that none of the required contribution by the end of the coverage month the coverage will be cancelled and the retirees coverage will be terminated effective the first day of that month. A retired employee whose coverage is terminated in accordance with subsection (1) or (2) of Rule 60P-3.010 may not re-enter the Plan. The Petitioner did not submit a continuation/termination form within 31 days of the date of her termination of employment stating that she wished to continue her participation in the plan, and provide the other information required by Florida Administrative Code Rule 60P-3.014(1)(a). The Petitioner did not submit a month's premium for life insurance within 31 days after the last date of her employment. The only notice that Ms. Danzis gave, or attempted to give, was notice that she was voluntarily terminating her employment and that her last date of work would be October 28, 2005. Because she did not elect to continue her participation in the life insurance plan through the proper procedure and filing, the Agency canceled her life insurance, thus generating the subject dispute.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Management Services, Division of State Group Insurance determining that the Petitioner failed to properly elect to remain a covered retiree of the State Life Insurance Plan, and that the Petition be dismissed. DONE AND ENTERED this 4th day of April, 2007, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with Clerk of the Division of Administrative Hearings this 4th day of April, 2007. COPIES FURNISHED: Donna Danzis 7744 State Road 100 Keystone Heights, Florida 32656 Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florid 32399-0950 Sarabeth Snuggs, Director Division of Retirement Department of Management Services Post Office Box 9000 Tallahassee, Florida 32315-9000 John Brenneis, General Counsel Division of Retirement Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
The Issue A notice and order to show cause, issued to Respondent on January 15, 1992, seeks to terminate Respondent's grandfathered status under Section 626.988, F.S., and seeks to suspend or revoke Respondent's certificate of authority pursuant to Section 626.891, F.S. Various violations are alleged, including expanding the scope of functions being performed on April 2, 1974; soliciting prospective insurance customers by placing enclosures and solicitations in First Union Bank customers' bank statements; adding resident life agents; and allowing an unlicensed individual to solicit applications of insurance in Florida. The issues for resolution in this proceeding are whether the alleged violations occurred and if so, what discipline or remedial action is appropriate.
Findings Of Fact Respondent, First Union Mortgage Corporation (FUMC), is a North Carolina corporation with its principal place of business at 301 South Tryon Street, Charlotte, North Carolina. FUMC is a "financial institution agency" as defined in Section 626.988(1)(c), F.S. FUMC is a wholly-owned subsidiary of First Union Corporation, a registered bank holding company with headquarters in Charlotte, North Carolina. First Union Corporation is also a financial institution as defined in Section 626.988(1)(a), F.S. First Union National Bank of Florida, N.A., is a national bank authorized to do business in Florida and is a sister corporation of FUMC. Until February 8, 1987, FUMC was known as Cameron Brown Mortgage Company. Under that name it had engaged in certain insurance activities in Florida since the late 1960's. When Cameron Brown became FUMC there was no change in ownership, affiliation or corporate structure. Before and after the name change the company was owned by First Union Corporation. THE DECLARATORY STATEMENT On April 2, 1974, Section 626.988, F.S., took effect, prohibiting insurance agents or solicitors licensed by the Department of Insurance (DOI) from engaging in insurance agency activities as employees, officers, directors, agents or associates of a financial institution agency. The same section includes a "grandfather" provision for continued operation of financial institution agencies which were in existence and engaged in insurance agency activities as of April 2, 1974. FUMC represented to DOI that it was entitled to the grandfather exemption for its pre-1974 insurance agency activities, and in February 1988, FUMC filed a petition for declaratory statement pursuant to Section 120.565, F.S. for determination of its status. After notice to FUMC and to the public, a proceeding on the petition was conducted on March 30, 1988 by a staffperson of DOI appointed as hearing officer. On August 5, 1988, a declaratory statement was issued, and on September 2, 1988, an amended declaratory statement was issued. The latter statement finds in pertinent part: First Union Insurance Group (formerly the insurance division of Cameron Brown Company) was engaged in insurance agency activities prior to April 2, 1974. First Union Mortgage Corporation through First Union Insurance Group has continuously [word apparently deleted here] licensed agents and conducted insurance agency activities in Florida since and before April 2 1974. The scope of insurance agency activities continuously conducted by First Union Mortgage Corporation has been limited to: One life and health insurance agent, (Mr. Winifred Eugene Strickland), who served as an