The Issue The issues in these proposed rule challenge proceedings are whether the Department of Revenue’s Proposed Rules 12B-8.003 and 12B-8.016 and Proposed Forms DR-907 and DR-908 constitute invalid exercises of delegated legislative authority. Essentially, the proposed rules and forms respond to the decision in Department of Revenue vs. Zurich Insurance Company, 667 So. 2d 365 (Fla. 1st DCA 1995)(Zurich), and state: (1) that workers’ compensation administrative assessments (WCAA) imposed under Section 440.51(5), Florida Statutes (1995), are “special purpose obligations or assessments imposed in connection with” workers’ compensation insurance; (2) that the retaliatory tax under Section 624.5091, Florida Statutes (1995), does not apply as to WCAA; (3) that WCAA are treated as deductions from the insurance premium tax imposed under Section 624.509, Florida Statutes (1995), as provided in subsection (7) of that statute, and are not added back in, for purposes of calculating retaliatory taxes. The positions taken in the various proposed rule challenges include: (1) Zurich was wrongly decided or no longer controlling, and WCAA are not “special purpose obligations or assessments imposed in connection with” workers’ compensation insurance; (2) as a matter of statutory interpretation, even if WCAA are “special purpose obligations or assessments imposed in connection with” workers’ compensation insurance, WCAA are not to be deducted from insurance premium taxes, or are to be added back, for purposes of calculating retaliatory taxes; (3) if not so interpreted, the proposed rules and forms violate the equal protection clause of the United States Constitution; (4) the published notice of the proposed rules and forms was fatally defective; and (5) the proposed rules and forms cannot be applied retroactively.
Findings Of Fact House of Representatives Insurance Committee Final Staff Analysis of CS/CS/CS/HB 336 (1989) contains the following example in Section II.D: D. FISCAL COMMENTS: The following is an example of an out-of-state Property & Casualty Company’s tax calculations under the provisions of this bill (assuming the company’s state of domicile imposes a 2.0% rate). Total Premiums Written in Florida $1,000,000 Premium Tax Rate x 1.75% Gross Premium Tax $17,500 Credit for Municipal Taxes ($5,000) Credit for Workers’ Comp. Assessments ($5,000) Net Premium Tax $7,500 Payroll Paid to Eligible Florida Employees $30,000 Factor for calculating Maximum Salary Credit x 15% Maximum Salary Credit $4,500 Net Premium Tax $7,500 Factor for Calculating Maximum Combined Credit 65% for Salaries and Corporate Income Taxes Paid Maximum Combined (Salary plus CIT) Credit $4,875 Corporate Income Taxes Paid in Previous Year ($2,200) Usable Salary Credit (Cannot Exceed Maximum $2,675 Salary Credit) Net Premium Tax $7,500 Corporate Income Tax Credit ($2,200) Usable Salary Credit ($2,675) Total Premium Taxes (Paid to GR) $2,625 Probable Tax from Retaliation against $535 Salary Credit ($2,675 x 20%) Retaliatory Taxes from the Rate $2,500 Differential ($1,000,000 x .25%) $3,035 Total Premium and Retaliatory Taxes $5,660 Paid to General Revenue House of Representatives Committee on Finance & Taxation Bill Analysis and Economic Impact Statement of PCB FT 94-12 (1994), stated that the 1994 amendments to Section 624.5091, Florida Statutes (1993), had no fiscal impact. The amount of workers’ compensation administrative assessments may vary. Currently, the amount of workers’ compensation administrative assessments exceeds premium taxes, which limit the amount allowed as a deduction against premium taxes under section 440.51(5), Florida Statutes.
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed in Florida as a life and variable annuity contracts salesman and as a life and health insurance agent. In 1994 twin sisters Edith Ellis and Gertrude Franklin attended a luncheon at which Respondent made a presentation. The sisters were then 79 years old, and both were the owners of single-premium insurance policies issued by Merrill Lynch. They decided to cash in their existing policies and purchase new policies through Respondent. Both Ellis and Franklin executed 1035 exchange forms whereby the monies obtained from cashing in their Merrill Lynch policies were transferred to the insurance companies issuing their new policies. Both were charged a substantial penalty by Merrill Lynch. On August 11, 1994, Security Connecticut Insurance Company issued to Edith Ellis a flexible premium adjustable life insurance policy with a face value of $150,000. The cover page of the policy recites in bold print that it is a flexible premium adjustable life insurance policy, directs the insured to read the policy, and provides a 20-day period for canceling the policy with a full refund. It also contains a statement that provides: This Policy provides flexible premium, adjustable life insurance to the Maturity Date. Coverage will end prior to the Maturity Date if premiums paid and interest credited are insufficient to continue coverage to that date. Dividends are not payable. Flexible premiums are payable to the end of the period shown, if any, or until the Insured's death, whichever comes first. The cover page also recites that the first premium is $75,000 and that the monthly premium is $805.75. After deductions, Merrill Lynch only transferred $44,928.81, and Ellis never paid any additional premiums. Therefore, the policy was not funded to maturity since the company only received a partial payment. The insurance company did not set up this policy to receive periodic premium payments because it was originally anticipated that the company would receive $75,000 which would carry the expense, based upon the then interest rate. The policy was dependent upon interest rates. The company sent annual statements, however, to both Ellis and to the agency where Respondent worked. These statements clearly showed a declining accumulated value for the policy and specified how much it had declined from the previous year. When Ellis surrendered the policy on July 3, 2002, its value was $4,849. First Colony Life Insurance issued a flexible premium adjustable life insurance policy to Gertrude Franklin on October 18, 1994, with a face value of $600,000. The cover page provides for a 20-day cancellation period with a full refund of premiums paid. In bold type, the cover page further advises as follows: "Flexible Premium Adjustable Life Insurance Policy", "Adjustable Death Benefit Payable at Death", "Flexible Premiums Payable During Insured's Lifetime", and "Benefits Vary with Current Cost of Insurance Rates and Current Interest Rates." It also advises that the initial premium is $56,796. The insurance company received an initial premium payment of $203,993.75 on December 19, 1994, and an additional premium payment in February 1996, for a total of premiums paid of approximately $266,000. The total premiums received, however, were insufficient to fund the policy to maturity since that would have required in excess of $400,000 in premiums. Annual statements sent by the insurance company reflected that the policy value was declining. On August 26, 1996, the insurance company received a letter over the name of Nancy Franklin, the trustee of the trust which owned the policy, advising the company to send billing and annual statements to the address of the agency where Respondent was employed. Respondent sent that letter as a courtesy because Gertrude Franklin asked him to keep her papers for her because she had no place to keep them. Gertrude Franklin, not her daughter, signed that letter. Respondent left that agency in October 1997 and was not permitted to take any records with him. In 2002 Edith Ellis showed her policy to someone at a senior center. Based upon that person's statements she called her sister and told her that their policies were no good. They contacted Respondent who came to their homes and reviewed their policies. He advised Gertrude Franklin that her only options at that point were to pay an additional premium or to reduce the face value of the policy to $400,000 in order to keep it in effect longer. She chose the latter course. Respondent gave Franklin a letter for Nancy Franklin's signature directing the insurance company to reduce the face value of the policy. Franklin, not her daughter, signed the letter and forwarded it to the company. The company reduced the face value based upon that letter which it received on April 1, 2002. That directive allowed the policy to stay in force another two months.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Administrative Complaint filed against Respondent in this cause. DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT 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 28th day of December, 2004. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Nancy Wright, Esquire 7274 Michigan Isle Road Lake Worth, Florida 33467 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Findings Of Fact Parties Petitioner is the state agency responsible for regulating insurance and insurance related activities in Florida. Petitioner regulates persons engaged in activities prohibited under Chapters 626 and 627, Florida Statutes. 1/ Respondent, Koontz, is licensed as a general lines agent for property, casualty, surety, and miscellaneous insurance. 2/ His agent number is 300429666. Mr. Koontz is the primary agent and vice president for Cash Register Auto Insurance of Polk County, Inc., ("Cash Register"). Cash Register sells insurance and is an insurance agency within the meaning of Section 626.094. Respondent, Davis, is employed by Cash Register. She is licensed under customer service representative number 534548407. Mr. Koontz is the appointing and supervising agent for Ms. Davis. He is responsible for her acts and representations pursuant to Florida Administrative Code Rule 4-213.100. 3/ Cash Register is a Florida corporation wholly owned by Mr. Lloyd Register III and LR3 Enterprises, Inc. ("LR3"). 