The Issue Whether the School Board of Broward County's award of a contract for Excess General and Auto Liability insurance coverage to United National Insurance Company is barred because of illegality?
Findings Of Fact The Parties Ranger Insurance Company, Petitioner, is the holder of a Certificate of Authority dated September 9, 1996 and issued by the Department of Insurance and Bill Nelson, Insurance Commissioner and Treasurer. Good through June 1, 1997, the certificate authorizes Ranger to write in a number of lines of insurance business, including, Private Passenger Auto Liability, Commercial Automobile Liability, Private Passenger Automobile Auto Physical Damage, Commercial Auto Physical Damage and Other Liability. As such, Ranger is an "authorized" or "admitted" insurer in the State of Florida. L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., is a joint venture and co- petitioner with Ranger in this proceeding through whom Ranger proposed to procure the Excess General and Auto Liability (“Excess GL/AL”) coverage. A timely proposal under Request for Proposal 97- 072S was submitted to the School Board of Broward County by the petitioners to provide the Excess GL/AL Insurance Coverage sought by the RFP. United National Insurance Company is an "eligible" surplus lines insurer, approved by the Florida Department of Insurance to transact all surplus lines coverages in the State of Florida and licensed as such. The Department has notified insurance agents of United Nation's eligibility as a surplus lines insurer since 1978. It is the insurer of the Excess General and Excess Auto Liability insurance coverage awarded by the School Board under RFP 97-072S. Arthur J. Gallagher & Company ("Gallagher,") is the eighth largest insurance broker in the world. It has four sales offices, nine service offices, and approximately 150 employees in the State of Florida alone. The office from which it conducted business related to this proceeding is in Boca Raton, Florida, an office for which Area President David L. Marcus is responsible. Gallagher submitted a timely proposal (the "Gallagher proposal,") in response to the RFP on behalf of United National. The School Board of Broward County is the authority that operates, controls, and supervises all free public schools in the Broward County School District, "[i]n accordance with the provisions of s. (4)(b) of Article IX of the State Constitution ...". Section 230.03(2), F.S. In accord with its powers, the School Board may contract directly to purchase insurance. It is not required by its purchasing rules to use a competitive bidding or procurement process to purchase insurance. Nonetheless, on Friday, April 26, 1996, it issued a request for proposals, the RFP at issue in this proceeding, for insurance coverages including for Excess GL/AL insurance coverages. Siver Insurance Management Consultants Siver Insurance Management Consultants ("Siver,") are the drafters of RFP 97-072S. The School Board relied on Siver to draft the RFP, particularly its technical sections. Technical review of the proposals made under the RFP was conducted by Siver. And Siver put together for the School Board's use a summary of the policies proposed by both United National and Ranger. The summary was considered by the School Board's Evaluation Committee when it evaluated the competing proposals. The determination of whether the competing proposers were properly licensed was made by Siver. The School Board's Evaluation Committee, indeed the School Board, itself, played no role in determining the licensing credentials of the proposers while the proposals were under consideration. Under the arrangement between Siver and the School Board, however, the School Board retained the primary responsibility for administering the RFP. The RFP Request for Proposal 97-072S was mailed to 324 vendors (prospective proposers) the same day as its issuance, April 26, 1996. None of the vendors knew the contents of the RFP until it was issued. The RFP sought proposals for seven coverages, each of which was severable from the remainder of the coverages and was allowed to be proposed separately. The scope of the request was described in the RFP as follows: The School Board of Broward County, Florida ... is seeking proposals for various insurance coverages and risk management services. To facilitate distribution of the underwriting data and the requirements for each of the coverages, this consolidated Request for Proposals ... has been prepared. However, each of the coverages is severable and may be proposed separately. The following are included: Boiler & Machinery Excess General and Automobile Liability Excess Workers' Compensation School Leaders Errors & Omissions Crime Including Employee Dishonesty - Faithful Performance, Depositor's Forgery Claim and Risk Management Services (Including Managed Care Services) Statutory Death Benefits Petitioner's Ex. 1, pg. I-1. Since the seven coverages are severable and no proposer had to submit a proposal on all seven coverages, one way of looking at RFP 97-072S is as a consolidated RFP composed of seven, separate proposals, each for a different type of insurance coverage. Of the 324 vendors to whom the RFP was sent, only two, Gallagher, on behalf of United National, and Ranger, through the action of the joint venture, submitted proposals with respect to the Excess GL/AL coverages. Reasons for Using an RFP The School Board, under the auspices of Siver, chose to seek insurance coverage through an RFP rather than an Invitation to Bid, or what is colloquially referred to as a "straight bid," for a number of reasons. As one familiar with RFPs and Invitations to Bid might expect, the School Board and Siver were attracted to the RFP by the increased flexibility it offered in the ultimate product procured in comparison to the potentially less flexible product that would be procured through an invitation to bid. More pertinent to this case, however, Siver chose to use an RFP for the School Board in this case because "as explained ... by the Department of Insurance over the ... years, while there may... [be a] prohibition against any surplus lines agents submitting a straight bid, there would not be a prohibition against a ... [surplus lines] agent responding to a request for proposal " (Tr. 149.) The RFP approach was not chosen, however, in order to avoid any legal requirement or to circumvent the Insurance Code. As explained by Mr. Marshall, the approach was born of hard reality: Id. [O]ne of the primary motivations [for using an RFP rather than an Invitation to Bid] was to allow us [The School Board and Siver] to consider surplus lines companies because of the fact that very often they were the only insurers that would respond on the number of coverages and clients that we were working for. The Insurance Code and the Surplus Lines Law The Insurance Code in Section 624.401, Florida Statutes, requires generally that an insurer be authorized by the Department of Insurance (the "Department,") to transact business in the State of Florida before it does so: (1) No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the department, except as to such transactions as are expressly otherwise provided for in this code. One place in the code where transactions are "expressly otherwise provided for ...," is in the Surplus Lines Law, Section 626.913 et seq., Florida Statues. The purposes of the law are described as follows: It is declared that the purposes of the Surplus Lines Law are to provide for orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law, would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law. Section 626.913(2), F.S. Surplus lines insurance is authorized in the first instance only if coverages cannot be procured from authorized insurers: If certain insurance coverages of subjects resident, located, or to be performed in this state cannot be procured from authorized insurers, such coverages, hereinafter designated "surplus lines," may be procured from unauthorized insurers, subject to the following conditions: The insurance must be eligible for export under s. 626.916 or s. 626.917; The insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918; The insurance must be so placed through a licensed Florida surplus lines agent; and The other applicable provisions of this Surplus Lines Law must be met. Section 626.915, Florida Statutes, and then only subject to certain other conditions: No insurance coverage shall be eligible for export unless it meets all of the following conditions: The full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state ... . Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, to be in compliance with the diligent effort requirement, the surplus lines agent's reliance must be reasonable under the particular circumstances surrounding the risk. Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by-risk basis. It is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount. Section 626.916, F.S. Authorized vs. Unauthorized Insurers Unlike authorized insurers, unauthorized insurers do not have their rates and forms approved by the Department of Insurance, (the "Department.") Similarly, unauthorized insurers are not member of the Florida Insurance Guaranty Association, which guarantees payment of claims if an insurer becomes insolvent. Unauthorized insurers may qualify to transact Florida insurance business under the Surplus Lines Law and so, for purposes of the Surplus Lines Law, be considered "eligible" to transact surplus lines business in Florida. When a Surplus Lines insurer is eligible, Department of Insurance employees refer to the insurer in Surplus Lines terms as "authorized," a term in everyday English that is synonymous with "eligible." But an eligible surplus lines insurer remains an "unauthorized" insurer when compared to an "authorized" insurer for purposes of the Insurance Code and that part of the code known as the Surplus Lines Law. Submission and Review of Proposals Both L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., (the "Joint Venture") and Gallagher submitted timely proposals with regard to Excess GL/AL coverage in response to the RFP. The Joint Venture's proposal was submitted, of course, on behalf of Ranger, an authorized insurer, and Gallagher's was submitted on behalf of United National, an insurer eligible to transact insurance in the State of Florida as a surplus lines insurer but otherwise an unauthorized insurer. The School Board's Insurance Evaluation Committee met on May 30, 1996, to evaluate proposals received pursuant to the RFP. Although briefly discussed by the Evaluation Committee, the issue of proper licensing was not determined independently by the committee. Instead of making that determination, the committee turned to its insurance consultant, Siver. Siver had determined that both proposers, Ranger and United National, were properly licensed for purposes of responding to the RFP and being considered by the committee. Siver communicated that determination to the committee. The committee relied on Siver's determination. Aside from receiving Siver's determination of proper licensing when "briefly discussed" (Tr. 108,) the Evaluation Committee did not address whether either Ranger or United National were properly licensed. Certainly, no issue of whether Ranger should take precedence over United National by virtue that it was an authorized insurer when United National was an unauthorized insurer and a mere eligible Surplus Lines insurer was ever discussed by the committee. In evaluating the proposals, the Committee awarded 73 points to the Gallagher proposal and 69 points to the Ranger proposal. Points were awarded on the basis of three criteria or in three categories: Qualifications (20 points maximum); Scope of Coverages/Services Offered (30 points maximum); and, Points for Projected Costs (50 points maximum.) The Ranger proposal outscored the Gallagher proposal in the "projected cost" category, 50 to 23, but it scored lower in the "qualifications" category, 14 versus 20 for Gallagher, and significantly lower in the "scope of coverages" category, five points versus 30 for Gallagher. The United National coverage was more than twice as costly as Ranger's, a $491,000 annual premium as opposed to Ranger's $226,799, which explains the points awarded in the "projected cost" category. The Gallagher proposal received more points than the Ranger proposal in the "qualifications" category because United National has provided the School Board with Excess GL/AL coverage for a number of years and Ranger has never provided the School Board with such coverage. The Ranger proposal fell so drastically short of the Gallagher proposal in the "scope of coverages/services offered" category primarily because of an athletic participation exclusion appearing in a rider to the specimen policy appearing in its proposal. Ranger had intended to cover athletic participation and the rider was included with the Ranger proposal in error. Ranger notified the School Board of its intent immediately after the tabulations were released. Nonetheless, the Evaluation Committee was never informed of the error and no attempt was made by the School Board to negotiate with Ranger to improve the coverages offered, despite authority in the RFP for the School Board to negotiate with any of the proposers. (The language used in the RFP is "with one or more" of the proposers.) The Ranger proposal also fell short of the Gallagher proposal in the "scope of coverages/service offered" category because the Gallagher proposal was made in several ways. One way was as to only Excess GL/AL coverage. Another way included School Leaders' Errors and Omissions ("E & O") coverage. The E & O coverage was offered by United National in the Gallagher proposal together with the Excess GL/AL coverage in a "combined lines" package, similar to United