agent for the insurance division of Cameron-Brown Company while also serving as a salaried employee of American Heritage Life Insurance Company. Although Mr. Strickland apparently had one or more additional sub- agents involved in soliciting Cameron-Brown Customers, their involvement was sporadic and does not meet the test for "continuously engaged" so as to entitle First Union Mortgage Corporation to more than one life and health insurance agent. One non-resident property and casualty agent, (Charles Johnson). Mr. Johnson has been licensed as the successor agent for Mr. Hubert Reid Jones. Mr. Jones and Mr. Johnson sold, through countersignature relationships with Florida agents, property and casualty insurance prior and subsequent to April 2, 1974. The solicitation and servicing of customers of Cameron-Brown Company (now First Union Mortgage Corporation) was the focus of its insurance agency activities. . . . (Petitioner's Exhibit A Pages 3-4) The amended declaratory Statement also provides: . . . But for application of the "grandfathering" provisions of Section 626.988(5), Florida Statutes, any insurance agent or solicitor licensed by the Department of Insurance (the Department) would be prohibited from association with First Union Mortgage Corporation in insurance agency activities. . . . (Petitioner's Exhibit A Page 5) The amended declaratory Statement concludes as follows: . . . Pursuant to Section 626.988(5), Florida Statutes, the Petitioner's subsidiary, First Union Mortgage Corporation, is entitled to continue to engage in insurance agency activities through First Union Insurance Group by utilizing one licensed non-resident property and casualty insurance (Class 9-20) and one licensed resident life and health insurance agent. This recognition of grandfather status for Petitioner's subsidiary First Union Mortgage Corporation does not extend to Petitioner's subsidiary, First Union National Banks of Florida. First Union Mortgage Corporation may solicit prospective insurance customers so long as neither the Petitioner, First Union Corporation, nor any subsidiary bank plays an active role in such insurance solicitation through endorsements, bank mailings, providing space within bank offices, or similar activities. . . . (Petitioner's Exhibit A Pages 7-8) emphasis added. CERTIFICATE OF AUTHORITY AS "THIRD PARTY ADMINISTRATOR" In addition to its activities described in the amended declaratory statement, FUMC (then, Cameron Brown) was engaged in other insurance related activities prior to 1970. Under contracts with various life and health insurers Cameron Brown provided third party administrator services including receiving and reviewing applications, issuing policies, explaining and collecting premiums and accounting for and remitting premiums to the insurance companies. The insurance companies with whom Cameron Brown contracted handled the actual solicitation and sale of the policies. The contracts in effect in 1968, 1970 and 1978 between Cameron Brown and Minnesota Mutual Life Insurance Company were typical of the arrangements with other companies, according to Charles Johnson, Jr., retired vice president in charge of insurance agency operations at Cameron Brown. (Transcript, p. 102). As provided in the contracts with Minnesota Mutual Life Insurance Company, the administrative services were in connection with the mortgage insurance program made available by the insurance company to borrowers of Cameron Brown. (Respondent's Exhibits number 1, 2, 3). This included borrowers in the State of Florida, although the services were being provided out of Cameron Brown/FUMC's principal offices in Charlotte, North Carolina. Prior to 1983, when Chapter 626 Part VII, Florida Statutes was enacted, Florida did not regulate third party administrators as such. Section 626.8805, F.S. now requires a certificate of authority to be issued by the Department of Insurance (DOI). On or about September 26, 1986, Cameron Brown applied to DOI for authorization to operate in the State of Florida as a third party administrator. The application was prepared by Peter Nagle, senior vice-president of FUMC who had just recently joined what was then Cameron Brown. On the application, and later in October, in response to DOI's request for additional information, Nagle indicated that Cameron Brown had operated as an administrator of insurance plans since December 1983 and that the company was not providing such services on plans for Florida residents. This information was an inadvertent error, primarily the result of Nagles unfamiliarity with the company's history. There is no evidence that the information was material to a determination of the company's eligibility for certification. Nor is there evidence of any scheme by the company to conceal its past practices at the time of application in 1986. In its application Cameron Brown disclosed its affiliation with First Union Corporation, and further provided that First Union National Bank of Florida conducted only credit insurance activities in First Union Corporation locations in Florida. DOI issued a certificate of authority for Cameron Brown to operate as an administrator in the State of Florida on October 14, 1986. The cover letter provides, "the certificate is perpetual and shows no expiration date contingent upon your annual filing, due March 1st". (Petitioner's exhibit B, p.17) Those