4/ Cash Register's principal place of business is 2810 South Florida Avenue, Number B, Lakeland, Florida 33803. Background Prior to August, 1994, Mr. Ernest C. Carey maintained automobile insurance on his 1987 Toyota truck through Allstate Insurance Company ("Allstate"). Allstate cancelled the policy. During August, 1994, Mr. Carey obtained replacement insurance. Mr. Carey telephoned five insurance agencies to obtain premium quotes for the minimum insurance required by law. One of the insurance agencies that Mr. Carey telephoned was Cash Register. Mr. Carey sought to finance the insurance premium, make the minimum down payment, and obtain the minimum monthly payment available. The quote given to Mr. Carey was stored in the Cash Register computer. On August 17, 1994, Mr. Carey went to the Cash Register office and discussed the purchase of insurance with Respondent, Davis. Ms. Davis retrieved Mr. Carey's quote from the computer and offered Mr. Carey the same premium, down payment, and terms that were quoted to Mr. Carey by telephone. The quoted premium was $275 for personal injury protection, a $2,000 deductible, and $10,000 in liability insurance. The insurer was Armor Insurance Company ("Armor"). The down payment was $67. The quote was based on Mr. Carey's purchase of two additional policies. One policy was a $1,000 accidental death benefit ("ADB"). The second was hospital indemnification. The additional premium for the ADB policy was $10. The additional premium for the hospital indemnity policy was $100. Mr. Carey had the option of rejecting the two additional policies. His down payment on the cost of automobile insurance alone would have increased to $97.50, and his monthly payment would have also increased. However, the finance charge and total cost would have decreased. Mr. Carey was unhappy with his financing alternatives but did not choose to pay the premium in full rather than finance it. Nor did he choose to reduce his total cost by purchasing automobile insurance only. Mr. Carey chose a lower down payment, lower monthly payment, ADB, and hospital indemnification. Mr. Carey paid $67 to Respondent, Davis, signed the appropriate documents including a premium finance agreement, and left. Premium Financing Respondents are each charged with violating former Sec. 627.8405(3), Fla. Stat. (1994 Supp.)("former Section 627.8405(3)"). 5/ Former Section 627.8405 provided inter alia: No premium finance company shall, in a premium finance agreement, provide financing for the cost of: * * * (3) Any amount in excess of 70 percent of the original premium . . . on any insurance contract . . . of 12 months' or more duration . . . . Respondents did not violate former Section 627.8405(3) in the Carey transaction unless they satisfied three conjunctive requirements. Respondents must have: provided financing; in a premium finance agreement; for more than 70 percent of the original premiums. Respondents satisfied only one of the foregoing requirements. Provided Financing The term "financing" is not defined in Chapter 627, Part XV. The plain and ordinary meaning of the term "finance" is to supply money, credit, or capital ("money or credit"). 6/ Respondents did not supply money or credit to pay insurance premiums in the Carey transaction. Equity Premium, Inc. ("Equity") 7/ provided financing in the Carey transaction. Equity supplied money to the insurer or insurance agent, supplied credit to Mr. Carey, and imposed a finance charge for the money and credit supplied. Equity is a premium finance company, within the meaning of Section 627.826, and, on August 17, 1994, was subject to the provisions of former Section 627.8405(3). However, Equity is not a party to this proceeding. Respondents do not own stock in Equity. Nor do they own stock in Cash Register or LR3. Equity, Cash Register, and LR3 may be related entities because the stock of each corporation may be owned by common shareholders. However, any such relationship does not include Respondents. Petitioner failed to show by clear and convincing evidence that Respondents provided financing as principals. Petitioner failed to show by clear and convincing evidence that Respondents were authorized as agents to bind Equity irrevocably without the subsequent consent and approval of Equity. In A Premium Finance Agreement The financing document used in the Carey transaction was labeled a premium finance agreement. However, a written agreement is not a premium finance agreement merely because of the label affixed to the document. To be a premium finance agreement, a written agreement must satisfy the statutory definition of a premium finance agreement. A premium finance agreement is defined in Section 627.827 8/ as: . . . a written agreement by which an insured promises or agrees to pay to . . . a premium finance company the [amount advanced] . . . to the insurer or insurance agent, in payment of premiums on an insurance contract, [together with a service charge]. . . . [emphasis supplied] In relevant part, a premium finance agreement is a written agreement in which the insured promises to pay the amount advanced together with a service charge A written agreement in which the insured promises to pay the amount advanced without a service charge is not a premium finance agreement. Section 627.826(3) 9/ clearly states: The inclusion of a charge for insurance on a bona fide sale of goods or services on installments is not subject to the provisions of this part Section 627.826(3) makes it clear that financing provided without a service charge was not subject to the prohibition in former Section 627.8405(3). Former Section 627.8405(3) prohibited only financing in a written agreement in which the insured agreed to pay the amount advanced together with a service charge The amount advanced in the Carey transaction was $319.40. The amount advanced was determined by reducing original premiums of $375 by $57 of the down payment and by increasing the $318 remainder by D.O.C. stamps of $1.40. Of the amount advanced, Mr. Carey agreed to pay only $137.69 together with a service charge. The $43.66 service charge was calculated at an annual interest rate of 31.71 percent. 10/ If Mr. Carey had agreed to pay the entire $319.40 together with a service charge of 31.71 percent, he would have agreed to pay a service charge of $101.28. 11/ If Respondents provided financing in the Carey transaction, they provided financing in a premium finance agreement for only $137.69 because that is the only part of the amount advanced that Mr. Carey agreed to pay together with a service charge. Respondents did not provide financing in a premium finance agreement for $181.71 because Mr. Carey agreed to pay that part of the amount advanced without a service charge. 12/ The single written agreement that was labeled a premium finance agreement was, by statutory definition, a dual-use document. That part of the document in which Mr. Carey agreed to pay $137.69 together with a service charge was a premium finance agreement within the meaning of Section 627.827. That part of document in which Mr. Carey agreed to pay $181.71 without a service charge did not satisfy an essential requirement in the statutory definition of a premium finance agreement. Financing provided in that part of the document that was not a premium finance agreement was not prohibited by former Section 627.8405(3). Section 627.826(3) provides that such financing is not subject to the finance provisions of Chapter 627, Part XV, including the prohibition in former Section 627.8405(3). More Than 70 Percent Of The Original Premium If Respondents provided financing in the Carey transaction, they did not violate former Section 627.8405(3) by providing financing in a premium finance agreement for more than 70 percent of the original premiums. The $137.69 that Mr. Carey agreed to pay together with a service charge is only 37 percent of the $375 in original premiums. Respondents failed to show by clear and convincing evidence that a disproportionate share of the $137.69 represented more than 70 percent of the $100 premium for hospital indemnification. Nor did Petitioner show that Mr. Carey agreed to pay the $100 premium together with a service charge. All of the $137.69 and the $43.66 service charge arguably could have been attributable to the $275 automobile premium. Even if the $100 premium for hospital indemnification were actually a charge for products other than insurance, $137.69 comprises only 50 percent of the $275 automobile premium. As the premium finance agreement stated, "FINANCE CHARGES HAVE BEEN CALCULATED ON NO MORE THAN 70 PERCENT OF THE PREMIUM." Automobile Club Section 627.8405(1) 13/ provides, in relevant part: No premium finance company shall, in a premium finance agreement, provide financing for the cost of: A membership in an automobile club. The term "automobile club" means a legal entity which, in consideration of dues, assessments, or periodic payments of money, promises its members or subscribers to assist them in matters relating to the ownership, operation, use, or maintenance of a motor vehicle. . . Respondents did not violate Section 627.8405(1). Respondents did not provide financing in a premium finance agreement for the cost of a membership in an automobile club. Both the ADB and hospital indemnification policies Mr. Carey purchased were issued by Home Insurance Company ("Home") to Colonial Touring Association, Inc. ("CTA") as group policies for CTA members. 14/ CTA is an automobile club within the meaning of Section 627.8405(1). 