National coverages already existing for the School Board. Furthermore, the Ranger proposal expressly excluded coverage for Abuse and Molestation, a needed coverage due to the School Board's prior claims history. On June 5, 1996, the Evaluation Committee submitted its recommendations to the School Board's Purchasing Department. With regard to GL/AL coverage, the Evaluation Committee recommended the purchase of the GL/AL/E & O "combined lines" coverage offered by Gallagher through United National. The School Board posted its Proposal Recommendation/Tabulations adopting the recommendation, two days later, on June 7, 1996. Ranger Seeks Redress from the Department Following the School Board's award, Ranger, thinking that it should have received the award under the RFP as the only authorized insurer to submit a proposal for Excess GL/AL coverage, sought redress from the Department. On June 14, 1996, Ranger personnel met with the head of the Department's Surplus Lines Section, Carolyn Daniels, alleging a violation of the Insurance Code's Surplus Lines Law. On June 18, 1996, Ranger reiterated its complaint in writing and asked Ms. Daniels to find a violation that day. On June 24, 1996, Ranger, now through its attorneys, met with Ms. Daniels and her supervisor. Again, on July 4, 1996, Ranger's attorneys wrote to Ms. Daniels, further pleading for her to find a violation and asking for an administrative hearing if Ms. Daniels did not find in favor of the Ranger position. On a fifth attempt, Ranger wrote Ms. Daniels on July 11, 1996, requesting that she adopt Ranger's position. Ms. Daniels reviewed Ranger's five complaints with her supervisor, the Chief of the Bureau of Property and Casualty Solvency and Market Conduct. In a letter dated August 14, 1996, to the School Board's Purchasing Agent, Ms. Daniels announced her determination: I did not find any evidence to indicate that Mr. David L. Marcus of Arthur J. Gallagher & Company or United National Insurance Company violated the Surplus Lines Law in providing a quote for the School Board. Intervenor's Ex. No. 2. Ms. Daniel's determination was based on a number of factors, including the School Board's position in the transaction as an "informed consumer," (Tr. 422-423,) and that the School Board had possessed a United National policy for 13 years. But, the determination was primarily based on the fact that Gallagher had received three declinations from authorized insurers to provide Excess GL/AL coverage and so had performed that which was required prior to deciding that the coverage was eligible for export and provision by a surplus lines insurer: due diligence. Due Diligence Section 626.916(1)(a), Florida Statutes, provides, [n]o insurance coverage shall be eligible for export unless it meets ... the following condition[]: ... [t]he full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers. (e.s.) The statute goes on to require that the diligent effort, "be reasonable under the particular circumstances surrounding the export of that particular risk." Reasonableness is assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by- risk basis. Section 626.916(1)(a), F.S. "'Diligent effort' means seeking coverage from and having been rejected by at least three authorized insurers currently writing this type of coverage and documenting these rejections." Section 626.914(4), F.S. Under this definition, the "producing agent should contact at least three companies that are actually writing the types of clients and the business in the area [that they are] wanting to write." (Tr. 268.) A specific form to help insurance agents document their three rejections is adopted by Department rule. The rule provides: When placing coverage with an eligible surplus lines insurer, the surplus lines agent must verify that a diligent effort has been made by requiring from the retail or producing agent a properly documented statement of diligent effort on form DI4-1153 (7/94), "Statement of Diligent Effort", which is hereby adopted and incorporated by reference. Rule 4J-5.003(1), F.A.C. Fully aware of the requirement for documentation of diligent effort to find authorized insurers, and cognizant that it would be unlikely that an authorized insurer could be found based on experience, Gallagher began soliciting proposals for coverage in the middle of April, 1996, several weeks before the School Board had issued the RFP. In fact, at the time that Gallagher started soliciting bids, the School Board had not yet assembled or distributed the underwriting data needed by bidders. Nonetheless, with good reason based on experience, Gallagher expected that the School Board would seek a "combined lines" package of GL/AL/E & O coverages like the School Board then received through United National, and that it would be unlikely that an authorized insurer would step forward to propose coverage. Gallagher, therefore, used the policy form current in April of 1996, that is the form providing Excess GL/AL/E & O coverage in a "combined lines" package, "as an example of what the School Board had been looking for this type of program and seeking a program similar to that and similar in coverage." (Tr. 242.) But it also sought Excess GL/AL without combination with E & O coverage. As Mr. Marcus testified, when seeking coverage from authorized insurers beginning in April of 1996, Gallagher "would be looking at a variety of different ways, whether they were package or not." (Tr. 243.) One authorized insurer, Zurich-American, declined to quote because it could not offer a combined line SIR program (a package of excess general liability and excess auto liability coverages) as requested by the RFP. Furthermore, the School Board risk was too large for Zurich-American to handle. A second authorized insurer, American International Group, declined to quote due to the School Board's adverse loss experience. A third authorized insurer, APEX/Great American, declined to provide a quote to Gallagher due to the large size of the School Board account. The responses of these three authorized insurers were listed in a Statement of Diligent Effort provided to Ms. Daniels, which she considered in determining that Gallagher and Mr. Marcus had committed no violation of the Surplus Lines Law. Gallagher also provided Ms. Daniels with a second Statement of Diligent Effort. The statement documented the attempt to attract quotes by adding a school leaders errors and omission component to the Excess GL/AL coverage. It, too, was used by Ms. Daniels in making her determination of no violation of the Surplus Lines Law by Gallagher. The same three insurers refused to quote for the "combined lines" program. Attempts by other Authorized Insurers Gallagher requested that any responses to its requests for quotes be submitted by May 10, 1996, so that it could prepare and submit its proposal by the RFP's deadline for submission of original proposals by all vendors, 2:00 p.m. May 16, 1996. One insurer, Discover Re/USF&G attempted to submit a quote on May 15, 1996, one day before the RFP deadline but five days after May 10. By then, Gallagher had already started printing its 625 page proposal. Furthermore, the company failed to provide the required policy forms until the day after the School Board's deadline for filing proposals. Coregis Insurance Company offered coverage of up to $700,000 for each claim and for each occurrence, but like Discover Re/USF&G, failed to provide the required policy forms until after the RFP deadline. Furthermore, definitive coverage under the Coregis policy would only be provided on the condition that the Florida Legislature pass a Legislative Claims bill, a limiting condition not authorized in the RFP or requested by Gallagher. American Home Assurance Company never responded to Gallagher with the School Board's required quote or policy forms. Rather, the company merely provided an "indication" that the company declined to provide a quote. An "indication" consists of an approximate premium rate, without any terms or conditions. A "quote," on the other hand, includes the terms and conditions of a policy. The Department places with the producing agent the responsibility of determining whether an insurer's communication constitutes and "indication" or a "quote." An agent, according to Ms. Daniels, can only violate the Surplus Lines Law if the agent receives a reliable quote. Gallagher even requested a quote from Ranger, despite never having been appointed to transact insurance on its behalf. But Ranger declined. In response to a request by Gallagher's minority business partner, McKinley Financial Services, Ranger, through E. Michael Hoke on American E & S letterhead, wrote in a letter dated May 6, 1996, "[w]e have received a prior submission on this account so we are returning the attached." Intervenor's Ex. No. 7. The Petition Ranger's petition for formal administrative hearing is the letter dated June 19, 1996, to the Director of Purchasing for the School Board under the signature of E. Michael Hoke, CPCU, Assistant Vice President of AES/Ranger Insurance Company. The letter asks its readers to "bear[] in mind we are not attorneys," p. 1 of the letter, before it outlines three protest issues. The third protest issue is the one about which Ms. Daniels made her determination that no violation of the statute had been committed by Gallagher or its employees: "3) Florida Statute 626.901 (Representing or aiding unauthorized insurer prohibited)." The other two issues deal not with the propriety of Gallagher's actions but the legality of the School Board's award to an unauthorized insurer, United National, when coverage was available from an authorized insurer, Ranger: Florida Statute 626.913 (Surplus Lines Law). . . Our Position * * * Ranger Insurance Company is an admitted authorized insurer ... Its proposal for excess general and auto liability is proof that the Board requested coverage was procurable. United National Insurance Company is an unauthorized insurer under the laws of the State of Florida ... . The United National Insurance Company proposal and/or its offer to extend it's current policies appear to us as "unwarranted competition." Ranger Insurance Company is protected from unwarranted competition from United National Insurance Company in accordance with the Florida Statute 626.913. Florida Statute 626.913 (Eligibility for Export) ... Our Position * * * Ranger Insurance Company is an admitted authorized insurer under the laws of the State of Florida. ... It's proposal for excess general and auto liability is proof that the Board requested amounts were available. The proposal and/or contract extensions offered by United National are for the full amount of coverage sought and not excess over the amount procurable from Ranger, an authorized insurer. The petition, therefore, set in issue not just whether Gallagher acted illegally but whether the School Board acted illegally when it made the award to United National, an unauthorized insurer when Ranger, an authorized insurer, had also submitted a proposal. Extension As soon as the School Board was made aware of the Ranger protest, it extended the existing insurance contracts procured under RFP 92-080S, awarded approximately five years earlier. The extension was on a month-to-month basis until resolution of the protest. The extension was necessary to avoid a lapse in the School Board's coverage during this proceeding.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the award to United National under the Gallagher proposal in response to RFP 97-072S be rescinded. DONE AND ENTERED this 28th day of January, 1997, in Tallahassee, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1997. COPIES FURNISHED: Paul R. Ezatoff, Esquire Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman, Marks, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302-1877 Edward J. Marko, Esquire Robert Paul Vignola, Esquire Office of the School Board Attorney K.C. Wright Administrative Building 600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301 A. Kenneth Levine, Esquire Blank, Risby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068 Dr. Frank Petruzielo, Superintendent Broward County School Board 600 Southeast Third Avenue Fort Lauderdale, Florida 33301-3125