annual filings have been made, and on May 18, 1987, the certificate of authority was reissued in the name of FUMC. During the declaratory statement proceeding, the company's third party administrator status was never an issue. DOI never asked about, and FUMC never mentioned, the existence of its certificate or the company's insurance administration activities. The staff of DOI involved in the declaratory statement proceeding did not know about their agency's grant of the certificate to FUMC. Their pique at FUMC"s failure to affirmatively raise the certificate issue, however, is misplaced in the absence of any evidence that the outcome of the declaratory statement would have been altered with that knowledge. At most, the staff can only say that their investigation would have been different had they realized that FUMC was providing insurance administration services. INVESTIGATION AND ALLEGED VIOLATIONS After the third party administrator certificate was issued, and after the amended declaratory statement was issued, sometime in 1989, DOI began investigating all financial institutions claiming grandfathered status under Section 626.988, F.S. This included FUMC, and during a two day visit to the Charlotte, North Carolina headquarters, DOI staff, obviously other than staff involved in the certificate process, learned for the first time that FUMC was operating as an administrator of insurance plans. Even then this did not trigger further investigation of the administrator activities, as there was no evidence that the company was out of compliance with its amended declaratory statement. Approximately a year later, in the summer of 1990, DOI's Bureau of Agent and Agency Investigations began receiving inquiries regarding Monumental General Insurance solicitations mailed to First Union Bank customers in Florida. Gail Connell, DOI Analyst II, opened her investigation. A few months later complaints were received from insurance agents who were also customers of First Union Bank regarding solicitations done by American Heritage Life. The brochure from Monumental General sent to First Union Bank customers listed a toll-free number for the plan administrator, First Union Insurance Group, a division of FUMC. The mailing included letters from the president of Monumental General and the senior vice-president of First Union National Bank of Florida, with an enrollment form for a $1,000 no-cost accidental death group policy and optional additional coverage. Benefits and premiums for the additional coverage were explained in the brochure. A pre-paid postage reply envelope was addressed to "First Union Insurance Group, Plan Administrator, Attn: Daniel J. McPherson, Licensed Resident Agent, P. O. Box 2678, Jacksonville, Florida 32203-9851". (Petitioner's Exhibit C; pp. 157-163.) Daniel McPherson is not one of FUMC's grandfathered agents nor a successor to a grandfathered agent. The American Heritage Life mailings were stuffed in bank statements of customers of First Union National Bank. These mailings included a simple check- off form for the customer to return for more information and for a personalized quotation for term life insurance. Some mailings indicated return to "C. Dennis Wiggins, Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203- 9851", and others required return to "Robert T. Jones, Sr. Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203-2678" (Petitioner's Exhibit C, p 141, 154). Neither of these agents are FUMC's grandfathered agents or their successors. The American Heritage mailings also included a toll-free number for information. Gail Connell called that number and was eventually connected to a person identified as Sheila Auten, an insurance specialist for FUMC in North Carolina. Ms. Connell said to Ms. Auten that she was interested in more information about the term life policy addressed in the brochure. Ms. Auten asked questions about Ms. Connell's name, address, age, occupation and general health. Ms. Auten gave some history about American Heritage Life, estimated a premium for Ms. Connell, and offered to take her application over the phone. In response to Ms. Connell's question, she indicated that the completed application would be mailed to American Heritage Life in Jacksonville. Ms. Connell did not reveal her occupation as DOI investigator. Ms. Connell said she needed to think about the decisions and asked Ms. Auten to mail her something. A few days later Ms. Connell received a brochure explaining the product, a premium rate sheet and an application form. A few weeks later, when Ms. Connell did not return the application she received this letter from Sheila Auten: Dear Ms. Connell: Recently we sent you a proposal for term life insurance from American Heritage Life Insurance Company. I regret I have been unable to reach you by telephone to discuss it and answer any questions you may have. This term insurance is one of the best values on the market today. You can be sure it will provide you with a high level of life insurance protection at a very competitive rate. Once you decide to apply for this valuable insurance coverage, I would be happy to answer your questions or help you apply. Don't delay. Call me now at 1-800-366-8703. (Petitioner Exhibit C, p. 176) Ms. Auten is not licensed in Florida as an insurance agent or customer account representative. DOI considers it necessary for third