15/ Ms. Beverly Robinson operates CTA and maintains its books and records. Ms. Robinson is licensed as an insurance agent pursuant to agent number 081505068. On August 17, 1994, Ms. Robinson was authorized to sell ADB and hospital indemnity group insurance for Home. 16/ Respondents did not charge Mr. Carey for the cost of a membership in an automobile club. 17/ Respondents charged Mr. Carey $110 for ADB and hospital indemnification premiums. Respondents paid the entire $110 to CTA. CTA paid Home for the amount owed Home and retained the balance as commissions earned on the sale of group insurance. The ADB and hospital indemnification premiums were high commission items. Of the $10 charged to Mr. Carey for ADB, CTA paid only $1 to Home. CTA retained the remaining $9 as commission. Of the $100 charged to Mr. Carey for hospital indemnification, CTA paid Home only $10 and retained the balance. Neither Respondents, Ms. Robinson, nor the books and records of CTA treat any portion of the $99 commission included in the premiums for ADB and hospital indemnification as the cost of a membership in CTA. Mr. Carey was covered for ADB and hospital indemnification from August 17, 1994, through August 16, 1995. Petitioner failed to show by clear and convincing evidence the portion of the $99 commission, if any, that should be treated as the cost of the CTA membership. Similarly, Petitioner failed to show the portion of the $99 commission that should be treated as commission earned on the sale of insurance. Even if some or all of the $99 commission retained by CTA should be treated as the cost of membership in CTA, Respondents did not provide financing in a premium finance agreement for that cost. Petitioner failed to show by clear and convincing evidence that Mr. Carey agreed to pay the amount advanced for a CTA membership together with a service charge. 18/ ADB Section 627.8405(2) provides, in relevant part: No premium finance company shall, in a premium finance agreement, provide financing for the cost of: * * * (2) An accidental death and dismemberment policy sold in combination with a personal injury protection and property damage only policy. Respondents did not violate Section 627.8405(2). Respondents did not provide financing in a premium finance agreement for the cost of an ADB policy irrespective of whether it was sold in combination with a personal injury protection and property damage policy. The $10 premium for the ADB policy was paid entirely from Mr. Carey's $67 down payment. CTA received the $10 from Cash Register, retained a $9 commission, and transmitted the $1 cost for the group ADB policy to Home. No part of the $10 premium for the ADB policy was financed. Mr. Carey did not agree to pay any part of the amount advanced for the ADB premium together with a service charge. Informed Consent, Unfair Practices, And Deception Respondents did not violate Sections 626.611(7) or (9). Respondents did not demonstrate a lack of fitness or a lack of trustworthiness to engage in the business of insurance. Nor did they commit fraudulent or dishonest practices in their business. Respondents did not violate Sections 626.611(13) and 626.621(2). Respondents did not willfully fail to comply with applicable statutes, rules, or Petitioner's final orders. Respondents did not violate Section 626.611(5). Respondents did not willfully practice deception with regard to an insurance policy. Respondents did not violate Sections 626.621(6) and 626.9541(1) and (2). Respondents did not engage in unfair or deceptive acts or practices including misrepresentation and sliding. Respondents did not otherwise show themselves to be a source of injury or loss to the public or to be detrimental to the public interest. The Insured Mr. Carey made his choices for his own economic convenience. He was interested solely in complying with state requirements for insurance at the minimum down payment and at the minimum monthly cost. Mr. Carey was not interested in the details of the insurance he purchased. He was not interested in reading the documents he signed, and he chose not to do so. Mr. Carey does not travel frequently and has little or no need for the benefits of the ADB and hospital indemnity policies. However, he did have an economic need to obtain automobile insurance for the lowest down payment and for the lowest monthly cost. The Documents Mr. Carey signed a confirmation of coverages form disclosing his purchase of the ADB and hospital indemnity policies. The confirmation of coverage form signed by Mr. Carey expressly states that the ADB and hospital indemnity premiums are high commission items. The confirmation of coverages form made the following disclosure to Mr. Carey concerning his ADB policy: Separate in the price of some of our policies is separate coverage for accidental death and dismemberment resulting from an auto accident. Yours includes 1 THOUSAND DOLLARS coverage for 12 months and the premium is $10 . You may increase this coverage if you desire. Remember coverage is subject to the terms and conditions in the policy. If you do not wish this coverage please advise the agent. This is a high commission item that allows us to sell you auto insurance at the lowest possible premium. We will have to change your options if you do not wish this coverage. The confirmation of coverages form made the following disclosure to Mr. Carey concerning his hospital indemnification policy: Separate in the price of some of our policies is separate coverage for hospital indemni- fication resulting from an auto accident. Yours includes 1 THOUSAND DOLLARS coverage for 12 months and the premium is $100. You may increase this coverage if you desire. Remember coverage is subject to the terms and conditions in the policy. If you do not wish this coverage please advise the agent. This is a high commission item that allows us to sell you auto insurance at the lowest possible premium. We will have to change your options if you do not wish this coverage. Mr. Carey also signed an insurance application for automobile coverage with Armor Insurance, a premium finance agreement with Equity, and CTA forms including a designation of beneficiary form. Respondent, Davis, submitted each document to Mr. Carey separately. He signed each document in her presence in separate "intervals." Ms. Davis did not rush Mr. Carey through the transaction. The premium finance agreement adequately discloses the terms of financing. The agreement discloses: the types of premiums financed; the amount of premiums for each policy; a down payment of $57; an unpaid balance of $318; an amount financed of $319.40; a finance charge of $43.66; total payments of $363.06; a total sales price of $420.06; an annual percentage rate of 31.71; and nine monthly payments of approximately $40.30 each. 19/ Mr. Carey had a reasonable opportunity to read the documents he signed but declined to do so. Mr. Carey understood that by signing the confirmation of coverages form he certified that he understood the insurance he purchased even though he chose not to read the documents. Respondent, Davis, provided Mr. Carey with a copy of all of the documents that Mr. Carey signed except the confirmation of coverages form and the CTA forms. Both were available for Mr. Carey to review at the Cash Register office. 20/ Mr. Carey never requested copies of the confirmation of coverages form or the CTA forms. Nor did he object to not receiving copies of those forms. The Explanation Even though Mr. Carey did not read the documents he signed, Respondent, Davis, explained each document to Mr. Carey. Her explanation was adequate, accurate, and did not misrepresent material facts. Her explanation was consistent with the documents signed by Mr. Carey. Respondent, Davis, discussed the confirmation of coverages form with Mr. Carey, including the ADB and hospital indemnification. She explained to Mr. Carey that the ADB and hospital indemnity policies were optional. She further explained that the premium and down payment would be adjusted if Mr. Carey rejected the ADB and hospital indemnification and that an agent would have to provide a new quote to Mr. Carey. Ms. Davis reviewed the premium finance agreement with Mr. Carey. She explained the total premiums, finance charge, down payment, and monthly payments. She explained that the $100 charged in the agreement was the annual premium for the group hospital indemnity policy from Home. Ms. Davis explained that the premium for the ADB policy would not be financed but would be paid from Mr. Carey's $67 down payment. Mr. Carey recognized that he paid $67 as a down payment but received credit on the premium finance agreement for a down payment of only $57. Mr. Carey understood that the $10 difference paid for the ADB policy. Mr. Carey designated Ms. June Wilson, his mother, as the beneficiary of the ADB policy. Mr. Carey understands the meaning of a beneficiary. Mr. Carey is a high school graduate. 21/ He understands, speaks, and reads English as his primary language. At the time of the transaction, Mr. Carey was alert and was not under the influence of drugs or alcohol. Mr. Carey received his automobile insurance policy from Armor and kept the coverage until his first monthly payment was due. He failed to make the first payment and allowed the policy to lapse. Mr. Carey was covered for ADB and hospital indemnification from August 17, 1994, through August 16, 1995. Supervision Respondents did not violate Rules 4-213.100(1) and (2). Respondent, Koontz, did not fail to properly supervise Respondent, Davis, in her transaction with Mr. Carey. Neither Respondent knowingly aided, assisted, procured, advised, or abetted the other in violating applicable statutes or rules. Respondent, Davis, has extensive experience as a customer representative. She processes approximately six customers a day or approximately 1,000 to 1,500 customers a year. 22/ She has had only two complaints from customers other than Mr. Carey concerning her customary practice. Ms. Davis followed her customary practice in dealing with Mr. Carey. She did not conceal any documents from Mr. Carey, did not misrepresent material facts, and is not trained to do so by Respondent, Koontz. Apparent Authority Respondents did not violate Rule 4-213.130(5). Respondent, Davis, did not allow Mr. Carey to form the impression that she is an insurance agent rather than a customer service representative. Respondent, Koontz, did not allow Ms. Davis to create such an impression or to misrepresent herself as an insurance agent. Ms. Davis stated to Mr. Carey that if he elected to decline the ADB and hospital indemnity policies, an agent would need to quote Mr. Carey's new down payment and monthly payments. She explained to Mr. Carey that she would need to have an agent provide that information.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents not guilty of the charges in the administrative complaints. RECOMMENDED this 17th day of December, 1996, in Tallahassee, Florida. DANIEL S. MANRY 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 17th day of December, 1996.