The Issue The issues are (1) whether respondent's licenses as a life and health (debit) agent, life, health and variable annuity contracts agent, life agent, life and health agent, general lines agent and health agent should be disciplined for the reasons stated in the amended administrative complaint, and (2) whether respondent's applications for the issuance and renewal of a resident license should be granted.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Stephen Schnur, was licensed and eligible for licensure as a life and health (debit) agent, life, health and variable annuity contracts agent, life agent, life and health agent, general lines agent - property, casualty, surety and miscellaneous lines, and health agent by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was licensed as a property and casualty insurance agent for Clarendon National Insurance Company (CNIC) and had placed his license as a general lines agent with Devor Insurance Agency (DIA), an incorporated general lines insurance agency located at 6611 West Hillsborough Avenue, Tampa, Florida. He has been licensed by petitioner for approximately nineteen years. In August 1987 respondent was associated with Bill Ely Insurance (Ely) in Tampa, Florida. Because that firm was unable to write automobile insurance on young drivers, Schnur referred some of Ely's business to DIA, a firm owned by one Marcia Cline, who held no insurance licenses. In September 1987 Schnur received an offer from Cline of a weekly salary of $150 if he would place his property and casualty general lines agency license with DIA. After obtaining independent verification from petitioner that DIA had no pending "problems", and accepting Cline's representation, albeit false, that the firm had an errors and omissions policy, respondent accepted Cline's offer and placed his license with DIA effective that month. He continued to utilize his other licenses to sell insurance for Ely, his principal employer. It should also be noted that another unnamed general lines agent had placed her license at DIA during this same period of time. At first Schnur attempted to review all automobile insurance applications received by DIA. However, because of his duties at Ely, he was unable to devote more than a few hours per week to DIA. In view of this, he agreed to sign in blank applications and binders for Cline to use in his absence. In doing so, he relied upon Cline's honesty and integrity and assumed she would forward all applications and premiums to the insurance company and secure coverage for DIA's customers. Under this arrangement, Cline was considered to be an employee of DIA and operating under Schnur's direct supervision and control. In October 1987 five customers purchased various types of automobile insurance from Cline. 1/ Each customer gave Cline either cash or checks as payment for their policies. Although none of the customers met with or spoke with respondent, and dealt exclusively with Cline, each received a binder from Cline signed by respondent evidencing insurance with CNIC. In addition, Cline gave each customer a receipt of payment also carrying respondent's signature. As it turned out, Cline did not process the applications or forward them to CNIC. She also failed to remit any monies to the insurance company. Consequently, none of the customers received a policy from CNIC or any other insurance company. However, respondent had no reason to suspect anything since he periodically examined the office files during this period of time and found all documents in order. On January 3, 1988, respondent learned from other office personnel that there was a problem with Cline's handling of insurance applications. He immediately telephoned petitioner's Tampa district office the same day and advised that DIA applications were found unprocessed and in the waste basket. When Schnur asked if he should pull his license from DIA, he was told by petitioner's representative not to do anything. In the meantime, the other general lines agent at DIA pulled her license and left the state. On January 28, 1988 DIA sent a form letter to various customers, including the five who had purchased policies in October 1987. The letter read as follows: Dear We are writing you this letter concerning the insurance policy which you sought through our agency. Please consider this letter as official notification from our agency that you need to purchase insurance coverage from another agency or agencies as soon as possible. You have no insurance coverage on your vehicle or vehicles. Again, you must secure insurance on your vehicle or vehicles immediately, as in today!! Sincerely, Devor Insurance Agency It should be noted that none of the five customers received any refund of monies. In early February 1988 respondent pulled his license with DIA. Since then, he has worked full-time with Ely. Respondent has fully cooperated with the Department during the course of this investigation. At hearing, Schnur was can did and forthright and admitted he used extremely poor judgment in signing in blank the binders and receipts and relying on Cline's honesty. However, there was no intent on his part to violate the insurance code or otherwise harm the customers. He strongly desires to continue in the insurance profession, a field in which he has worked without a blemish for the last nineteen years. His present employer, Ely, has expressed complete trust and confidence in Schnur, allows him to handle all of the firm's money, and intends to reward him with a part ownership of that business. Other than the charges set forth in the pending amended administrative complaint, there is no basis upon which to deny the applications for renewal and issuance of a resident license.
Conclusions Paragraph 2 of Petitioner's exceptions takes exception to the Hearing Officer's Statement of the Issues, Preliminary Statement, Conclusions of Law, and Recommendation because none of these sections of the Recommended Order address the April 9, 1990 denial of the renewal of Respondent's resident license to represent C M Life Insurance Company as a life and health insurance agent. Petitioner filed a motion for consolidation regarding the April 9 denial on April 17, 1990. Although the record contains no Order ruling on-the last motion for consolidation, it appears that the parties agreed that the April 9 denial be considered together with the administrative complaint and the denial of Respondent's application to represent United States Life Insurance Company of NY as a life and health insurance agent (February 14, 1990) and the denial of Respondent's application to represent Acceleration Life Insurance Company as a life and health insurance agent (April 6, 1990). Because the three denials of Respondent's applications for licensure or renewal of licensure were based upon the allegations in the administrative complaint in this case, all three denials (February 14, April 6, and April 9, 1990) will be consolidated with the administrative complaint for disposition by this Final Order. Accordingly, Petitioner's exception numbered 2 is accepted. RULING ON PETITIONER'S EXCEPTION TO CONCLUSIONS OF LAW Paragraph 3 of Petitioner's Exceptions takes exception to the Hearing Officer's Conclusion of Law numbered 4 because that Conclusion of Law refers to Section 626.611(6), Florida Statutes, which was not alleged in the administrative complaint, and the Conclusion of Law does not refer to Section 626.611(7), Florida Statutes. Section 626.611(6), Florida Statutes addresses misrepresentations by insurance claims adjusters or agents in effecting claims settlements. Clearly, Section 626.611(6), Florida Statutes has no application to the instant case, and violation of that section was not charged in the administrative complaint. On the other hand, Section 626.611(7), Florida Statutes lists the demonstration of lack of fitness or trustworthiness to engage in the business of insurance as grounds for the-suspension or revocation of an insurance agent's license. This statute was included in the charges in each count of the administrative complaint. The hearing officer apparently considered Section 626.611(7), Florida Statutes, in his Conclusions of Law numbered 3 and 4. Accordingly, the citation to Section 626.611(6), Florida Statutes is deemed to be a typographical error and it is assumed that Section 626.611(7), Florida Statutes was the intended citation. In light of the foregoing, Petitioner's exception in Paragraph 3 is accepted. RULING ON PETITIONER'S EXCEPTION TO RECOMMENDATION Paragraph 4 of Petitioner's Exceptions takes exception to the Hearing Officer's Recommendation that Respondent's license be suspended for fifteen (15) days and that Respondent's applications for licensure be granted after the expiration of the fifteen-day suspension. After a complete evaluation of the record the hearing officer's recommended penalty of a 15-day suspension and acceptance of Respondent's applications after the 15-day suspension is hereby rejected for the following reasons: The Hearing Officer found, in Findings of Fact numbered 2, that Respondent accepted an offer to "place" his general lines insurance agent license with Marcia Cline, an unlicensed person. This finding is supported by the Respondent's testimony at hearing. (Tr. 71, 72) Respondent was compensated with a weekly salary of $150. (Tr. 72); The Hearing Officer found, in Findings of Fact numbered 3, that Respondent had signed, in blank, applications and binders for Cline to use in Respondent's absence. This finding is supported by Respondent's testimony at hearing. (Tr. 72, 79, 81); The Hearing Officer concluded, in Conclusions of Law numbered 4, that Cline wrongfully withheld premiums from the insurer, made willful misrepresentations to her customers, demonstrated a lack of trustworthiness, engaged in fraudulent and dishonest practices, and misappropriated monies belonging to others, as proscribed by sections 626.561(1), 626.611(5), 626.611(7), 626.611(9) and 626.611(10), Florida Statutes. The Hearing Officer further concluded that Respondent is responsible for Cline's wrongdoing pursuant to Section 626.734, Florida Statutes. (Concl. of Law #4); The Hearing Officer was of the opinion that Respondent was "the victim of circumstances which happened to place his license with the wrong person at the wrong time, and because of poor judgment, is now saddled with Cline's misconduct." (Concl. of Law #5). This circumstance, together with the facts that Respondent immediately notified the Department when he learned that Cline had misused his license (Finding of Fact #6) and that Respondent was candid and forthright under oath at the hearing of this matter and admitted that he used poor judgment (Finding of Fact *8), led the Hearing Officer to recommend the 15- day suspension. It should be noted that Respondent voluntarily "placed" his license with an unlicensed individual. (Tr. 71, 72). Not only was this "placing" of the license the result of poor judgment, but it is prohibited by Section 626.441, Florida Statutes. That section provides: 626.441 License or permit: transferability.--A license or permit issued under this part is valid only as to the person named and is not transferable to another person. S626.441, Fla. Stat. Accordingly, it is illegal to place an insurance agent's license on the wall of an agency in order to assist unlicensed persons in selling or servicing insurance policies in the absence of the licensed agent. However, because a violation of Section 626.441, Florida Statutes was not alleged in the Administrative Complaint, this final order does not rule on that issue. Additionally, agents are prohibited from supplying blank forms, applications and other supplies to unlicensed persons for use in soliciting, negotiating, or effecting contracts of insurance. S626.342, Fla. Stat. Respondent admitted that he signed blank applications and binders for Cline, an unlicensed individual, to use in his absence. (Fact Stipulation of March 5, 1990; Finding of Fact *3). Violation of Section 626.342, Florida Statutes was not alleged in the Administrative Complaint, and is not addressed by this Order. While Respondent was not charged with violation of Sections 626.342 and 626.441, Florida Statutes in the Administrative Complaint, his "poor judgment" in becoming involved in this illegal arrangement is an aggravating rather than a mitigating factor in this case. Accordingly, this aggravating factor should be considered together with the mitigating factors referred to by the Hearing Officer. The Hearing Officer concluded that Respondent is liable for the acts of Cline while his license and signature were used by Cline, and that therefore, Respondent is guilty of violating five subsections of Section 626.611, Florida Statutes. Section 626.611, Florida Statutes compels the Department of Insurance to deny, suspend, revoke, or refuse to renew or continue the license of any agent who commits any of the acts listed in Section 626.611, Florida Statutes. However, the mitigating factors found by the Hearing Officer in Conclusion of Law numbered 5, namely Respondent's immediate notification of the Department when he learned of possible wrongdoing and Respondent's cooperation in the investigation, make the 15-day suspension an appropriate, if lenient, penalty in this case. However, the aggravating factor of the improper situation entered into by Respondent in "placing" his license and supplying forms to Cline renders acceptance of Respondent's applications at the end of the 15-day suspension period inappropriate in this case. Petitioner's exception to the Hearing Officer's Recommendation is therefore accepted. IT IS THEREFORE ORDERED: That the Findings of Fact of the Hearing Officer are hereby adopted in toto as the Department's Findings of Fact. That the Conclusions of Law of the Hearing Officer are hereby adopted in toto with the exceptions noted above; That the recommendation of the Hearing Officer is hereby rejected for the reasons set forth in paragraph 4 above, Ruling on Petitioner's Exception to Recommendation; That Respondent is guilty of violating subsections 626.561(1), 626.611(1), 626.611(5), 626.611(7), 626.611(9), and 626.611(10), Florida Statutes; That as a result of Respondent's violations of the above referenced statutes, the licenses and eligibility for licensure of Respondent, Steven Schnur, are hereby SUSPENDED for a period of fifteen (15) days, effective upon the date of this Order. The denial letters dated February 14, 1990, April 6, 1990, and April 9, 1990 are hereby AFFIRMED. Upon expiration of the suspension period, Respondent is free to reapply for any insurance licenses, and the Department of Insurance shall not deny Respondent's applications based upon any of the facts and circumstances at issue in this action. Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to Section 120,68, Florida Statutes and Rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing a petition or notice of appeal with the General Counsel, acting as the agency clerk, at 412 Larson Building, Tallahassee, Florida 32399- 0300, and a copy of the same with the appropriate district court of appeal within thirty (30) days of the rendition this Order. ORDERED this 21 day of June , 1990. TOM GALLAGHER Treasurer and Insurance Commissioner Honorable Donald R. Alexander Hearing Officer Division of Administrative Hearings 1230 Apalachee Parkway Tallahassee, FL 32399-1550 Alan J. Kerben, Esquire 8814 Rocky Creek Drive Tampa, FL 33615 C. Christopher Anderson, III, Esquire Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300