party administrators to use licensed agents if they are engaged in solicitation of insurance. Based on her investigation, including a review of the compensation paid to FUMC for its agency activities compared to its administrator activities, Ms. Connell concluded that FUMC was using its administrator status to perform functions beyond the scope of its amended declaratory statement. She also concluded that FUMC was using unlicensed agents (Sheila Auten) to solicit insurance. These conclusions form the basis for the allegations in the agency's Notice and Order to Show Cause issued to FUMC on January 15, 1992. FUMC concedes that no grandfathered agent participated in the Monumental and American Heritage solicitations which triggered Ms. Connell's investigation. The two insurance companies solicit customers through direct mailings conducted by their licensed agents, which mailings go to customer lists provided by First Union National Bank of Florida or are enclosed in bank statements sent out by that institution. The bank has endorsed some of the products offered by the insurance companies. Other than provide marketing advice to the insurance company, FUMC plays no part at all in the sending or preparation of the mail solicitations. The bank sends out its statements; the insurance company or its agent, unaffiliated with FUMC, sends the inserts to the place where the bank statements are prepared; and a machine stuffs the inserts. The returned inquiry forms go to a Florida post office box, as indicated in paragraphs 18 and 19 above, and are forwarded to FUMC for its administrative support services. Those services include the further response to inquiries (as evidenced by Ms. Connell's encounter with Sheila Auten), review and approval of applications based on the insurance company's underwriting guidelines, entry into the administrative system, issuance of the policy and explanation to the customer, drafting the premiums out of the customer's account, and general servicing of the policy. These functions are consistent with administrator agreements between FUMC and Monumental General effective October 1, 1986; and FUMC and American Heritage Life effective November 1, 1989. There is no evidence that FUMC has been subject to discipline in the past, has operated unprofessionally or has caused harm or risk of harm other than through what DOI asserts is the impermissible involvement of a financial institution in the insurance business. It is primarily its status as a financial institution that has resulted in this proceeding against FUMC.
Recommendation Based upon the foregoing, it is hereby RECOMMENDED that the amended notice and order to show cause be dismissed. DONE AND ENTERED this 22nd day of October, 1992, in Tallahassee, Leon County, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of October, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1476 The following constitute rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Fact Adopted generally in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 1. Adopted in paragraph 14. Adopted in paragraph 6. Adopted generally in paragraph 7, but the implied characterization of that order as establishing the only way that insurance activities might be conducted is rejected as discussed in the conclusions of law. Rejected as irrelevant. Rejected as an inappropriate characterization as a grant of exemption, as discussed in the conclusions of law. Adopted in part in paragraph 7, but the characterization of the order as a permit is rejected. See paragraph 8, above. Rejected as contrary to the evidence and law. Rejected as improperly precluding the possibility of Respondent's later presenting evidence of other activities in which it engaged as of April 2, 1974, if it is determined that third-party administrator status must also be grandfathered in order to continue. This was not an issue in the prior proceeding. Rejected as contrary to the evidence, as to deliberate concealment. Adopted in paragraph 14. Adopted in part, as to the first sentence. Otherwise, rejected as unsupported by the evidence. Rejected as argument rather than proposed finding of fact. Adopted in paragraph 12. 17-18. Adopted generally but Respondent's contention as to evidence in this proceeding is rejected, as provided in conclusions of law, paragraph 32. 19. Rejected as unnecessary. 20-27. Rejected as argument. 28-29. (not included in the filing). 30-33. Rejected as contrary to the weight of the evidence. Adopted in paragraphs 20-22, except for the characterization of the activity as "soliciting". Rejected as unsubstantiated by the evidence. This case establishes only that the department now interprets FUMC's administrator activities as solicitation, not that it is a policy supported by rule, procedure or reason. Rejected as contrary to the evidence. The level of compensation did not establish the association the department theorizes. Rejected as unsupported by the weight of the evidence. The response given by the witness on page 189 was a qualified, inconclusive response. Respondent's Proposed Findings of Fact Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 7. Adopted in paragraph 8. Adopted in paragraph 3. Included in Conclusions of Law. Adopted in paragraph 11. Adopted by implication in paragraph 11. 9-10. Adopted in paragraph 8. 11-14. Adopted in substance in paragraph 9. 