The Issue The issues in this case are whether Respondent violated Subsections 624.11(1); 626.611(4), (7), (9), and (13); 626.21(2), (3), and (6); and 626.9541(1)(z), Florida Statutes (2005),1 and, if so, what discipline should be imposed.
Findings Of Fact Petitioner is the state agency responsible for investigating possible violations of the Florida Insurance Code. Respondent, at all times relevant to this case, was licensed as a customer representative (license number A306050) by the Department of Financial Services. Respondent has been employed by Direct General Insurance Agency, Inc. (hereinafter "Direct"), a Tennessee corporation doing business in Florida as Florida No Fault Insurance, for over 20 years. Respondent's duties include meeting with potential customers, writing policies, taking payments, doing renewals, changing policies, and endorsements, etc. She generally meets with between six and eight customers each day, on average. Most customers presenting themselves to Respondent want only the basic coverage necessary to lawfully operate their vehicles. In the industry, this is commonly called "tag insurance." The normal pattern followed by Respondent when meeting with customers is to obtain general information from the customer, put that information into her computer, ask the person what kind of coverage they want, and then print out a quote and the insurance documents. Whether the customer asks for it or not, Respondent generally provides a quote for tag insurance plus some other ancillary coverage, e.g., Travel Protection Plan (which is called "rental insurance"), Accident Medical Protection Plan (called "hospital insurance"), and others. She also generally provides customers an opportunity to obtain a pre-paid Visa card through the agency. After printing out the insurance documents, Respondent would normally go over the documents with the customer. The review would be somewhat superficial, and she would not explain each section unless the customer asked her questions. She admits that sometimes insurance forms are confusing and that most customers would not have the necessary background or knowledge to formulate questions about the coverage. Respondent is under pressure from her employer to offer and sell as many ancillary insurance products as possible. She does not receive a commission on various products she sells, but failure to sell such products is deemed unacceptable by her employer. While she has no direct financial incentive to sell additional coverages to customers, she knows her employer expects her to offer those coverages. In February 2005 Respondent sold insurance to Noweta Sanchez. Sanchez had previously purchased insurance from Direct. Sanchez told Respondent she wanted the minimal insurance necessary to legally operate her newly purchased automobile. Respondent, in turn, provided a quote for tag insurance, but also included hospital and rental insurance in the quote. Sanchez looked at the insurance forms, but did not read them; she was in a hurry and relied on Respondent to provide only what she asked for. Respondent did not prevent Sanchez from reading the forms, but did not offer any unsolicited explanations about them either. Sanchez signed or initialed the documents in 26 separate places. Respondent says she then went over a handwritten summary of the coverage (the "pen sheet") with Sanchez. Sanchez has no recollection of seeing the pen sheet even though her signature appears at the bottom of the page. At the time she met with Respondent, Sanchez was unable to afford anything but tag insurance. That is all Sanchez believed she had purchased until she was contacted by an agent of Petitioner. Sanchez then attempted to have her policy cancelled and her money refunded, but was told that her window of opportunity for cancellation had closed. Sanchez’ testimony was credible as to her interaction with Respondent. In December 2004, Respondent sold insurance to Amber Battle. Battle was approximately 19 years old at the time, and had chosen Respondent after making inquiries from several agencies and getting the best quote from Respondent’s agency via telephone. Battle told Respondent’s agency that she wanted tag insurance only. When Battle met personally with Respondent, the written insurance quote she received was higher than what she had been quoted on the telephone. She did not read (and probably would not have understood) the insurance documents that she signed. She simply signed and initialed each page where Respondent indicated. Battle signed or initialed the documents in 29 separate places. Battle trusted Respondent to provide only the insurance she requested. After printing the insurance documents, Respondent went over the pen sheet with Battle. However, Battle has no recollection of seeing the pen sheet even though she signed it at the bottom. The Battle pen sheet includes a phrase which has an asterisk, and is circled and underlined. It says "FLA. TAG INS. ONLY." Also, under her signature there is another asterisk and the phrase "NO Bodily Injury." At the time she obtained insurance coverage from Respondent, Battle was employed and had health insurance coverage. Battle had no need for hospital coverage along with her tag insurance. Battle's testimony was credible as to her interaction with Respondent. In January 2005, Respondent sold insurance to Colleen Bailey, a married woman. Bailey came to Respondent seeking insurance on two cars, a Durango and a Grand Am. The Durango was used primarily by her husband as a work vehicle. She sought full coverage on the Durango and tag insurance on the Grand Am. The Baileys self-insure themselves for medical