Recommendation Based on the foregoing findings of fact and conclusions of law, it is: RECOMMENDED that respondent be found guilty of violating subsections 626.561(1) and 626.611(5),(6),(9) and (10) that his licenses be suspended for fifteen days. The other charge should be dismissed with prejudice. It is further recommended that his applications for renewal and issuance of resident licenses be approved after the suspension is lifted. DONE AND ORDERED this 19 day of April, 1990, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19 day of April, 1990.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times pertinent to this proceeding, the respondent Jules Maxwell Hanken was licensed as an ordinary life, including disability, agent in Florida, and was the President of Gulf Health/Life, Inc. in St. Petersburg, Florida. Though some administrative and supervisory duties were delegated to other individuals, respondent was the ultimate supervisor of insurance agents and employees at Gulf Health/Life. Respondent assumed the primary and major responsibility for training, directing and instructing employees to work as insurance salesmen within the agency. COUNTS I and VI The American Benevolent Society, Inc. was formed by the respondent and others in mid-1978, and was incorporated on November 22, 1978. The organization was described as "a society devoted to the welfare and benefit of independent Americans." Among its stated purposes was the provision of information and referral services dealing with medical, legal, benevolent, financial and recreational matters. The ABS also provided a newsletter and discounts to its members from numerous area businesses and dining establishments, as well as travel discounts and information. The membership fee was $15.00 for an individual and $25.00 for a family. New members were advised that one of the functions of the ABS was to solve the problem of high medical costs, and that members having difficulties with insurance claims could receive aid from the ABS. The offices of the ABS were located in the same building as Gulf Health/Life, Inc., but a separate telephone number and listing was maintained for the ABS. Employees of Gulf Health/Life, Inc. who answered the ABS telephone were instructed to not let callers know that the ABS office was in the Gulf Health office and to inform ABS callers that their insurance agent was not located at that office. In the sale of accident and health insurance, which was a major portion of the insurance sold at Gulf Health/Life, Inc., efforts were made by the respondent to offer insurance which would provide a discount in premium to members of the ABS. Apparently, respondent attempted to have the ABS endorse various insurance companies in return for members of the ABS receiving a "group" or "association" premium which would be less than the premium for an individual purchasing the same insurance. CNA did provide such a plan on one of its policies for individual members of the ABS, as well as for other associations, whereby the premiums for ABS members were slightly lower (approximately $10.00 per individual) than for members of the general public purchasing the same insurance. Neither Massachusetts Indemnity and Life Insurance Co. nor Founders Life Assurance Co. offered any group rate or reduction in insurance premiums to members of the ABS. Insurance salesmen employed at Gulf Health/Life, Inc. were instructed and directed by the respondent to also sell membership in the ABS. They received a commission for each membership sold and most sales were made at the same time as sales of insurance policies were made. It is estimated that approximately ninety-five percent (95 percent) of the ABS members also had insurance with a company represented by Gulf Health/Life, Inc. Respondent's insurance salesmen were directed in writing to always explain to the customer the difference between the ABS and the insurance company, to always collect separate checks and give separate receipts for the ABS membership fee and the insurance premium, and to require new ABS members to sign a form whenever they purchased insurance expressly acknowledging that the ABS was not the insurance company and that the endorsement and recommendation of insurance by the ABS did not imply or guarantee any discount in insurance premium. The respondent's agents were also required to place their signature on this form. In addition, the printed application form for membership in the ABS stated, in relevant part, as follows: I . . . am not joining as a prerequisite to obtaining insurance . . . and I realize that the A.B.A. insurance endorsement in no way implies or guarantees any discount or deviation from the ordinary premium established for the policies included. It is understood that the Society is not the insurance company." Respondent's salesmen were directed to obtain from each new ABS member the names of other persons who might be interested in ABS membership, and the amount of the salesman's commission for each ABS sale was dependent upon the number of referrals contained in each application. For example, an individual application for ABS membership with no referrals earned the salesperson a commission of $4.50, while an application with three referrals merited a commission of $7.50. Membership agents for the ABS, who were also licensed insurance agents, were required to sign a document acknowledging their understanding that monies collected for ABS were to be maintained separately from insurance premiums, that no preferential recommendations were to be made for insurance plans endorsed by the ABS over other plans which the agent was licensed to represent and "that solicitation of ABS members is in no way connected to or reliant upon insurance plans, programs, or policies, as no person's ability to obtain any insurance is helped or hindered by ABS membership; however, membership must be established prior to insurance solicita- tion through the American Benevolent Society. In contrast to the above-discussed specific written instructions and disclaimer forms requiring the signatures of agents and new customers, several agents employed by the respondent were of the opinion that those written forms and instructions were not consistent with what agents were verbally directed by respondent to use as a sales presentation. These agents believed that respondent, during the training sessions, was instructing them to blur together the presentations for sales of insurance and ABS membership so that the customer would believe that they could obtain better insurance (either in terms of coverage or lower premiums) through membership in the ABS. The agents were instructed in a sales technique which would begin with an explanation to the customer as to how difficult it is, because of the customer's age and/or physical condition, to obtain proper insurance coverage and then to explain that the ABS was formed for the purpose of solving those problems, could help its members in obtaining better and lower cost insurance, and could ultimately help them in their claims with the various companies. These agents admitted that they were instructed to avoid the term "group insurance," but stated that they were to use other terminology to suggest an association or group. Several former agents and employees testified that they received a "negative commission," or a reduction in their usual insurance commission, if they sold insurance to a customer without simultaneously selling that customer a membership in the ABS. No documentary evidence was offered to substantiate this testimony. Some of the respondent's insurance agents did tell customers that they had to be a member of the ABS before they could obtain certain insurance. These agents did, however, sell insurance without ABS membership and did sell ABS membership without insurance. They also sold ABS memberships simultaneously with the sale of insurance policies with companies which offered no benefits for ABS members. As noted above, CNA did offer a slight discount in premium on one of its policies to members of the ABS. The only three customers called as witnesses by the petitioner in this proceeding did join the ABS in order to acquire what they believed to a be a cheaper, group rate for their CNA policies, and to obtain discounts on other products. These customers did receive the discount provided to ABS members on at least one of the CNA policies purchased through respondent's agents. The agent did not explain the exact amount of the discount to them as compared with the ABS membership fee, nor did the agent compare the premiums with individual, as opposed to group, premiums. No other members of the ABS (which at one time had a membership of 700 or 800 persons) or the general public were called by the petitioner to testify in this proceeding. 1/ The only other member of the ABS who testified was called by the respondent, and he testified that he purchased a membership in the ABS after he bought insurance from one of the respondent's agents. He was told membership in the ABS would bring him certain services, benefits and discounts, but was not told he would receive a discount or reduction in his insurance premium. This witness was named in the Administrative Complaint as being one of the victims of the deceptive sales practices directed or authorized by the respondent. Insurance agents at Gulf Health/Life used various titles on their business cards and in reference to themselves. Some utilized the word "counselor," while others were referred to as "Regional Group Director." The purpose of utilizing the term "counselor" was not to disguise the fact that an agent was an insurance salesman, but rather to avoid the often poor public image associated with an insurance salesman. Upon inquiry to the State Insurance Commissioner's Office, the respondent's office was informed by letter dated January 21, 1980, that there was no statutory prohibition against use of the term "counselor" by insurance agents. An Insurance Department rule was referenced which prohibits the representation by an agent that he is a "counselor, advisor or similar designation" for any group or association of medicare eligible individuals, which representation does not reflect the true role of the agent in the solicitation of insurance. Salesmen were encouraged by respondent to avoid discussions with customers regarding the commission they may make on a potential sale. This was emphasized in training sessions for the purpose of illustrating what the proper attitude of an insurance salesman should be; to wit: to sell customers what they need and not what the salesman desires in terms of a commission. Respondent's employees and agents were not instructed to inform customers that they were not insurance salesmen or that they did not receive remuneration by way of commission. COUNT II Some thirty years ago, Earl Jacobs, a professional photographer prior to joining respondent's insurance company, constructed what he calls a "safe light." This is a wooden box which has a lightbulb in it and a glass filter across the face. The light can be openly used in a darkroom while working with light-sensitive photography paper. For some period of time, this device was kept on the premises of Gulf Health/Life, Inc. because the agency was putting together a brochure with each agent's picture. The restroom area was considered to be an ideal darkroom facility for the processing of prints. The "safe light" is referred to as a "light box" in the Administrative Complaint. Former employees and agents observed this device either in the closet of the woman's restroom or under the desk of Lynda C. Rushing, Vice President of Gulf Health/Life, Inc. Five witnesses observed the device in use by Lynda Rushing while either kneeling on the floor near her desk or while in another room. While it appeared to these witnesses that Ms. Rushing was using the device to trace customers' signatures onto insurance documents, no such documents were produced, no insured's name was given, nor did any customer or member of the general public present testimony as to a signature which was not genuine. 