Findings Of Fact At all material times, Respondent Sauer was licensed in Florida as an ordinary life agent working for Money-Plan International, Inc. (Money-Plan) and selling National Western Life Insurance Company (National Western) insurance and annuity contracts. From October 10, 1984, until sometime prior to the events in question, Respondent Sauer had been an agent for Northern Life Insurance Company (Northern Life). Respondent Sauer had about five years' relevant job experience at the time of the events in question. At all material times, Respondent Connell was licensed in Florida as an ordinary life agent working for Money-Plan and selling National Western insurance and annuity contracts. Respondent Connell had no significant job experience prior to his employment with Money-Plan about three months prior to the events in question. His principal employment at all material times has been as a real estate broker. During the spring of 1986, Money-Plan was soliciting employees of the Manatee County School District for the purchase of two types of National Western annuity contracts. The flexible-premium annuity contract permits periodic contributions in such amounts and at such times as the policyholder selects. The single-premium annuity contract involves only a single premium, such as in the form of a rollover from another tax-qualified retirement plan. The Manatee County School Board had approved these National Western contracts and an annuity contract offered by Northern Life for sale to Manatee County School District employees, who could pay the premiums by a payroll-deduction plan. Each client described below, except for Jack Dietrich, is a schoolteacher employed by the Manatee County School Board; Mr. Dietrich is a principal of a Manatee County elementary school. Each Respondent used the same general sales procedure. First, he would contact the client, set up an appointment, make the sales presentation, and often obtain a signed application at the end of the appointment. He would then leave the client a copy of the application and a National Western brochure. Upon delivery of the annuity contract some weeks later, the client would have a chance to review the specific provisions and, if she did not like them, reject the contract without cost or further obligation. The front side of the two-sided, one-page application requires some basic identifying information concerning the annuity contract selected and the applicant. The back side contains five disclosure paragraphs in somewhat larger print than that on the front side. The first disclosure paragraph does not apply to the annuity contracts sold by Respondents in these cases. The last disclosure paragraph reminds the policyholder to review annually the tax status of the contract. The second disclosure paragraph applies to the single-premium contract. This paragraph warns that: a) a withdrawal of more than 10% of the Cash Value during the first seven years after the contract is issued will result in the loss of 10% of the contribution and b) if the policyholder fails to use one of the approved settlement options, the contribution will earn interest at the lower Cash Value rate rather than the higher Account Balance rate. The third disclosure paragraph applies to the flexible-premium annuity contract. This paragraph provides: FLEXIBLE PREMIUM ANNUITY FORM 01-1063 If, prior to the annuity date, I withdraw my contributions in excess of the renewal contributions made during the previous twelve months or if I do not use one of the retirement benefit options under the policy for distribution of my account on the annuity date, my account will be subject to the following: (a) a charge of twenty percent (20%) will be made against my contributions during the first contract year and all contribution increases during a twelve (12) month period from the date of any increase (a contribution increase occurs when the new contribution is greater than the initial contribution plus the sum of all prior increases) unless such contributions are not withdrawn prior to the end of the seventh (7th) contract year following the year of receipt, and (b) interest will be credited on my contributions at rates applicable under the Cash Value provisions and not the Account Balance provisions. The fourth disclosure paragraph applies to both the single-premium and flexible-premium annuity contracts. This paragraph identifies two types of guaranteed interest rates. Four guaranteed annual rates, ranging from 9 1/2% for the first year after issuance of the contract to 4% after ten years, apply to the Account Balance. A single guaranteed annual rate of 4% applies to the Cash Value. The brochure describes the flexible-premium contract as having: "Stop and Go privileges: Contributions are fully flexible and nay be increased, decreased or stopped, subject to employer rules and IRS regulations." Elsewhere, the brochure states: "To avoid the surrender charge, the participant simply annuitizes the contract and elects one or more settlement options." (Emphasis supplied.) The brochure states that the policyholder is not currently taxed on the portion of her salary deducted by the employer to pay for the premium or, as to both types of contract, the interest earned by the premiums within the annuity contract. National Western offers in the brochure to calculate for any policyholder the maximum amount of salary that she may defer so as to avoid current income tax on her periodic contributions. The brochure explains how a policyholder may, subject to restrictions imposed by law, borrow her annuity funds without the loan being treated as a taxable distribution. The brochure cautions that the loan must be repaid within five years unless the proceeds are used for certain specified purposes relating to a principal residence. The brochure states in boldface: "Each participant will have an Account Balance and a Cash Value Balance." The Account Balance is defined as all of the contributions or premiums with interest from the date of receipt to the annuity starting date (of, if earlier, the death of the annuitant). The brochure explains: "The Account Balance is the amount available when the participant retires or [elects to begin receiving payments] and selects one or more of the approved settlement options." In such event, "[t]here are no charges or fees deducted from the Account Balance ..." The Cash Value for the flexible-premium contract is defined as 80% of the first-year premiums and 100% of renewal premiums with interest from the date of receipt to the date of withdrawal. If the policyholder increases the amount of her premiums in any year, the amount of the increase is treated as first-year premiums. The policyholder vests as to the remaining 20% of the first-year premiums seven years after the issuance of the contract or, if applicable, seven years after the year in which the premiums are increased. The brochure explains: The Cash Value is the amount received if the participant surrenders the contract without electing one of the approved settlement options, which are described in the next section of the brochure. The brochure offers no explanation of the provisions governing the vesting of 10% of the Cash Value of the single-premium contract. The brochure sets forth the differences in interest rates between the Account Balance and Cash Value in a clear boldface table. The table notes that the Cash Value guaranteed interest rate may be higher for the first year if a higher rate is in effect at the time of the issuance of the contract. Neither the application or the brochure mentions the interest rate applicable to policy loans. The flexible-premium annuity contract generally conforms to the above- described provisions of the application and brochure. This is the type of contract that the Respondents sold to each of the clients described below. No sample of the single-premium annuity contract was offered into evidence. This is the type of contract that Respondent Sauer sold to Mr. Dietrich, in addition to a flexible-premium contract. The flexible-premium annuity contract adds an important additional requirement for the policyholder to vest in the remaining 20% of the first-year premiums when calculating the Cash Value. The flexible-premium contract requires that the policyholder pay, in the six years following the first anniversary of the contract, sufficient additional premiums so that the accrued Cash Value, immediately before the 20% credit, equals anywhere from four to seven times the total first-year premium, depending upon the age of the policyholder when the contract is issued. In the case of a policyholder with an issue age of 57 years or less, the multiple is four. No such requirement would be applicable to a single-premium contract where the parties intend from the start that there shall be no additional premiums. More favorable to the policyholder, the flexible-premium annuity- contract provides that, after ten years, the annual interest rate on the Cash Value will be the greater of the guaranteed rate or one point less than the rate then credited to the Account Balance. Concerning policy loans, the flexible-premium annuity contract states that the policyholder may obtain a loan "using the contract as loan security." The amount borrowed may not exceed 90% of the Cash Value. Interest on the loan must be paid in advance. The rate of interest, which remains in effect for an entire contract year, is the greater of the Moody's Corporate Bond Yield Average, which is determined twice annually, or one point greater than the Cash Value interest rate in effect on the contract anniversary. The initial annual loan rate stated in the annuity contract issued to Rebecca McQuillen was 10 1/2%. Each flexible-premium annuity contract issued contains a statement of benefits. The one-page statement contains four columns showing, by Cash Value and Account Balance, the accrual of benefits if guaranteed interest rates apply or if current interest rates apply. The statement warns: "This contract may result in a loss if kept for only 3 years, assuming withdrawal values are based on guaranteed rate and not on current rate." The initial guaranteed rates were, for a contract issued on April 15, 1986, 10 1/2% on the Account Balance and 8% on the Cash Value and, for a contract issued on May 15, 1986, 10% and 7 1/2%, respectively. Respondent Connell visited Ms. McQuillen and Virginia Taylor on separate occasions in the spring of 1986 for the purpose of selling National Western annuity contracts. During these visits, Henry James Jackson, Jr. accompanied Respondent Connell and made the sales presentations to the clients as part of the training that Respondent Connell was then undergoing. Mr. Jackson is the vice-president of Money-Plan and supervisor of Respondent Sauer, who manages the Sarasota office of Money-Plan and supervises four or five agents, including, at the time, Respondent Connell. Respondent Connell signed the applications of Ms. McQuillen and Ms. Taylor, as the selling agent, in order to receive the credit for the sales. Respondent Connell earned this credit by arranging the appointments. In their applications, Ms. McQuillen projected periodic contributions totalling, on an annual basis, $2400 from her to the flexible-premium contract, and Ms. Taylor projected a total annual contribution of $2280. Respondent Connell subsequently visited Linda Rush, to whom he was referred by Ms. McQuillen. Respondent Connell himself made the sales presentation to Ms. Rush. In his meeting with Ms. Rush, Respondent Connell explained the mechanics of the flexible-premium annuity contract. He