15. Rejected as unnecessary. 16-17. Adopted in paragraph 12. Adopted in paragraph 14. Adopted in paragraph 12. Adopted in paragraph 13. Adopted in substance in paragraph 9, but there is no competent evidence that the same kinds of services were being provided since 1970. Rejected as unnecessary. Adopted in paragraphs 4 and 14. Adopted in paragraph 7. 25-26. Adopted in substance in paragraph 6. 27-31. Rejected as unnecessary. Adopted in paragraph 13. Adopted in paragraph 15. Adopted in substance in paragraph 7. Adopted in paragraph 15. 36-37. Adopted in paragraph 7. Addressed in Conclusions of Law. Rejected as unnecessary and cumulative. Adopted in paragraph 25. 41-42. Adopted in paragraph 26. 43-44. Rejected as cumulative and unnecessary. 45. Adopted in paragraph 26. 46-49. Adopted in paragraphs 20-22. Included in Conclusions of Law. Rejected as cumulative and unnecessary. 52-53. Adopted in paragraph 27. COPIES FURNISHED: Lisa S. Santucci, Esquire Dennis Silverman, Esquire Department of Insurance Division off Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 J. Thomas Cardwell, Esquire Virginia B. Townes, Esquire Akerman, Senterfitt & Eidson, P.A. Post Office Box 231 255 South Orange Avenue Orlando, Florida 32802 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-2152 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
Findings Of Fact The Respondent, Emory Daniel Jones, was not involved or engaged in the insurance business prior to August, 1977. (Tr. 177.) In approximately August of 1977, United Sun Life Insurance Company (USL) hired Respondent as an agent. (Tr. 176, 177.) Respondent passed the insurance test administered by the State of Florida in August, 1977, and was scheduled for a seminar given by USL. (Tr. 178.) In late August, 1977, Respondent attended a three-day seminar established by USL for all its new agents. (Tr. 178.) At this seminar, USL taught the agents about a policy known as T.O.P. This was the only policy taught to the agents even though USL had other policies available. (Tr. 128.) The T.O.P. contract is a life insurance policy. This policy has two primary benefits. (Tr. 230, 231.) The first is the death benefit provided by all life insurance policies. Under the death benefit provision, the owner of the T.O.P. pays a premium to USL. When the insured dies, USL will pay the death benefit (money) to the beneficiary listed on the policy. (Tr. 128, 251.) The second major benefit provided by the T.O.P. is the life benefit feature. (Tr. 251.) The T.O.P. is an insurance policy which provides for the payment of dividends to the owner of the policy. The T.O.P contract states that the owner will share in the divisible surplus earnings of USL as determined by the Board of Directors. (Tr. 120; contract page 5, Exhibit #3.) The dividends were to be paid after the second year. (Tr. 129, 130.) The owner would participate in the divisible surplus earnings of USL through the payment of a dividend. (Tr. 129, 188.) As long as the T.O.P. was in effect, the owner would receive these dividends. USL developed a presentation to be given by the agents to prospective customers. This presentation was taught in the training session by USL. (Tr. 183, 249, 260, 270.) The agents were to memorize the presentation and were not to vary from the wording when they were attempting to sell the T.O.P. to prospective customers. (Tr. 185, 249.) The presentation taught by USL stressed the life benefit feature of the T.O.P. contract. (Tr. 251, 271.) The death benefit was only minimally covered because of the relatively high cost for the life insurance portion of the contract. This presentation further explained several features which made the T.O.P. contract life benefit provisions attractive to future customers: The T.O.P. contract owner was to participate in the divisible surplus earnings of USL. The only other persons that would also participate in the divisible earned surplus were the shareholders. (Tr. 196.) The T.O.P. contract was to be sold only to a limited number of people. After an undisclosed number of T.O.P. contracts were sold, the T.O.P. contract was to be taken off the market. (Tr. 234, 261, 276.) USL was not going to sell or issue any other policies which would participate in the divisible earned surplus of USL. (Tr. 234, 255, 261, 276.) USL would grow (increase its divisible earned surplus) by selling policies other than the T.O.P. contract. The more policies that were sold, the greater the divisible surplus earnings that would be available to the T.O.P. contract owners for dividends. (Tr. 196, 276.) Since the T.O.P. owners were limited and no other participating policies were to be issued, the T.O.P. owners would share in any increases in the divisible surplus earnings of USL. The greater the number of policies sold, the greater the dividends. The T.O.P. owners were then solicited to help the agents sell insurance policies of USL to their friends. This help would reduce the cost of advertising and increase the sales of insurance. The lower expenses and greater volume would mean more divisible surplus earnings in USL and greater dividends available to the T.O.P. owners. (Tr. 201.) To illustrate these points, USL taught the agents to draw circles representing other insurance policy owners. Lines were then drawn from these circles to the T.O.P. owner's circle. The lines between the circles represented the premiums