2/ Respondent ordered the device removed immediately after he was informed by a secretary that an irate customer had been in the office complaining that a signature on an insurance policy was not his signature. Applications and other insurance documents were frequently returned to respondent's agents for the purpose of obtaining an omitted signature. There was no testimony or other evidence in this proceeding to indicate that respondent Hanken ever used the device known as a "light box," or that he directed other employees to use this device to trace signatures. COUNT III Many, if not most, of the individuals employed by the respondent as insurance agents had no prior insurance experience. Sales techniques and practices were taught them by the respondent through extensive training sessions and the use of a sales manual called Psaleschology, which was primarily authored by the respondent. Agents were instructed to learn and were tested on the concepts expressed in the sales manual. The training sessions involved role- playing between the respondent and an agent, utilizing the concepts expressed in the manual. During the early stages of an agent's training, he was required to complete a form when he did not effectuate a sale, listing which steps in the manual were not followed by the salesman. While some salesmen believed that they were expected to follow the manual "verbatim" in their sales presentation, others, including the respondent, felt that the manual and the concepts expressed therein were simply guidelines or reminders of the principles of the psychology of salesmanship. Respondent considered the manual's purpose to be one of introducing to the salesman a formal attitude about selling and a demonstrative learning instrument. The sales manual under which the respondent's agents were trained does utilize the concepts of "MID/TIA" (Make It Difficult/Take It Away"); fear and greed, and fabrication. As explained by the respondent, these concepts of reverse psychology, motivation by relating to strong human emotion and demonstrations of risk are common techniques in salesmanship. They can as readily be described as concepts concerning the theory of supply and demand, the recognition of people's concerns and desires as motivating factors and the personalization of real events by fabrication of the characters. During a training session, the respondent related to his salesmen that he had once used the technique of telling an insurance customer who was reluctant to speak with him that he had come there to give the customer a Maas Brothers gift certificate. This was cited as an example of a method to persuade the unreceptive customer to open the door. There was no testimony that any of the respondent's salesmen ever actually used that technique or that respondent ever actually directed his employees to use such a technique. Maas Brothers gift certificates were in fact given to customers by Gulf Life/Health employees for a period of time when the customer gave an agent referrals for other sales. The respondent's manual does contain suggested techniques of reinstating lapsed policies by providing option or adjustment alternatives. One agent, who testified that he followed the respondent's manual literally during his early months with the company, stated that he would tell customers whose policies were about to lapse that they had a specific refund or monetary adjustment due them. This technique was utilized to gain entrance to the customer's home and to resell them insurance. This agent's technique was reported to the respondent by another agent, and respondent directed him to cease using the "refund" approach to reinstate lapsed policies. There was no testimony from any purchaser of insurance, potential insurance customer or other member of the general public that the techniques set forth in the respondent's sales manual or emphasized in his training sessions were actually practiced to the extent that the customer was frightened, coerced or deceived into purchasing insurance from the respondent's agency. 3/ COUNT IV Prior to becoming licensed to sell policies for Massachusetts Indemnity and Life Insurance Company, agent Edmund Shoman solicited and obtained applications for insurance with that company. Vice President Lynda Rushing, who was licensed with that company, signed these applications for him. At the time, Mr. Shoman was licensed to sell insurance with another company. There was no evidence to suggest that respondent had any knowledge that Ms. Rushing signed applications brought into the office by Mr. Shoman, or that Mr. Shoman received any commissions on these sales Bradley Wasserman had never sold insurance prior to being employed by the respondent. After one week of training, and prior to receiving his license, according to Bradley Wasserman, he was given leads, made contacts and sold two insurance policies by himself. He signed his brother Phillip's name to the applications and, according to him, received a commission on the two sales. Bradley's brother, Phillip, was employed as a licensed insurance agent by the respondent, was one of the respondent's top producers, and was also in law school at the time. Phillip recalled that respondent gave his approval to this practice, but could not recall whether he knew in advance that Bradley would be signing his name to the applications. During his first two weeks of employment with the respondent, Bradley Wasserman entered into and signed a "Training Agreement," acknowledging that during his training program he would be given a training allowance for his presence with a licensed instructor during a sale. The specific oral agreement was that Wasserman was to receive $25.00 for each presentation of two or more hours which he observed. Between February 20 and March 6, 1981, three checks were made payable to Bradley Wasserman in the amounts of $150.00, $150.00, and $100.00. Each check bore the words "training remuneration" or "training allowance." These amounts do not correspondent with the amounts claimed by Bradley Wasserman as his commission on the two sales of insurance. COUNT V Howard Cunix, at a time when he was not a licensed life agent, referred a life insurance customer, Mr. Miller, to Phillip Wasserman. Phillip Wasserman, who was licensed to sell life insurance, made the sale, but received only one-half of the commission for that sale. What happened to the remainder of the commission was not known by Mr. Wasserman and was not otherwise established. At that time, Mr. Cunix was a salaried employee and received the same amount of remuneration each week. He did receive one-half a production or referral credit on a board maintained at Gulf Health/Life to illustrate the production level of the various agents.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Amended Administrative Complaint dated April 29, 1982, be DISMISSED. Respectfully submitted and entered this 8th day of February, 1983, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of February, 1983.
Findings Of Fact At all times pertinent to this hearing, Petitioner held a license issued by the Florida Department of Insurance as a general lines insurance agent. On or about April 3, 1979, Steven B. Atkinson entered the Okeechobee Insurance Agency in West Palm Beach, Florida, from whom he had purchased his auto insurance for approximately three years. His intention at this time was to purchase only that insurance necessary to procure the license tags for his automobile, a seven-year-old Vega. He told the person he dealt with at that time at the insurance agency that this was all he wanted. He did not ask for auto club membership, did not need it, and did not want it. He asked only for what he needed to get his tags. However, he was told by a representative of the agency that he needed not only "PIP" insurance, but also auto club membership and accidental death and dismemberment insurance. Of the $144 premium, $31 was for the required "PIP" coverage, $75 was for auto club membership (not required), and $38 was for accidental death and dismemberment (AD&D) (not required). Representatives of the agency told him that he needed all three to get the tags and, though he knew what he was getting and knew he was purchasing all three, he agreed because he was told by the agency representatives that he needed to have all three in order to get his tags. 3 Diane Phillipy McDonald contacted the Okeechobee Insurance Agency in April, 1979, because she had heard on the radio that their prices were inexpensive. All she wanted was personal injury protection (PIP), which was what she thought the law required to get tags on her automobile. When she first called the agency and asked how much the coverage she wanted would be, she was told she could pay a percentage down and finance the rest. When she entered the agency, she was waited on by a man whose name she cannot remember. However, she did not ask for auto club coverage or accidental death and dismemberment coverage, nor did those subjects ever come up in the conversation. She asked only for PIP, and she paid a $50 deposit on her coverage. In return for her deposit, she was given a slip of paper that reflected that she had purchased PIP coverage. She was not told she was charged for auto club membership or accidental death and dismemberment. The forms that she signed, including those which reflect a premium for all three coverages in the total amount of $137, bear her signature, and though she admits signing the papers, she denies having read them or having them explained to her before she signed them. In fact, she cannot recall whether they were even filled out when she signed them. In regard to the papers, the premium finance agreement signed by the witness on April 3, 1979, reflects in the breakdown of coverage total premium of $137. However, immediately below, the total cash premium is listed as $158, $21 more than the total of the individual premiums for the three coverages, and the financing charge is based on that amount1 less the down payment. Marvin W. Niemi purchased his auto insurance from the Okeechobee Insurance Agency in March, 1979, after he heard their advertisement on the radio and went in to get the insurance required by the State in order to get his license tags. When he entered the agency, he asked personnel there for the minimum insurance required to qualify for tags because he was strapped for money at the time and could not afford anything else. He definitely did not want auto club membership. In fact, discussion of that did not even arise, nor did he want the accidental death policy. When he left the agency, he thought he was only getting what he had asked for; to wit, the PIP minimum coverage. All the forms that he signed were blank when he signed them. This application process took place very quickly during his lunch hour from work. He admits giving his son's (David Robert) name as the beneficiary on his insurance, but did not realize at the time that he was purchasing coverage other than the minimum coverage required. His rationale for giving his son's name as beneficiary was that agency personnel asked and the witness felt if there was any money involved, it should go to his son. In fact, Mr. Niemi was sold not only the PIP, but membership in an auto club and PIP coverage with an $8,000 deductible. Again, the total premium was $137, when the actual premium for the coverage he asked for was only $24. Frank Johnson purchased his insurance from Okeechobee Insurance Agency in April, 1979, because he had heard and seen their advertisement on radio and television and it appeared to be reasonable. He wanted only PIP coverage as required by law sufficient to get his license tags. When he entered the agency, he spoke with a man whose name he does not know, who after consulting the books came up with the premium for the coverage to be purchased. During this meeting, the question of motor club or AD&D coverage was not mentioned. His signature does not appear on the statement of understanding, which outlines the coverage and the premium therefor. In this case, because Mr. Johnson had had some prior traffic tickets, his total premium came to $243. His coverage, however, included bodily injury liability, property damage liability, PIP, and auto club. After paying a $50 down payment, he made two additional payments which totaled approximately $50, but thereafter failed to make any additional payments. On August 1, 1980, Marguerite and Steven von Poppel entered the Federal Insurance Agency in Lake Worth, Florida, to purchase their automobile insurance coverage. They purchased policies which included bodily injury and property damage liability, PIP coverage, and comprehensive and collision coverage. The PIP coverage had a deductible of $8,000, and the comprehensive and collision coverage both had $200 deductibles. Mrs. von Poppel indicates that it was not their intention to have such large deductibles on their coverage. In any event, on that day, they gave a check for down payment in the amount of $320 and advised the employee of the agency that upon billing for the balance due of the $915 total premium, they would send the check. Neither Mrs. von Poppel nor Mr. von Poppel desired to finance the balance due of $595, and Mrs. von Poppel did not affix her signature to an application for premium financing with Devco Premium Finance Company dated the same day which bears the signature of Kevin D. Cox as agent. This premium finance agreement lists a cash premium of $966, as opposed to $915. The receipt given to the von Poppels initially reflects a down payment of $320, which is consistent with the receipt, and an amount financed of $646, as opposed to $595, which would have been the balance due under the cash payment intended and desired by the von Poppels. Somewhat later, Mrs. von Poppel received a premium payment booklet from Devco in the mail. When she received it, she immediately went to the Federal Insurance Agency, told them she did not desire to finance the payments, and that day1 September 3, 1980, gave them a check in the amount of $595, which was the balance due on their insurance coverage. This check was subsequently deposited to the account of Federal Insurance Agency and was cashed. This did not end the von Poppel saga, however, as subsequently the von Poppels were billed for an additional amount of $116.18, which reflects the interest on the amount ostensibly financed. When the von Poppels received this statement, they contacted the Federal Insurance Agency and were told that there was some mistake and that the matter would be taken care of. They therefore did not make any further payments, except a total payment of $20, which they were told was still owing. This $20 payment was made on May 29, 1981, after their insurance had been cancelled for nonpayment of the balance due on the finance agreement. The policy was, however, subsequently reinstated, back-dated to the date of cancellation, after the von Poppels complained. Their complaints, however, did nothing to forestall a series of dunning letters from a collection agency to which Devco had referred the von Poppels' account. It is obvious, therefore, that Federal Insurance Agency did not notify Devco of the fact that the amount due and payable had been paid, and did not clear the von Poppels with Devco or with the collection agency thereafter. As a result, the von Poppels filed a complaint with the Insurance Commissioner's office. That terminated their difficulty on this policy. On