discussed the current interest rates and how they were set by market conditions. Although he did not discuss the specifics of the Account Balance versus the Cash Value, he gave Ms. Rush a copy of the application and the brochure. He also discussed generally that the annuity contract was primarily a retirement policy and that Ms. Rush would not enjoy all of its benefits, partly due to penalties, if she failed to keep it until retirement. Ms. Rush signed an application at the conclusion of their meeting. She projected a total annual contribution of $1200. Later, at Ms. McQuillen's request, Respondent Connell attended a meeting with her and a friend of hers named Mike Donaldson, who represents Northern Life. Mr. Donaldson had informed the clients of both Respondents, directly or indirectly, that his company's annuity contract was superior to those of National Western because of the latter's "two-tiered" interest rate whereby a lower rate of interest was credited to the Cash Value than the Account Balance. Respondent Connell did not perform well in the confrontation with his more experienced counterpart. Subsequently, the three above-described clients timely cancelled their contracts at no cost to themselves. In the spring of 1986, Respondent Sauer made a sales presentation to Mr. Dietrich. Mr. Dietrich's issue age was 56 years and he had owned a 15-year old tax-sheltered annuity with a surrender value of $8200. Meeting with Mr. Dietrich six times for a total of six to eight hours, Respondent Sauer discussed at length tax-sheltered annuities, as well as life insurance. The discussions involved the flexible-premium annuity contract that was purchased by all of the other clients involved in these cases, as well as a single-premium annuity contract for the $8200 rollover contribution. With regard to the flexible-premium annuity contract, Respondent Sauer discussed with Mr. Dietrich the lower interest rate used if the policyholder surrendered the contract, the penalty of 20% of the first-year premiums if the contract was surrendered in the first seven years, and the various ways that the policyholder could avoid the penalties. Respondent Sauer explained generally the similar penalties and lower interest rate applicable to a prematurely terminated single-premium annuity contract. In making the sales presentations to Mr. Dietrich, Respondent Sauer emphasized the loan options available with the these tax-sheltered annuities. Respondent Sauer stressed the small margin between the interest credited on the contract and the interest charged on a policy loan and stated that, at times, a National Western policyholder could borrow his annuity funds at a lower interest rate than he was being paid on the funds by the company. He also informed Mr. Dietrich that he did not need to pay back the loan, but could instead roll it over every five years. The loan options in the National Western annuity contracts are a major selling point and offset to some degree the so-called "two-tiered" interest rate. These tax-sheltered annuities compare favorably to other annuity contracts because the National Western policyholder does not earn a lower interest rate on that portion of the policy balance encumbered by the loan. Also, National Western has historically maintained a more favorable margin than that maintained by other companies between the loan rates charged and the interest paid on the Account Balance. At the time of the hearing, for example, the interest paid annually on the Account Balance was 9.5% and the interest charged annually on policy loans was 9.09%. Mr. Dietrich signed two applications. In the application for a flexible-premium contract, he projected a total annual contribution of $3850. In the application for a single-premium contract, he projected a rollover contribution of $8200. Respondent Sauer left Mr. Dietrich a copy of the application and the brochure. In the spring of 1986, Respondent Sauer made a sales presentation of the flexible-premium contract to Noah Frantz. Respondent Sauer explained to Mr. Frantz the different interest rates applicable to the Account Balance and the Cash Value, as well as the 20% penalty for early surrender. The sales presentation to Mr. Frantz took place shortly after the confrontation between Respondent Connell and Mr. Donaldson representing Northern Life. Respondent Sauer therefore found it necessary to inform Mr. Frantz that Respondent was familiar with the Northern Life tax-sheltered annuity because he used to sell it. Respondent Sauer emphasized the point by showing his Northern Life license to Mr. Frantz. Respondent Sauer obtained a signed application for a flexible-premium contract from Mr. Frantz, who projected a total annual contribution of $300. Respondent Sauer left Mr. Frantz a copy of the application and brochure. Subsequently, Mr. Dietrich and Mr. Frantz timely cancelled their annuity contracts at no cost to themselves. An important feature of the tax-sheltered annuities is their favorable federal income tax treatment. Within certain limits, the policyholder is able to exclude front his gross income the amount of his salary used to pay the premiums. The contributions, whether periodic or one-time, then earn tax-free interest, which is taxed when distributed later in the form of annuity payments. The Tax Equity and Fiscal Responsibility Act (TEFRA) imposes certain requirements on loans involving tax-sheltered annuities. In general, if these requirements are not satisfied, a nontaxable loan is converted into a taxable distribution. Both before and after TEFRA, however, a loan would be converted into a taxable distribution if the borrower, at the time of taking out the loan, had no intention of repaying it. An intent to roll over the loan periodically rather than repay it is evidence of a taxable distribution rather than a true loan. The use of a tax-sheltered annuity as security for a loan increases the risk that the policyholder will be forced to surrender prematurely the contract. In such event, the interest rate on the policy loan would generally be greater than the interest rate credited to the Cash Value because the loan interest rate is at least one point over the current Cash Value interest rate. The only time that a favorable margin could develop would be if, subsequent to setting the loan rate for the next year, the Cash Value rate increased by more than one point. It is more likely that a favorable margin would exist between the higher Account Balance interest rate and the loan interest rate. However, in April, 1986, the two stated rates were equal, although the effective rate charged on loans would presumably be somewhat higher because the annual interest is paid in advance at the beginning of each year. The viability of the strategy of borrowing at lower rates than are credited to the contract during the term of the loan depends upon the ability of National Western to establish and maintain a favorable margin between the Account Balance rate and the loan rate and the ability of the policyholder to retain his eligibility for the higher Account Balance rate. Neither Respondent made any material misrepresentations or omissions with respect to the flexible-premium contracts sold to Ms. McQuillen, Ms. Taylor, Ms. Rush, or Mr. Frantz. Each sales presentation gave an accurate and reasonably complete description of a somewhat complicated insurance product. Any possible material omissions in the presentation, or in the client's understanding of the material presented, were substantially cured by the application and brochure. The sales presentation to Mr. Dietrich was inaccurate with respect to Respondent Sauer's recommendation that Mr. Dietrich could, by continually rolling over loans, borrow against his contract without ever repaying the loan. By neglecting to mention the possible adverse tax consequences of such a strategy, Respondent Sauer inadvertently misled Mr. Dietrich. The sales presentation to Mr. Dietrich concerning the flexible-premium contract contained another omission. There was no mention in the application, brochure, or sales presentation of the requirement that Mr. Dietrich contribute, in the next four years, a sum equal to four times the amount of his first-year contributions in order to vest the unvested 20% of his first-year contributions when calculating his Cash Value. To the contrary, the brochure emphasized the flexibility accorded the policyholder in setting the amount of his contributions, as described in Paragraph 11 above. Although this omission occurred in all of the presentations, it had greater significance in the case of Mr. Dietrich, who planned on making- significantly greater first-year contributions than the other clients planned to make. In purchasing the flexible-premium annuity, Mr. Dietrich was obligating himself to contribute, based on his projected first-year contributions, an additional $15,400 over the next six years into what he had assumed was a flexible-premium contract.
Recommendation In view of the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Respondent Connell and Respondent Sauer not guilty and dismissing the Administrative Complaint filed against each of them. ENTERED this 30th day of November, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 88-3302, 88-3303 Treatment Accorded Petitioner's Proposed Findings 1-4. Adopted in substance. Rejected as irrelevant. Adopted. 7 & 9. Rejected as unsupported by the evidence. 8. First sentence adopted. Second and third sentences rejected as recitation of testimony. Fourth sentence rejected as unsupported by the evidence. Rejected as recitation of evidence. First sentence adopted. Second and fourth sentences rejected as unsupported by the evidence. Third sentence rejected as legal argument. & 14. Adopted in substance. & 15-16. Rejected as irrelevant, except that last eight words of first sentence of Paragraph 16 are adopted. 17 & 21. Rejected as unsupported by the evidence. Adopted. Rejected as irrelevant. Adopted in substance, except that first 16 words arerejected as unsupported by the evidence. Treatment Accorded Respondent's Proposed Findings 1-3 & 6. Adopted. 4 & 5. Rejected as subordinate. 7-11. Adopted in substance. Rejected as recitation of evidence. Adopted through word "policy." Remainder rejected asirrelevant. Last sentence rejected as subordinate. Remainder rejected as recitation of testimony. Rejected as recitation of evidence and legal argument. First sentence adopted. Remainder rejected as recitation of evidence. Rejected as irrelevant. 18-19. Rejected as recitation of evidence. 20. First two sentences adopted, except that from "and" through end of first sentence rejected as irrelevant. Last sentence rejected as not finding of fact. 21-22 & 25. Adopted in substance. 23-24. Adopted. 26. Rejected as unsupported by the evidence. 27-28. Rejected as recitation of testimony. 29-31. Adopted in substance. 30. Adopted. 32. Rejected as irrelevant through "policy." Remainder adopted in substance. 33-34. Adopted in substance, except that first sentence ofParagraph 34 is rejected as recitation of testimony. Rejected as irrelevant. Rejected as unsupported by the evidence, except that the first and tenth sentences are adopted. Adopted in substance. Rejected as irrelevant. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Richard R. Logsdon, Esquire 1423 South Fort Harrison Avenue Clearwater, Florida 34616 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue The issue is whether Petitioner violated Chapter 440, Florida Statutes, by not having workers’ compensation insurance coverage, and if so, what penalty should be imposed.