paid on the other policies, which would increase divisible surplus earnings that would increase the dividends of the T.O.P. owners. (Tr. 196, 232, 263, 270.) USL taught the agents to illustrate the features of the life benefit by dollar signs. As the agent would talk about the other policies increasing the dividends to the T.O.P. owners, he was to increase the size of the dollar sign. (Tr. 233.) The whole emphasis of this presentation was on the participating feature. Another feature emphasized in the USL presentation was that the T.O.P. owner would participate in the divisible surplus earnings of USL as long as he was alive. Therefore, the agents were to stress that the T.O.P. owner should be a younger person in the family. If that person lived 70 years, then USL would pay dividends for 69 of those 70 years. This feature of the policy was stressed in the memorized presentation. (Tr. 204, 205, 232, 233, 252, 264, 270.) In late August of 1977, Respondent attended the training session and memorized the presentation. (Tr. 181, 184, 185.) At the end of the training session, USL reviewed the Respondent's presentation and found nothing wrong. (Tr. 187.) In late August of 1977, Respondent went into the field to sell the T.O.P. contract to potential customers. (Tr. 187.) Count I On September 7, 1977, Respondent met with Louis Charles Morrison and made the USL presentation on the T.O.P. policy to Morrison. Respondent made the presentation in the way he had been taught. Morrison was aware that he was purchasing an insurance policy. He was led to believe through USL's sales presentation as given by Respondent that the participating feature of the T.O.P. policy made this policy a good investment. Morrison concluded it was not a good investment because the dividends were not as great as he had anticipated they would be. Respondent's representations to Morrison with regard to the T.O.P. policy were not false. Count II On September 12, 1977, Respondent met with Fred Menk and gave to him the USL presentation on the T.O.P. policy. Respondent gave the presentation as he had been taught. Menk was aware that he was purchasing insurance. (Tr. 51.) Respondent made no representation about future dividends. (Tr. 59.) The interest rate was represented to increase as USL grew, which it did. (Tr. 59.) Menk was dissatisfied and felt the policy was misrepresented because he did not get the rate of return he had anticipated. (Tr. 59.) According to Menk, Respondent's representations made with regard to interest rate increases were accurate, and Respondent made no representations regarding future dividends. Count III Respondent met with Paul Loudin in September of 1978, and gave him the USL presentation on the T.O.P. policy as Respondent had been taught. Loudin was aware he was purchasing insurance. (Tr. 21, 26, 27, 31.) His interest was in life insurance and retirement compensation. (Tr. 36.) In part, Loudin's dissatisfaction was the belief he had lost his money because he did not receive a dividend on his first year's premium. The policy reflects that no dividends are payable in the first year. (Respondent's Exhibit #7.) A copy of the policy was provided to Loudin by Respondent. (Tr. 45.) Loudin also anticipated a dividend of 12 to 18 percent on his premiums based upon Respondent's general comments. However, he did not remember the exact conversation with Respondent. (Tr. 31, 32, 38, 39.) Loudin received a letter from USL which reflects a dividend history based upon an 18-year-old insured with an annual premium of $1,000 as follows: End of 2nd year $100.35 End of 3rd year 130.66 End of 4th year 162.86 The rate of return in the fourth year would be 11.6 percent on the fourth year's premium. The representations made to Loudin by Respondent were substantially true, or the relevant information was made available to Loudin by the Respondent. Count IV On November 30, 1977, Respondent met with Gayle Mason and gave the USL presentation on the T.O.P. policy as he had been taught. Mason knew she was purchasing insurance. (Tr. 107.) Respondent represented that the number of participants in the T.O.P. policy would be limited. (Tr. 108.) The current rate of return was taken by Respondent to be 11 percent, and it was represented that the return could be more. (Tr. 109.) Dividends were to be paid from surplus earnings. (Tr. 114.) Mason called the Better Business Bureau and the State Insurance Commissioner's office, and she was aware that USL was an insurance company and she was engaged in an insurance transaction. (Tr. 115.) Respondent represented that as USL grew, the dividends would increase. (Tr. 118.) Mason received a dividend in the second year in accordance with the policy. The representations made to Mason by Respondent were true or thought by Respondent to be true.
Recommendation Having found the Respondent, Emory Daniel Jones, not guilty of violating any of the statutes or rules as alleged, it is recommended that the Administrative Complaint against Respondent be dismissed. DONE and RECOMMENDED this 17th day of January, 1983, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of January, 1981. COPIES FURNISHED: David A. Yon, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 Paul H. Bowen, Esquire 600 Courtland Street, Suite 600 Post Office Box 7838 Orlando, Florida 32854 The Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32301