September 15, 1980, Federal Insurance Agency submitted a check in the amount $595, the amount paid to them by the von Poppels in full settlement of their account, to Devco. There appears to have been no additional letter of explanation, and though Devco credited this amount to the von Poppel account, it did not know to cancel the finance charges since the von Poppels' decline to finance their premium. Of the total amount of the von Poppel premium, the majority, $636, was attributable to the basic insurance in the amount of $10,000-$20,000 liability written by American Risk Assurance Company of Miami, Florida. The supplemental liability carrying a premium of $180 and covering $40,000-$80,000 liability was written by Hull and Company, Inc., out of Fort Lauderdale for Empire Fire and Marine Insurance Company. The third portion of the coverage carrying a charged premium in the amount of $150 covered the AD&D covered by Reliance Standard Life Insurance Company (RSLIC) of Philadelphia, Pennsylvania. This coverage, in the principal sum of $10,000 in the case of Mr. von Poppel and $5,000 in the case of Mrs. von Poppel, was included without the knowledge or the cosnet of the von Poppels. The policies, numbered 10753 R and 10754 R, were never delivered to the von Poppels as, according to an officer of RSLIC, they should have been, but are in the files of the Federal Insurance Agency. Further, the von Poppels were overcharged for the coverage. Respondent, however, did not remit any of the premium to Reliance Standard Life Insurance Company Instead, on August 1, 1980, the same day the von Poppels were in to purchase their insurance, he issued a sight draft drawn on Devco Premium Finance Company to Reliance Standard Life in the amount of $150. Reliance Standard Life was not the same company as Reliance Standard Life Insurance Company, was not controlled by Reliance Standard Life Insurance Company, and in fact had no relation to Reliance Standard Life Insurance Company. Reliance Standard Life was a corporation duly organized and existing under the laws of the State of Florida in which Kevin D. Cox was president and Howard I. Vogel was vice president-secretary. Of the $150 premium, 90 percent was retained by Respondent or his company as commission and 10 percent was transmitted to Nation Motor Club along with a 10 percent commission on policies written for other individuals. Nation Motor Club would then transmit the bona fide premium of 24 cents per $1,000 coverage to RSLIC. More than a year later, on October 16, 1981, Federal Insurance Agency reimbursed the von Poppels with a check for $42.50, representing the unearned portion of the unordered AD&D coverage. Clifford A. Ragsdale went to the Federal Insurance Agency in Lake Worth on April 19, 1982, to purchase his auto insurance because after calling several agencies by phone and advising them of the coverage he wanted, this was the least expensive. To do this, he would read off the coverage from his old policy and get a quote for the identical coverage. After getting this agency's quote, he went to the office where, after talking with two different ladies to whom he described the coverage he desired, he got to the person with whom he had talked on the phone and read his current coverage, and who already had some of the paperwork prepared. During all his discussions with the agency's employees on the phone and in person, he did not speak of, request, or desire auto club membership. He has been a member of AAA since 1977, and his membership there covers all the contingencies he is concerned with. Additional auto club membership in another club would be redundant. He gave the agency representative a check for $247 as a down payment and agreed to finance the balance due through Premium Service Company. Though he was given a receipt for the $247 deposit, the premium finance agreement he signed that day at the Federal Insurance Agency reflected a cash down payment of only $147, thus falsely inflating the balance due to be paid by the client. The $100 difference was refunded to Mr. Ragsdale by Federal Insurance Agency on October 25, 1982, some six months later after he complained to the Insurance Commissioner's office and was told that the $100 difference was for membership in a motor club that he did not desire or agree to. As late as December 29, 1982, over eight months later, the agency had still not remitted the $147 to Premium Service Company, who then added this deposit already paid by the client back to the account balance. Mr. Ragsdale did not read all the documents he signed at the agency, and he never received the policy he ordered. He was told he was signing an application for insurance and signed several instruments in blank at the request of the personnel at Federal Insurance Agency. He was told they would later fill in what wad needed. Respondent was the general lines agent of record for the Okeechobee Insurance Agency, located at 1874 Okeechobee Boulevard, West Palm Beach, Florida, during March and April, 1979, and at the Federal Insurance Agency, 3551 South Military Trail, Lake Worth, Florida, during the period which included August, 1980, and April, 1982. In each agency, he had instructed his' personnel how to serve and handle customers who came to the agency requesting the lowest minimum required insurance in which the agency specialized and which the agency, through its advertising program, purported to offer. As testified to by Linda Holly, an employee of Federal Insurance Agency, and as admitted by Respondent, when a prospective customer entered the agency requesting the minimum required coverage, the agent was to ask if the customer knew what the minimum was. The agent would then explain what was required and quote a premium which included not only the minimum required insurance, but also some additional service which, depending on the time, could be AD&D, towing, motor club, or the like, none of which was required by the State of Florida. Respondent instructed his employees to do this on the rationale that the premiums and commissions on the minimum required insurance were so low that the agency could not make sufficient profit on the sale of it, alone, to stay in business.
Recommendation Based on the foregoing, it is RECOMMENDED: That Respondent's license as a general lines agent in the State of Florida be revoked. RECOMMENDED this 3rd day of August, 1983, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings Department of Administration 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of August, 1983 COPIES FURNISHED: Daniel Y. Sumner, Esquire William W. Tharpe, Jr., Esquire Department of Insurance Legal Division 413-B Larson Building Tallahassee, Florida 32301 Mr. Kevin Denis Cox 1483 S.W. 25th Way Deerfield Beach, Florida 33441 The Honorable Bill Gunter State Treasurer and Insurance Commissioner The Capitol Tallahassee, Florida 32301
Findings Of Fact Petitioner is the state agency charged with licensing insurance agents of all types, regulating licensure status, and enforcing the practice standards of licensed agents within the powers granted by the Legislature in Chapter 626, Florida Statutes. At all times material to the disciplinary action, Respondent Mahle was licensed as an insurance agent in the following areas: Life and Health Insurance and Health Insurance. During the last quarter of the year 1988, New Concept Insurance, Inc. mailed brochures to residents of Naples, Florida, which stated that representatives of the company were willing to provide information about long- term care insurance, including nursing facility benefits, to interested parties. Those who wanted to learn more about the insurance were asked to return their name, address and telephone number to the company on an enclosed card. Eleanor Drown responded to the advertisement, and an appointment was arranged for Thomas DiBello and Respondent Mahle to meet with her regarding the insurance program. On November 10, 1988, Thomas DiBello and Respondent Mahle met with Ms. Drown and discussed the benefits of a long-term care policy with a nursing facility daily benefit of one hundred dollars ($100.00). After the discussion, Ms. Drown completed an application for the insurance and gave it to Respondent Mahle, along with a check for five thousand one hundred and eighty-three dollars and forty-nine cents ($5,183.49). During the insurance transaction on November 10, 1988, Ms. Drown was given a receipt which states: This receipt is given and accepted with the express understanding that the insurance you applied for will not be in force until the policy is issued and the first premium is paid in full. If your application cannot be approved, we will promptly refund your money. Application is made to the company checked (/) on this receipt. On another area of the receipt, it is clearly written, as follows: If Acknowledgement of Application does not reach you within 20 days, write to: Mutual Protective Insurance Company, 151 South 75th Street, Omaha, Nebraska 68124. The Respondent Mahle did not forward the application and the check completed by Ms. Drown to Mutual Protective Insurance Company. The check issued by Ms. Drown to Mutual Protective Insurance Company was deposited into the account of New Concept Insurance, Inc. A cashier's check for the same amount of money was issued by New Concept Insurance, Inc. to Ms. Drown on March 7, 1989. The letter from New Concept that was mailed with the check represented that the check was the refund of the money paid to Mutual Protective Insurance Company by Ms. Drown. Mitigation An application for long-term care insurance from a different insurance company was sent to Ms. Drown by Respondent Mahle on March 2, 1989. Although this course of conduct was not directly responsive to the duties owed by the Respondent to Mutual Protective Insurance Company or his customer, Ms. Drown, it does demonstrate a concern about the insurance needs requested by the customer. This conduct also reveals that there was no intention to convert the funds received to the Respondent's own use, and it explains some of the delay in the return of the premium funds to the customer. The Respondent has been an insurance agent for twenty years. This was the only complaint against the Respondent the Hearing Officer was made aware of during the proceedings. The allegations in the Complaint involve a single insurance transaction.
Recommendation Accordingly, it is RECOMMENDED: That the Respondent be found guilty of one violation of Section 626.561(1), Florida Statutes, and one violation of Section 626.611(7), Florida Statutes, during a single insurance transaction. That the Respondent pay an administrative penalty of $500.00 for the two violations of the Insurance Code within thirty days of the imposition of the penalty. That the Respondent be placed upon six month's probation. During this probation period, he should file a report with the Department demonstrating the manner in which he intends to keep accurate business records which assure him, the insurance company, and the customer that he is continuously accounting for premium funds and promptly carrying out his fiduciary responsibilities. That the Respondent's requests for licensure dated October 10, 1989 and May 18, 1990, be granted. DONE and ENTERED this 12th day of September, 1990, in Tallahassee, Leon County, Florida. VERONICA E. DONNELLY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE No. 89-6040 The Petitioner's proposed findings of fact are addressed as follows: Accepted. See HO #2. Accepted. See HO #2. Accepted. Accepted. See HO #5. Accepted. See HO #5. Accepted. See HO #5. Accepted. See HO #5. Rejected. Conclusion of Law. Rejected. See HO #6. Accepted. See HO #7. Accepted. See HO #7. Accepted. See HO #7. Accept that Ms. Drown's funds remained in the insurance agency's financial accounts for four months. Reject that the interest bearing ability of these funds is relevant in any manner to this case. Respondent's proposed findings of fact are addressed as follows: Accepted. See HO #3 and #4. Accepted. See HO #5. Accepted. See HO #5. Accepted. See HO #5. Accepted. Rejected. This testimony was rejected by the hearing officer as self serving. It was not found to be credible. Rejected for the same reasons given immediately above. Accepted, but not particularly probative. Rejected. Contrary to the testimony of Ms. Drown which was believed by the hearing officer. Accepted. Rejected. Contrary to the testimony of Ms. Drown which was believed by the hearing officer. Accept that an application for Penn Treaty Insurance was sent to Ms. Drown on this date. Accepted. Rejected. Contrary to the testimony of Ms. Drown which was believed by the hearing officer. Rejected. Self serving. Not believed or found to be credible by the hearing officer. Accepted. See HO #9. COPIES FURNISHED: C. Christopher Anderson III, Esquire Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Mark P. Smith, Esquire GOLDBERG, GOLDSTEIN & BUCKLEY, P.A. 1515 Broadway Post Office Box 2366 Fort Myers, Florida 33902-2366 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue Does Petitioner, Department of Financial Services (DFS), have authority to determine if Respondent, Alberto Luis Sotero (Mr. Sotero) and Respondent, FalconTrust Group, Inc. (FalconTrust), wrongfully took or witheld premium funds owed an insurance company while a civil action between the insurance company and Mr. Sotero and FalconTrust pends in Circuit Court presenting the same issues? Should the insurance agent license of Mr. Sotero be disciplined for alleged violations of Sections 626.561(1), 626.611(7), 626.611(10), 626.611(13), and 626.621(4), Florida Statutes (2007)?1. Should the insurance agency license of FalconTrust be disciplined for alleged violations of Section 626.561(1), 626.6215(5)(a), 626.6215(5)(d). 626.6215(5)(f), and 626.6215(5)(k), Florida Statutes?