Findings Of Fact Petitioner operates a gas station and convenience store in Winter Garden. Mohammad Sultan is Petitioner’s owner and president. On November 2, 2006, Margaret Cavazos conducted an unannounced inspection of Petitioner’s store. Ms. Cavazos is a workers’ compensation compliance investigator employed by the Department. Petitioner had nine employees, including Mr. Sultan and his wife, on the date of Ms. Cavazos' inspection. Petitioner had more than four employees at all times over the three-year period preceding Ms. Cavazos' inspection. Petitioner did not have workers’ compensation insurance coverage at the time of Ms. Cavazos’ inspection, or at any point during the three years preceding the inspection. On November 2, 2006, the Department served a Stop-Work Order and Order of Penalty Assessment on Petitioner, and Ms. Cavazos requested payroll documents and other business records from Petitioner. On November 6, 2006, the Department served an Amended Order of Penalty Assessment,1 which imposed a penalty of $70,599.78 on Petitioner. The penalty was calculated by Ms. Cavazos, using the payroll information provided by Petitioner and the insurance premium rates published by the National Council on Compensation Insurance. The parties stipulated at the final hearing that the gross payroll attributed to Mr. Sultan for the period of January 1, 2006, through November 2, 2006, should have been $88,000, rather than the $104,000 reflected in the penalty worksheet prepared by Ms. Cavazos. The net effect of this $16,000 correction in the gross payroll attributed to Mr. Sultan is a reduction in the penalty to $68,922.18.2 On November 3, 2006, Mr. Sultan filed a notice election for exemption from the Workers’ Compensation Law. His wife did not file a similar election because she is not an officer of Petitioner. The election took effect on November 3, 2006. On November 6, 2006, Petitioner obtained workers’ compensation insurance coverage through American Home Insurance Company, and Petitioner also entered into a Payment Agreement Schedule for Periodic Payment of Penalty in which it agreed to pay the penalty imposed by the Department over a five-year period. On that same date, the Department issued an Order of Conditional Release from Stop-Work Order. Petitioner made the $7,954.30 “down payment” required by the Payment Agreement Schedule, and it has made all of the required monthly payments to date. The payments required by the Payment Agreement Schedule are $1,044.09 per month, which equates to approximately $12,500 per year. Petitioner was in compliance with the Workers’ Compensation Law at the time of the final hearing. Petitioner reported income of $54,358 on gross receipts in excess of $3.1 million in its 2005 tax return. Petitioner reported income of $41,728 in 2004, and a loss of $8,851 in 2003. Petitioner had total assets in excess of $750,000 (including $540,435 in cash) at the end of 2005, and even though Petitioner had a large line of credit with Amsouth Bank, its assets exceeded its liabilities by $99,041 at the end of 2005. Mr. Sultan has received significant compensation from Petitioner over the past four years, including 2003 when Petitioner reported a loss rather than a profit. He received a salary in excess of $104,000 in 2006, and he was paid $145,333 in 2005, $63,750 in 2004, and $66,833 in 2003. Mr. Sultan’s wife is also on Petitioner’s payroll. She was paid $23,333.40 in 2006, $25,000 in 2005, and $12,316.69 in 2004. Mr. Sultan characterized 2005 as an “exceptional year,” and he testified that his business has fallen off recently due to an increase in competition in the area. Todd Baldwin, Petitioner’s accountant, similarly testified that 2006 was not as good of a year as 2005, but no corroborating evidence on this issue (such as Petitioner’s 2006 tax return) was presented at the final hearing. Mr. Sultan testified that payment of the penalty imposed by the Department adversely affects his ability to run his business. The weight given to that testimony was significantly undercut by the tax returns and payroll documents that were received into evidence, which show Petitioner’s positive financial performance and the significant level of compensation paid to Mr. Sultan and his wife over the past several years. The effect of the workers’ compensation exemption elected by Mr. Sultan is that his salary will no longer be included in the calculation of the workers’ compensation insurance premiums paid by Petitioner. If his salary had not been included in Ms. Cavazos’ calculations, the penalty imposed on Petitioner would have been $40,671.36. Ms. Cavazos properly included Mr. Sultan’s salary in her penalty calculations because he was being paid by Petitioner and he did not file an election for exemption from the Workers' Compensation Law until after her inspection.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department issue a final order imposing a penalty of $68,922.18 on Petitioner to be paid in accordance with a modified payment schedule reflecting the reduced penalty and the payments made through the date of the final order. DONE AND ENTERED this 22nd day of August, 2007, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 22nd day of August, 2007.
The Issue The issues are whether the Respondent, Cielo Residential Design and Construction, Inc. (Cielo), failed to secure workers’ compensation insurance as required by chapter 440, Florida Statutes (2014); and, if so, what penalty should be imposed.
Findings Of Fact The Department is the state agency charged with enforcing the requirement in chapter 440, that employers in Florida secure workers’ compensation coverage for their employees. While an exemption can be obtained for up to three corporate officers, any employer in the construction industry with at least one employee must have workers’ compensation coverage. § 440.02(15), Fla. Stat. At all times relevant to the instant case, Cielo was a Florida-based corporation with its principal office located at 10090 Deerwood Club Road, Jacksonville, Florida 32256. Jose Bird is a Department investigator who visits construction sites and verifies whether workers’ compensation coverage has been secured. On April 24, 2015, Mr. Bird visited a construction site at 1844 Packard Avenue in Jacksonville, Florida and observed John Hockenberry, Jesse Brown, Robert Singleton, and Coty Moore doing carpentry work there. After speaking with those four individuals and learning that they were employed by Cielo, Mr. Bird returned to his car and accessed the Department’s Coverage and Compliance Automated System (CCAS) to ascertain whether Cielo had obtained workers’ compensation coverage for the aforementioned individuals. CCAS indicated that Cielo had no coverage. After relaying this information to his supervisor, Mr. Bird received authorization to serve Mr. Hockenberry with a Stop-Work Order, and he did so on April 24, 2015. That Stop-Work Order required Cielo to “cease all business operations for all worksites in the State” based on the Department’s determination that Cielo had failed to obtain workers’ compensation coverage. In addition, the Department notified Cielo that it would be penalized an amount, “equal to 2 times the amount [Cielo] would have paid in premium when applying approved manual rates to the employer’s payroll during periods for which it [had] failed to secure the payment of compensation within the preceding 2-year period.” Along with the Stop-Work Order, Mr. Bird also served a “Request for Production of Business Records for Penalty Assessment Calculation” (the BRR). In order to ascertain Cielo’s payroll disbursements during the relevant time period and the resulting penalty for Cielo’s failure to obtain workers’ compensation coverage, the BRR requested Cielo to remit several different types of business records covering the period from July 15, 2013 through April 24, 2015 (i.e., the audit period). The business records sought by the Department included items such as time sheets, payroll summaries, check journals, certificates of exemption, and evidence that any Cielo subcontractors had obtained workers’ compensation coverage. Section 440.107(7)(e) provides that if an employer failed to provide business records sufficient to enable the Department to ascertain the employer’s actual payroll for the time period in question, then the Department would impute the employer’s payroll based on the statewide average weekly wage, multiplied by two. After Cielo responded to the BRR, the Department reviewed the provided records and served an Amended Order of Penalty Assessment on June 1, 2015, stating that the Department was seeking to impose a penalty of $162,106.06. Cielo then provided additional records which led to the Department issuing a 2nd Amended Order of Penalty Assessment, stating that the proposed penalty had been reduced to $91,023.60. Cielo continued to provide records that led to the preparation and issuance of a Fourth Amended Order of Penalty Assessment on the day prior to the final hearing in this matter. Through that Order, the Department notified Cielo that it was seeking to impose a penalty of $23,447.60. Lawrence Pickle, a penalty auditor for the Department, calculated the penalties set forth in the aforementioned Orders of Penalty Assessment. With regard to the Fourth Amended Order of Penalty Assessment, Mr. Pickle testified that he utilized a penalty calculation worksheet which the Department has incorporated by reference through Florida Administrative Code Rule 69L-6.027. Mr. Pickle was able to use the business records provided by Cielo to identify the people employed by Cielo during the audit period and listed those employees in the penalty calculation worksheet. Through review of the business records provided by Cielo, Mr. Pickle was also able to ascertain the nature of those employees’ work and assigned each employee a classification code from the Scopes® Manual, which has been adopted by the Department through rule 69L-6.021. Classification codes pertain to various occupations or types of work, and each one has an approved manual rate used by insurance companies to assist in the calculation of workers’ compensation insurance premiums. An approved manual rate corresponds to the risk associated with a particular occupation or type of work. For example, class code 8810 pertains to clerical work and has a lower manual rate than class code 5645 for carpentry. Using the approved manual rates and the wages paid during the audit period, Mr. Pickle determined the individual insurance premiums Cielo would have paid for the employees identified by Mr. Pickle if Cielo had procured workers’ compensation coverage during the audit period. Then, and as required by section 440.107(d)(1), Mr. Pickle multiplied each individual premium by two in order to calculate the penalty associated with each employee for whom records were available. With the exception of April 24, 2015, Mr. Pickle was able to use the records provided by Cielo to ascertain the payroll amounts. As for the penalty associated with April 24, 2015, Mr. Pickle followed the same process set forth above. However, and as required by section 440.107(7)(e), Mr. Pickle calculated the wages from April 24, 2015, by using the statewide average weekly wage for the time period in question and then multiplying that number by two. Kathleen Larriviere, the president and managing partner of Cielo, appeared on Cielo’s behalf at the final hearing. While testifying, Ms. Larriviere described the nature of Cielo’s business as renovations and additions to homes. In addition, she acknowledged that Cielo is in the construction industry. Ms. Larriviere asserted during the final hearing and in her Proposed Recommended Order that she had decided against procuring workers’ compensation coverage at Cielo’s inception based on the advice of her accountant and on her own interpretation of section 440.02(15)(d). Specifically, Ms. Larriviere concluded that Cielo’s employees were independent contractors and exempt from the workers’ compensation requirement because they satisfied many of the criteria enumerated under section 440.02(15)(d). However, and as discussed in the Conclusions of Law below, Ms. Larriviere clearly misread the statute. Even if Cielo’s employees are independent contractors within the meaning of section 440.02(15)(d), the statute clearly specifies that an independent contractor engaged in the construction industry is an “employee” for purposes of chapter 440. The Department has proven by clear and convincing evidence that Cielo was required to have workers’ compensation coverage during the time period in question and violated chapter 440 by failing to do so. As for the $23,447.60 penalty sought by the Department, Ms. Larriviere stated during the final hearing that if Cielo had been required to have workers’ compensation insurance during the time period in question, then Mr. Pickle’s calculations were accurate.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, enter a final order finding that Cielo Residential Design & Construction, Inc., failed to secure the payment of workers’ compensation insurance coverage at certain times between July 15, 2013 through April 24, 2015, in violation of section 440.107, and imposing a penalty of $23,447.60. DONE AND ENTERED this 24th day of November, 2015, in Tallahassee, Leon County, Florida. S G. W. CHISENHALL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of November, 2015. COPIES FURNISHED: Trevor S. Suter, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed) Kathleen A. Larriviere, President Cielo Residential Design & Construction, Inc. 10090 Deerwood Club Road Jacksonville, Florida 32256 (eServed) Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)
The Issue The issue is whether Petitioner properly issued a Stop-Work Order and Amended Order of Penalty Assessment against Respondent for failing to obtain workers' compensation insurance that meets the requirements of chapter 440, Florida Statutes.