Findings Of Fact Based on the testimony and other evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Mr. Sotero is licensed by DFS as an insurance agent in Florida and has been at all times material to this matter. He holds license number A249545. FalconTrust is licensed by DFS as an insurance agency in this state and has been at all times material to this matter. It holds license number L014424. Mr. Sotero is an officer and director of FalconTrust and held these positions at all times material to this proceeding. Mr. Sotero also controlled and directed all actions of FalconTrust described in these Findings of Fact. Zurich American Insurance Company is a commercial property and casualty insurance company. FalconTrust Commercial Risk Specialists, Inc., and Zurich-American Insurance Group entered into an "Agency-Company Agreement" (Agency Agreement) that was effective January 1, 1999. The Agency Agreement bound the following Zurich entities, referred to collectively as Zurich: Zurich Insurance Company, U.S. Branch; Zurich American Insurance Company of Illinois; American Guarantee and Liability Insurance Company; American Zurich Insurance Company; and Steadfast Insurance Company. The Agreement specified that FalconTrust was an "independent Agent and not an employee of the Company [Zurich.]". . .. The Agency Agreement also stated: All premiums collected by you [Falcontrust] are our [Zurich's] property and are held by you as trust funds. You have no interest in such premiums and shall make no deduction therefrom before paying same to us [Zurich] except for the commission if any authorized by us in writing to be deducted by you and you shall not under any circumstances make personal use of such funds either in paying expense or otherwise. If the laws or regulations of the above state listed in your address require you to handle premiums in a fiduciary capacity or as trust funds you agree that all premiums of any kind received by or paid to you shall be segregated held apart by you in a premium trust fund account opened by you with a bank insured at all times by the Federal Deposit Insurance Corporation and chargeable to you in a fiduciary capacity as trustee for our benefit and on our behalf and you shall pay such premiums as provided in this agreement. (emphasis supplied. The Agency Agreement commits Zurich to pay FalconTrust commissions "on terms to be negotiated . . . ." It requires FalconTrust to pay "any sub agent or sub producer fees or commissions required." The Agency Agreement also provides: Suspension or termination of this Agreement does not relieve you of the duty to account for and pay us all premiums for which you are responsible in accordance with Section 2 and return commissions for which you are responsible in accordance with Section 3 [the Commission section.] The Agency Agreement was for Mr. Sotero and Falcontrust to submit insurance applications for the Zurich companies to underwrite property and casualty insurance, primarily for long- haul trucking. The Agency Agreement and all the parties contemplated that Mr. Sotero and FalconTrust would deduct agreed-upon commissions from premiums and remit the remaining funds to Zurich. On September 14, 2000, Zurich and Mr. Sotero amended the Agency Agreement to change the due date for premium payments and to replace FalconTrust Group, Inc. (FalconTrust) for FalconTrust Commercial Risk Specialists, Inc., and to replace Zurich-American Insurance Group and Zurich Insurance Company, U.S. Branch, with Zurich U.S. Mr. Sotero and Zurich's authorized agent, Account Executive Sue Marcello, negotiated the terms of the commission agreement as contemplated in the Agency Agreement. Mr. Sotero confirmed the terms in a July 20, 1999, letter to Ms. Marcello. The parties agreed on a two-part commission. One part was to be paid from the premiums upon collection of the premiums. The second part, contingent upon the program continuing for five years, was to be paid by Zurich to Mr. Sotero and FalconTrust. The total commission was 20 percent. FalconTrust and Mr. Sotero were authorized to deduct 13 percent of the commission from premiums before forwarding them to Zurich. The remaining seven percent Zurich was to pay to Mr. Sotero and FalconTrust at the end of the program or after the fifth year anniversary date. The letter spelled out clearly that Zurich would hold the money constituting the seven percent and was entitled to all investment income earned on the money. The passage describing the arrangement reads as follows: Our total commission is 20 percent however Zurich will hold and retain the first 7 percent commission where they are entitle [sic] to earn investment income. I understand that FalconTrust will not benefit from this compounded investment income. However you mentioned you would increase our initial commission that is set at 13 percent currently from time to time depending on FalconTrust reaching their goals, but it will never exceed a total commission of 20 percent. It is to our understanding that the difference will be paid at the end of the program or after the fifth year anniversary date being 12/31/2005, but not earlier than five years. I do understand that if Zurich and/or FalconTrust cancels the program on or before the fourth year being 12/31/2004 that we are not entitle [sic] to our remaining commission that you will be holding. If the program is cancelled after 12/31/2004 by FalconTrust and/or Zurich it is understood that all commission being held will be considered earned. (emphasis added.) Until the program ended, the parties conducted themselves under the Agency Agreement as described in the letter. At some point the parties agreed to decrease the percentage retained by Zurich to five percent and increase the percentage initially paid to and kept by FalconTrust to 15 percent. During the course of the relationship FalconTrust produced approximately $146,000,000 in premiums for Zurich. At all times relevant to this matter, all premium payments, except for the portion deducted by sub-agents and producers before forwarding the payments to Mr. Sotero and FalconTrust were deposited into a trust account. The various sub-agents of FalconTrust collected premiums and forwarded them to FalconTrust, after deducting their commissions, which were a subpart of the FalconTrust 13 percent commission. FalconTrust in turn forwarded the remaining premium funds after deducting the portion of its 13 percent left after the sub-agent deduction. This was consistent with the Agency Agreement and accepted as proper by Zurich at all times. All parties realized that the held-back seven percent, later five percent, was money that Zurich would owe and pay if the conditions for payment were met. The parties conducted themselves in keeping with that understanding. Mr. Sotero and FalconTrust described the practice this way in their Third Amended Complaint in a court proceeding about this dispute: "In accordance with the Commission Agreement, Zurich held the contingency/holdback commission and received investment income thereon." (Emphasis supplied.) In 2006 Zurich decided to end the program. In a letter dated December 8, 2006, Tim Anders, Vice President of Zurich, notified Mr. Sotero that Zurich was terminating the Agency-Company Agreement of January 1, 1999. The letter was specific. It said Zurich was providing "notification of termination of that certain Agency-Company Agreement between Zurich American Insurance Company, Zurich American Insurance Co. of Illinois, American Guarantee and Liability Insurance Co., American Zurich Insurance Company, Steadfast Insurance Company . . . and FalconTrust Grup, Inc. . . ., dated January 1, 1999, . . .." Mr. Sotero wrote asking Zurich to reconsider or at least extend the termination date past the March 15, 2007, date provided in the letter. Zurich agreed to extend the termination date to April 30, 2007. At the time of termination FalconTrust had fulfilled all of the requirements under the Agency-Agreement for receipt of the held-back portion of the commissions. Mr. Sotero asked Zurich to pay the held-back commission amounts. He calculated the amount to exceed $7,000,000. Zurich did not pay the held- back commission amounts. As the program was winding down and the termination date approached, FalconTrust continued to receive premiums. As the Agency Agreement and negotiated commission structure provided, FalconTrust deducted its initial commission from the premium payments. But, reacting to Zurich's failure to begin paying the held back commission amounts, Mr. Sotero engaged in "self help." He deducted at least $6,000,000 from the premium payments from customers, received and deposited in the trust account. He took the money as payment from Zurich of earned and held back commissions.3 Nothing in the Agency Agreement or negotiated commission agreement authorized this action. In March of 2007, Mr. Sotero and FalconTrust also brought suit against Zurich in the Circuit Court for the Eleventh Judicial Circuit, Miami, Florida. The issues in that proceeding include whether Mr. Sotero and FalconTrust wrongfully took premiums and how much Zurich owes them for commissions. As of the final hearing, that cause (Case Number 07-6199-CA-01) remained pending before the court and set for jury trial in August 2010. There is no evidence of a final disposition. But the court has entered a partial Summary Judgment determining that FalconTrust wrongfully took premium funds for the commissions that it maintained Zurich owed. The court's Order concludes that the issue is not whether Zurich owed money to FalconTrust, but whether FalconTrust was entitled to take the funds when it did. Like the undersigned, the court determines that it was not. Between December 8, 2006, the date of the cancelation letter, and April 30, 2007, the program termination date, Mr. Sotero and FalconTrust did not remit to Zurich any of the approximately $6,000,000 in premium payments received. Despite not receiving premiums, Zurich did not cancel or refuse to issue the policies for which the premiums taken by Mr. Sotero and FalconTrust were payment. The policies remained in effect.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services suspend the license of Adalberto L. Sotero for nine months and suspend the license of FalconTrust Group, Inc. for nine months. DONE AND ENTERED this 15th day of October, 2010, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, 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 15th day of October, 2010.