Findings Of Fact The Division is a component of the Department of Financial Services. It is responsible for enforcing the workers' compensation coverage requirements pursuant to section 440.107. At all times relevant to this proceeding, Grandview was a corporation registered to do business in Florida. Grandview is a bread and breakfast and was an active company during the two-year audit period from August 22, 2015, through August 21, 2017. On July 19, 2017,1/ Respondent met with a Henderson Insurance agent and learned that Respondent was not in compliance with the workers' compensation requirements. Grandview immediately requested bids to obtain insurance, but did not purchase a policy because it was decided that it was "not the right time." On August 21, 2017, Robert Feehrer ("investigator" or "Feehrer"), compliance investigator for the Division, started an investigation of Grandview. Feehrer discovered that Grandview did not have any workers' compensation policies, employee leasing agreements, or exemptions on file with the National Council on Compensation Insurance. That same day the Division issued Grandview a Stop-Work Order for Respondent's failure to secure the required workers' compensation insurance coverage. Petitioner also served Grandview with a Request for Production of Business Records for Penalty Assessment Calculation ("Request") asking for documentation to enable the Division to evaluate the payroll for the audit period of August 22, 2015, through August 21, 2017, and to determine Respondent's compliance with the Workers' Compensation Law of Florida. Grandview responded timely and provided sufficient business records in response to the Division's Request. Eunika Jackson ("auditor" or "Jackson"), penalty auditor for the Division, was assigned to Grandview's investigation. Jackson reviewed the business records produced by Grandview. Jackson concluded her audit by properly calculating the workers' compensation amount owed by Grandview for the audit period using the Class Code 9052 for lodging facilities. Jackson applied the approved manual rates and methodology specified in section 440.107(7)(d). Grandview had at least four employees2/ during the audit period and did not have any exemptions from workers' compensation insurance coverage requirements during the audit period. Initially, Jackson calculated Grandview's penalty amount as being over $25,000.00. After Grandview timely provided sufficient business records in response to the Request, Jackson correctly applied the penalty reduction credit to the calculation and concluded Grandview owed a reduced penalty amount of $13,755.55. On November 27, 2017, Respondent was served with the Amended Order of Penalty Assessment totaling $13,755.55. On December 18, 2017, Respondent challenged the penalty assessment and requested a formal hearing.
Recommendation Based on the forgoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers' Compensation, issue a final order affirming the Stop-Work Order and Amended Order of Penalty Assessment in the amount of $13,755.55. DONE AND ENTERED this 30th day of October, 2018, in Tallahassee, Leon County, Florida. S JUNE C. MCKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of October, 2018.
The Issue The issues to be determined in this case are whether Respondent Lockhart Builders, Inc., violated state laws applicable to workers’ compensation insurance coverage by failing to secure coverage for three employees and failing to produce records requested by Petitioner Department of Financial Services, Division of Workers’ Compensation (Department) and, if so, what penalty should be assessed for the violations.
Findings Of Fact Petitioner is the state agency responsible for the enforcement of the workers’ compensation insurance coverage requirements established in Chapter 440, Florida Statutes (2007).1 Respondent is a Florida corporation with its office in Bradenton. William Lockhart is Respondent’s president. Respondent is licensed to engage in construction activity in Florida. Respondent was engaged to construct a two-story duplex at 2315 Gulf Drive in Bradenton. Respondent began work at the job site on or about February 21, 2007. On August 22, 2007, Lockhart received a proposal from Burak Yavalar, owner of BY Construction, to do the exterior stucco work on the duplex building for a flat fee of $10,750. The proposal was accepted by Respondent on August 23, 2007. Yavalar presented Lockhart with a certificate of liability insurance which indicated that he had obtained workers’ compensation coverage for his employees. The certificate was issued by Employee Leasing Solutions, Inc. (ELS), a professional leasing company in Bradenton. ELS provides mainly payroll services and workers’ compensation insurance coverage for its clients. Lockhart did not ask for, and Yavalar did not provide Lockhart with, a list of the names of the BY Construction employees who were covered by the insurance. Lockhart made a call to ELS to verify that BY Construction had workers’ compensation insurance coverage, but he did not ask for a list of BY Construction employees covered by its insurance policy. BY Construction began work at Respondent’s job site on or about September 10 or 11, 2007. On September 12, 2007, BY Construction had eight employees at the job site. One employee, Justin Ormes, had previously worked for BY Construction, had quit for a while, and had just returned. Two other employees, Carlos Lopez and Jaime Alcatar, had been working on a nearby job site and were asked by Yavalar to come to work at Respondent’s job site. Yavalar claims that on the morning of September 12, 2007, Ormes, Lopez, and Alcatar had not yet been employed or authorized to start work for BY Construction. On September 12, 2007, Petitioner’s investigators Germaine Green and Colleen Wharton performed a random compliance check at Respondent’s job site. Without being specific about what particular work was being performed at the site by Ormes, Lopez, and Alcatar, the investigators testified that when they arrived at the job site they observed all eight men performing stucco work. The investigators spoke to Yavalar, Lockhart and the workers at the job site to determine their identities and employment status. Yavalar told the investigators his eight employees had workers’ compensation insurance coverage through ELS. However, upon checking relevant records, the investigators determined that insurance coverage for Ormes, Lopez, and Alcatar had not been secured by either BY Construction or Respondent. Wharton issued a statewide stop-work order to BY Construction for its failure to obtain workers’ compensation coverage for the three employees. After the stop work order was issued, Yavalar left the job site with Lopez and Alcatar to complete their paperwork to obtain insurance coverage through ELS. Yavalar’s wife was able to re-activate Ormes’ insurance coverage with ELS over the telephone. By the end of the day on September 12, 2007, insurance coverage was secured by BY Construction for Ormes, Lopez, and Alcatar. The business records of BY Construction produced for the Department indicated that Ormes had been paid by BY Construction in the period from March to July 2007, and then on September 12, 2007; Lopez had been paid on August 24, 2007, and then on September 12, 2007; Alcatar had been paid on September 12, 2007. All three men were paid only $28 on September 12, 2007. This evidence supports the testimony of Yavalar that these three had arrived at Respondent’s job site for the first time on September 12, 2008. BY Construction was later served with an amended order of penalty for its failure to obtain workers’ compensation coverage for the three employees. It arranged with the Department to pay the penalty through installments and was conditionally released from the stop-work order. When the Department's investigators were at the job site on September 12, 2007, they informed Lockhart about the stop-work order being issued to BY Construction and gave Lockhart a Request for Production of Business Records for the purpose of determining whether Respondent had obtained proof of workers’ compensation insurance coverage from BY Construction before BY Construction commenced work at Respondent’s job site. Respondent produced the requested records. As discussed in the Conclusions of Law, Florida law charges a contractor with the duty to secure workers’ compensation insurance coverage for any uninsured employees of its subcontractors. On this basis, the Department served Respondent with a Stop-Work Order and an Order of Penalty Assessment on September 21, 2007, for failing to secure coverage for Ormes, Lopez, and Alcatar. On September 21, 2007, the Department served a Request for Production of Business Records for Penalty Assessment Calculation to Respondent. The Department’s request asked Respondent to produce records for the preceding three years, including payroll records, tax returns, and proof of insurance. Respondent produced some records in response to this second request, which the Department deemed insufficient to calculate a penalty. However, the evidence shows Respondent produced the only records that it possessed regarding its association with BY Construction. The Department’s proposed penalty does not include an assessment based solely on Respondent’s failure to produce requested records. When an employer fails to provide requested business records within 15 days of the request, the Department is authorized to assess a penalty by imputing the employer's payroll using "the statewide average weekly wage as defined in Section 440.12(2), multiplied by l.5." § 440.107(7)(e), Fla. Stat., and Fla. Admin. Code R. 69L-6.028. Imputing the gross payroll for Ormes, Lopez and Alcatar for the years 2004, 2005, 2006, and 2007, by using the average weekly wage for the type of work, the Department assessed Respondent with a penalty of $138,596.67 and issued an Order of Penalty Assessment to Respondent on October 31, 2007. Petitioner later amended the penalty to $70,272.51, based on the fact that BY Construction was not incorporated until January 1, 2006, and issued a Second Amended Order of Penalty Assessment on December 20, 2007.
Recommendation Based on the Findings of Fact and Conclusions of Law, it is recommended that the Department enter a final order that amends its penalty assessment to reflect one day of non-compliance by Respondent. DONE AND ENTERED this 31st day of March, 2008, in Tallahassee, Leon County, Florida. BRAM D. E. CANTER 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 31st day of March, 2008.
The Issue Whether Respondent violated the provisions of chapter 440, Florida Statutes (2017), by failing to secure the payment of workers’ compensation coverage as alleged in the Stop-Work Order and Second Amended Order of Penalty Assessment and, if so, what penalty is appropriate.1/
Findings Of Fact The Department is the state agency responsible for the enforcement of the workers’ compensation insurance coverage requirements established in chapter 440. On September 14, 2017, Investigator Murvin conducted a random workers’ compensation compliance check at a residential construction site at 8256 Lake James Drive in Lakeland, Florida. During the course of the compliance check, Investigator Murvin observed two individuals--Donald Steven Paul, Jr. and Dean Wayne Paul--painting the home. It is undisputed that Respondent had been subcontracted to perform painting services at this site; and that these two individuals were, at the time of Investigator Murvin’s visit, employed by Respondent. After speaking to Donald and Dean Paul, Investigator Murvin used the Department’s database to verify that Respondent did not have workers’ compensation insurance coverage, nor did Donald or Dean Paul have an exemption from the coverage requirements. Donald Paul admitted to Investigator Murvin at the hearing that he did not have workers’ compensation coverage for himself or Dean Paul. Donald Paul explained that he believed that his incorporation with the state and securing of liability insurance provided compliance of all insurance requirements. Based on the information provided by Dean and Donald Paul, and from the database, Investigator Murvin issued a SWO to Respondent on the same day as the site visit. A Request for Production of Business Records was also issued to Respondent. In response to the request for documentation, Respondent provided bank statements that indicated the business began in August 1, 2016. The bank statements also established that there was money being deposited and being paid out, but there was no indication what the money was for or how it was allocated. In other words, there was no way to discern whether the money paid out of the bank account was for employee salaries or other business expenses. In support of its Second Amended Order of Penalty Assessment, the Department prepared a penalty calculation worksheet showing a total penalty owed of $2,090.14. At the hearing, Respondent did not challenge the accuracy or method of calculating the assessed penalty, but only asserted that it believed it had the appropriate coverage and that the penalty was “too high.” Based on the evidence, it is clear Respondent provides construction services and has at least one employee; therefore, it was required to secure workers’ compensation insurance. The Department established by clear and convincing evidence that Respondent failed to secure the payment of workers’ compensation as required by chapter 440. The Department has established through the records submitted and testimony of Auditor Murcia, the appropriate penalty for Respondent’s failure to obtain workers’ compensation coverage is $2,090.14 for the audit period of August 1, 2016, to August 14, 2017.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, enter a final order finding that Respondent, Donald Steven Paul d/b/a/ D. P. Painting of Lakeland, violated the provisions of chapter 440 by failing to secure the payment of workers’ compensation and assessing against Respondent a penalty in the amount of $2,090.14. DONE AND ENTERED this 20th day of April, 2018, in Tallahassee, Leon County, Florida. S HETAL DESAI Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of April, 2018.
The Issue At issue in this proceeding is whether the Respondent, Brevard Management, LLC, (Brevard Management) failed to abide by the coverage requirements of the Workers' Compensation Law, Chapter 440, Florida Statutes, by not obtaining workers' compensation insurance for its employees; and whether Petitioner properly assessed a penalty against Respondent pursuant to Section 440.107, Florida Statutes.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following findings of fact are made: The Department is the state agency responsible for enforcing the requirement of the Workers' Compensation Law that employers secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat. On July 31, 2008, Eugene Wyatt, an insurance analyst working for the Department, visited the River Palm Motel in Melbourne to investigate the workers' compensation insurance status of several contractors performing renovations on the property. The River Palm Motel is owned by Brevard Management, whose principal owner is Albert Segev. During his visit, Mr. Wyatt spoke to Michael Cole, the hotel's manager, regarding the workers' compensation coverage of the hotel itself. Mr. Cole told Mr. Wyatt that the hotel used Automatic Data Processing, Inc. (ADP), a third-party payroll services provider, to provide workers' compensation insurance coverage. Brevard Management began operating the River Palm Motel on June 18, 2008. On June 19, 2008, Brevard Management entered into an agreement with ADP for the provision of payroll services, including the filing of payroll taxes, using Easy Pay, ADP's proprietary payroll management service. On August 25, 2008, Mr. Wyatt received an anonymous referral alleging that the River Palm Motel was not carrying workers' compensation insurance for its employees. Later that day, Mr. Wyatt returned to the River Palm Motel, this time to investigate the workers' compensation status of the motel itself. Upon his arrival at the motel, Mr. Wyatt spoke with Mr. Cole, who disclosed that Brevard Management owned the motel. Mr. Wyatt conducted a search of the Division of Corporation's website and learned that Mr. Segev was the principal owner of Brevard Management. Mr. Cole provided Mr. Wyatt with invoices for the last payroll period for the River Palm Motel. The invoices indicated that the company had more than ten employees, which led Mr. Wyatt to conclude that the company was required to secure workers' compensation insurance. At his deposition, Mr. Cole confirmed that River Palm Motel had between ten and twelve employees on August 25, 2008. Mr. Cole believed that Brevard Management had secured workers' compensation insurance coverage through ADP. However, the payroll invoices that Mr. Cole provided to Mr. Wyatt showed no deductions for any insurance. Mr. Wyatt consulted the Department's Coverage and Compliance Automated System (CCAS) database, which lists the workers' compensation insurance policy information for each business as provided by the insurance companies, as well as any workers' compensation exemptions for corporate officers. CCAS indicated that Brevard Management had no workers' compensation insurance policy in place and no current, valid exemptions. Mr. Cole provided Mr. Wyatt with a copy of the June 19, 2008, payroll agreement between Brevard Management and ADP, which gave no indication that workers' compensation insurance was included. The evidence at the hearing established that ADP does not automatically provide workers' compensation insurance coverage to entities that enroll for its payroll services. ADP provides such insurance coverage, but only as part of a separate transaction. After receiving authorization from the acting supervisor in the Department's Orlando office, Mr. Wyatt issued the SWO to Brevard Management on August 25, 2008, and personally served it on Mr. Segev on August 26, 2008. On August 25, 2008, Mr. Wyatt gave Mr. Cole a request to produce business records, for the purpose of making a penalty assessment calculation. In response, Mr. Cole provided an employee roster from ADP showing the payroll entries for every Brevard Management employee from the opening of the motel in June 2008 through August 25, 2008. After Mr. Wyatt's visit, Mr. Cole contacted ADP and spoke to Elizabeth Bowen, a workers' compensation sales agent with ADP Insurance Services. Ms. Bowen faxed forms to Mr. Cole to complete in order to obtain a workers' compensation insurance policy. Mr. Cole completed the paperwork and obtained a workers' compensation insurance policy through NorGUARD Insurance Company, effective August 25, 2008. Mr. Cole testified that he believed in good faith that he had obtained workers' compensation insurance at the time he signed up for payroll services with ADP sales representative Clinton Stanley in June 2008. It was only Mr. Wyatt's investigation that alerted Mr. Cole to the fact that Brevard Management did not have the required coverage. Mr. Stanley recalled that Mr. Cole had requested workers' compensation insurance, recalled telling Mr. Cole that his request had to be routed to ADP's separate insurance division, and recalled having forwarded the request to the insurance division. Mr. Stanley had no explanation for why the insurance division did not follow up with Mr. Cole in June 2008. Because he never heard from Mr. Cole again, he assumed that Brevard Management had obtained the requested workers' compensation coverage. It is accepted that Mr. Cole believed that he had purchased the workers' compensation coverage as part of the ADP payroll services; however, the evidence established that Mr. Cole should reasonably have known that this was not the case. Nothing in the June 2008 contractual documentation with ADP indicated that Brevard Management had obtained workers' compensation insurance coverage, and the subsequent ADP payroll registers showed no deductions for workers' compensation insurance. Using the proprietary Scopes Manual developed by the National Council on Compensation Insurance, Inc. (NCCI), Mr. Wyatt assigned Brevard Management's employees the occupation classification code 9052, "Hotel: All Other Employees & Sales Persons, Drivers." This was the same code assigned by Ms. Bowen when she completed the policy paperwork for Brevard Management. Ms. Bowen described this classification as "all inclusive" with respect to hotel employees. Mr. Wyatt calculated an amended penalty based on the payroll records provided by Mr. Cole, from the date Brevard Management became an active limited liability company, June 3, 2008, to the date the SWO was issued, August 25, 2008. Mr. Wyatt divided the total payroll by 100, then multiplied that figure by NCCI's approved manual rate for insurance coverage in 2008 for classification code 9052. That product was then multiplied by 1.5 to arrive at the penalty for the stated period. The total penalty for all employees was $2,112.03. The Amended Order was served on Brevard Management on August 26, 2008, along with the SWO. On August 26, 2008, Mr. Wyatt met with Mr. Cole and Mr. Segev, who produced a copy of the application for workers' compensation insurance placed through NorGUARD Insurance Company and tendered a cashier's check for the full amount of the penalty. The SWO was released on the same day.
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 Financial Services, Division of Workers' Compensation, assessing a penalty of $2,112.03 against Brevard Management, LLC. DONE AND ENTERED this 17th day of April, 2009, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of April, 2009. COPIES FURNISHED: Tracy 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 Ben Diamond, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307 Justin H. Faulkner, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399 Albert Segev Brevard Management, LLC, d/b/a River Palm Hotel 420 South Harbor City Boulevard Melbourne, Florida 32901