Findings Of Fact The Petitioner is an applicant for a license as a life and health insurance agent in this state. 5/ The Petitioner submitted an application form dated April 14, 1993. One of the questions on the application form reads as follows: Have you ever been charged with or convicted of or pleaded guilty or no contest to a crime involving moral turpitude (yes or no), or a felony (yes or no), or a crime punishable by imprisonment of one (1) year or more under the law of any state, territory or county, whether or not a judgment or convic- tion has been entered? (yes or no). If yes, give date(s): . The Respondent answered "yes" in the first three blanks and filled in the final blank as follows: "4/15/86 Case #86-8637 - Broward County Circuit Court, Felony Division 17th Judicial District." Immediately following the foregoing, the form contains six questions identified as (a) through (f). Those questions and the Petitioner's answers to them were as follows: What was the crime? Grand Theft Where and when were you charged? See above Did you plead guilty or nolo contendere? Yes Were you convicted? No Was adjudication withheld? Yes Please provide a brief description of the nature of the offense charged: Grand Theft Immediately following the six questions quoted above, the application form contains the following statements: If there has been more than one such felony charge, provide an explanation as to each charge on an attachment. Certified copies of the information or indictment and Final Adjudication for each charge is required. The Petitioner's response to the two statements quoted immediately above was a handwritten notation to the effect that the Department already had copies which were submitted with an earlier application. No certified copies of any court documents regarding criminal charges were submitted with the Petitioner's April 14, 1993, application. No attachment explaining any other felony charge was submitted with the Petitioner's April 14, 1993, application. The Department had copies of court documents regarding the Petitioner's 1986 criminal proceedings. The Petitioner did not, however, provide the Department with any information about 1963 criminal charges, discussed below, until the day of the formal hearing in this case. In 1963, in Westchester County, New York, the Petitioner was charged in a three count indictment with two counts of forgery in the second degree and one count of grand larceny in the first degree. Those charges were disposed of on February 7, 1964, at which time the Petitioner entered a plea of guilty to the crime of petit larceny. On February 7, 1964, the County Court of the County of Westchester in the State of New York entered an order that included the following: It is Ordered and Adjudged by the Court, that the said Edward Berger, for the offense afore- said, whereof he is convicted, be imprisoned in the WESTCHESTER COUNTY PENITENTIARY AND WORK HOUSE, at hard labor, for the Term of One Year. AND IT IS FURTHER ORDERED THAT EXECU- TION OF SENTENCE BE SUSPENDED, and the defen- dant be placed on Indefinite Probation under the Supervision of the Westchester County De- partment of Probation. Remaining counts dismissed. The Petitioner was for many years licensed as an insurance agent in the State of New York. A brief history of his licensure in that regard is summarized as follows in a recent letter from the Insurance Department of the State of New York: Please be advised that our records indicate you [the Petitioner] were first licensed by this Department in November, 1949 and your licenses were revoked on August 9, 1963. On May 25, 1966 a pending application was denied. You were subsequently relicensed on December 28, 1971, and remained so licensed until June 30, 1985 when you failed to become master licensed. The factual basis for the 1963 revocation of the Petitioner's New York insurance licenses is set forth in an order issued July 15, 1963, by the Deputy Superintendent of Insurance. The findings of fact in that order describe three separate incidents in which the Petitioner improperly obtained and appropriated to his own use a total of $6,500.00 by signing the names of insureds on applications for loans on insurance policies and then signing the names of insureds as endorsements on the loan checks, all without the knowledge or consent of the insureds. The factual basis for the 1966 denial of the Petitioner's application for a New York insurance license is set forth in an order issued May 19, 1966, by the Deputy Superintendent of Insurance. The findings of fact in that order include the same facts as the 1963 revocation order, as well as the following additional facts: Respondent's licenses to act as an insurance broker and agent were revoked on or about August 9, 1963. Nevertheless, respondent thereafter renewed the automobile liability policy of Leo Marrons (Policy No. 54-35261 of Public Service Mutual Insurance Company) and issued his check dated May 4, 1964, for the renewal premium. Respondent's aforesaid check was returned by the bank on which it was drawn and marked "insufficient funds." The gross premium involved was subsequently paid by res- pondent to said Public Service Mutual Insurance Company. Although requested to do so, respondent failed and refused to produce his bank state- ments and cancelled checks from August 1963 to September 1965 at the Insurance Department on September 14, 1965. The findings of fact in the 1966 order also noted that, "[o]n September 27, 1962, respondent made restitution in the amount of $6,500.00, with interest," to the insurance company from which he had improperly obtained money by signing the names of others. Several years later the Petitioner again applied for an insurance license in New York. On December 28, 1971, his application was granted and he was relicensed in New York. Following his relicensure, the Petitioner was actively engaged in the insurance business in New York until he moved to Florida in 1979. The Petitioner moved to Florida in 1979 and shortly thereafter became licensed as an insurance agent in this state. Several years later he had a disagreement with Pacific Insurance Company that resulted in administrative disciplinary action and criminal charges. That disagreement and the consequences that flowed from it were described as follows in the Recommended Order in DOAH Case No. 90-3408, issued November 13, 1990: For three years, Petitioner was the sole countersignature agent in the State of Florida for American Druggists Insurance Company, handling the professional liability insurance for essentially all chiropractors in the State of Florida. In December of 1984, American Druggists attempted to withdraw from insuring chiropractors in the State of Florida. Respondent prevented American Druggists from withdrawing insurance coverage until January 31, 1985, when Pacific Insurance Company took over that block of coverage. For eight months Petitioner was Pacific Insurance Company's Florida representative handling the profes- sional liability needs for chiropractors in the State of Florida. Hundreds of chiropractors received profes- sional liability insurance coverage during that 8-month period. Many of those same chiro- practors also purchased life insurance and major medical policies during that same time period from Petitioner through companies other than Pacific Insurance Company. Disagreement arose between Petitioner and Pacific Insurance Company regarding the for- warding of premium payments by Petitioner to Pacific Insurance Company and regarding the payment of commissions by Pacific Insurance Company to Petitioner. As a result of that disagreement, a Probable Cause Affidavit was issued against Petitioner, and he was arrested on June 24, 1986, in Broward County. A crimi- nal information was filed against him in the Circuit Court of the Seventeenth Judicial Cir- cuit, in and for Broward County, Florida, charging him with 22 counts of organized fraud, grand theft in the first degree, and grand theft. The criminal information involves al- legations that Petitioner, in essence, col- lected premiums for malpractice insurance from a number of chiropractors, failed to remit those premium payments to Pacific Insurance Company, and failed to refund the premiums or issue policies to the chiropractors. Prior to the trial of those criminal charges, the prosecuting attorney advised the presiding judge that the State was unable to present the testimony of the chiropractors allegedly damaged as a result of Petitioner's activities and that the chiropractors on whom the prosecuting attorney was relying had ad- vised him that they had either been issued the malpractice insurance policies they had pur- chased or they had received refunds of their premium payments. At that same hearing, Petitioner entered a plea of guilty to one count of grand theft in the first degree and the Court withheld adjudication of guilt. That single count involves the allegation that Petitioner withheld monies which belonged to Pacific Insurance Company from that Company. The remainder of the charges filed against Petitioner were voluntarily dismissed by the State. On April 8, 1987, Petitioner was placed on probation for a period of five years and ordered to make restitution, assumedly to Pacific Insurance Company, in an amount to be later determined but with a cap set for a maximum payment of approximately $60,000.00. The amount for restitution was subsequent- ly determined to be $20,000.00, of which Petitioner still owes approximately $14,000.00. Pursuant to a subsequent agreement, Petition- er's probation period was shortened, and by the time of the final hearing in this cause the agreed probation termination date was set for September 11, 1990. On April 29, 1986, Respondent issued an Administrative Complaint against Petitioner and his insurance licensure, resulting from his activities on behalf of Pacific Insurance Company. Three different addresses for Petitioner were listed on that Administrative Complaint. Pursuant to the affidavit of one of Respondent's investigators stating that he was unable to locate Petitioner for personal service of the Administrative Complaint, a Notice of Administrative Complaint was published in the Boca Raton News and News of Delray Beach. Upon Petitioner's failure to respond to the Administrative Complaint, a Final Order of Revocation of Petitioner's in- surance licenses was entered on October 29, 1986. A copy of that Final Order of Revoca- tion was mailed to Petitioner at an address different from the three addresses listed in the Administrative Complaint. Since the issuance of the Recommended Order in Case No. 90-3408, the Petitioner has paid a total of $20,000.00 in restitution to Pacific Insurance Company. Since the issuance of the Recommended Order in Case No. 90-3408, the Petitioner has been discharged from probation. 6/ In 1989 the Petitioner applied to the Florida Department of Insurance for reinstatement of his insurance license. Following a formal hearing, the Department issued a Final Order on December 14, 1990, denying that application. The Final Order adopted the Hearing Officer's Findings of Fact and the Conclusions of Law in the Recommended Order in DOAH Case No. 90-3408. The Hearing Officer's conclusions in that Recommended Order included the following: Since all of the monies have still not been returned to the rightful owner and Petitioner's licenses and eligibility for licensure was re- voked for failure to forward premium payments to the rightful owner, the circumstances for which eligibility was revoked still exist. Petitioner has offered no proof of rehabilita- tion. He believes himself innocent of wrong- doing. He testified as to the financial hard- ship caused him by the revocation of his li- censes and the difficulties he has experienced with employment in the insurance industry. Although he remains certified by Respondent to teach courses to applicants for insurance li- censure, that fact in and of itself does not demonstrate rehabilitation. The last basis for denial is the Department's allegation that Petitioner lacks competency or trustworthiness to engage in the business of insurance. Petitioner has met his burden of proving competency to engage in the business of insurance through his many years of ex- perience and his certification by Respondent to teach insurance courses. His trustworthi- ness remains in question at this time, however, due to his failure to resolve his financial obligation to Pacific Insurance Company. During the course of the Department's processing and investigation of the application at issue in this proceeding, the Department requested and received from the FBI a criminal record identification report of the Petitioner. The FBI report gave the Department reason to suspect that the Petitioner had been charged with the commission of a felony in Hawthorne, New York, in 1963, specifically the crimes of forgery and grand larceny. As a result of the information in the FBI report, the Department wrote to the Petitioner on two occasions asking him to provide additional information concerning the 1963 criminal charges and also asking him to provide certified documents detailing the disposition of the case. The Petitioner refused to provide the requested information, contending in his responses to the Department that the requested information was outdated, inaccurate, obsolete, and irrelevant. 7/ At the formal hearing the Petitioner described the events regarding his 1963 criminal charges and license revocation as "a minor incident thirty years ago." The Petitioner has had many years of experience in various aspects of the insurance business both in New York and Florida. He obtained his CLU in 1957 and has been certified to teach courses in the field of insurance. The Petitioner appears to be very knowledgeable and competent with regard to the insurance business.
Recommendation On the basis of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance issue a Final Order in this case denying the Petitioner's application for a license as a life and health agent in the State of Florida. DONE AND ENTERED this 4th day of April 1994 in Tallahassee, Leon County, Florida. MICHAEL M. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of April 1994.