care. They opt not to purchase health insurance, but rather pay cash whenever health care is necessary. It was not Bailey's intention to purchase hospital coverage along with her auto insurance. After providing background information to Respondent, Bailey was presented the insurance documents for signing. Bailey was not prevented from reviewing them, but did not understand "this insurance stuff" so reading them wouldn't have helped her. Bailey signed or initialed the documents in 25 separate places. Bailey simply relied on Respondent to provide only what she asked for. Respondent prepared a pen sheet for Bailey which summarizes the purchased insurance. Bailey has no recollection of seeing the pen sheet even though her signature appears on it. Her testimony was credible as to her interaction with Respondent. Respondent has a general routine she goes through with each client, but she deviates from the routine at times. Part and parcel to the routine is the offering of ancillary insurance products. Such products are generally included in every quote she gives a customer even when the customer specifically requests only the minimum coverage. Respondent is aware that most of her customers do not fully understand insurance matters. She knows that most customers do not fully review the written insurance documents. She is cognizant that the purchase of insurance is confusing to many of her customers. Thus, she is at an advantage when dealing with her customers. The documents relating to Optional Travel Protection and Accident Medical Protection plans are clearly labeled. A person of normal intelligence would be able to read the labels and probably ascertain that such plans were optional coverages. However, such person would need to be able to distinguish and differentiate between the minimal insurance coverage documentation and the documents addressing additional coverage. Moreover, such person would probably need to anticipate the inclusion of ancillary products in order to parse them out of the confusing and overwhelming insurance documents. While she never prohibits the customer from fully reviewing the written documents, she does not encourage them to do so either. Likewise, while she will respond to all questions asked by a customer, she does not offer unsolicited information that might help the customer understand better what they are receiving. It is unlikely the three customers who appeared in this matter took the time or made the effort to read all the documents they signed in order to determine exactly what coverage to which they were agreeing. Rather, they seemed to rely on Respondent to give them what they asked for. Respondent, however, intentionally provided them more than they asked for, leaving it to them to distinguish the coverages.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services suspending the license of Respondent for a period of 60 days. DONE AND ENTERED this 28th day of December, 2006, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2006.
The Issue The issue in these consolidated cases is whether the Agency for Health Care Administration ("AHCA") properly disallowed Petitioners' expense for liability insurance and accrued contingent liability costs contained in AHCA's audit of Petitioners' Medicaid cost reports.
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing, and on the entire record of this proceeding, the following findings of fact are made: Petitioners operate licensed nursing homes that participate in the Florida Medicaid program as institutional providers. The 14 Palm Gardens facilities are limited liability companies operating as subsidiaries of New Rochelle Administrators, LLC, which also provides the facilities with management services under a management contract. AHCA is the single state agency responsible for administering the Florida Medicaid program. One of AHCA's duties is to audit Medicaid cost reports submitted by providers participating in the Medicaid program. During the audit period, Petitioners provided services to Medicaid beneficiaries pursuant to Institutional Medicaid Provider Agreements that they entered into with AHCA. The Provider Agreements contained the following relevant provision: (3) Compliance. The provider agrees to comply with local, state, and federal laws, as well as rules, regulations, and statements of policy applicable to the Medicaid program, including Medicaid Provider Handbooks issued by AHCA. Section 409.908, Florida Statutes (2002)1, provided in relevant part: Reimbursement of Medicaid providers.-- Subject to specific appropriations, the agency shall reimburse Medicaid providers, in accordance with state and federal law, according to methodologies set forth in the rules of the agency and in policy manuals and handbooks incorporated by reference therein. These methodologies may include fee schedules, reimbursement methods based on cost reporting, negotiated fees, competitive bidding pursuant to s. 287.057, and other mechanisms the agency considers efficient and effective for purchasing services or goods on behalf of recipients. . . . * * * (2)(a)1. Reimbursement to nursing homes licensed under part II of chapter 400 . . . must be made prospectively. . . . * * * (b) Subject to any limitations or directions provided for in the General Appropriations Act, the agency shall establish and implement a Florida Title XIX Long-Term Care Reimbursement Plan (Medicaid) for nursing home care in order to provide care and services in conformance with the applicable state and federal laws, rules, regulations, and quality and safety standards and to ensure that individuals eligible for medical assistance have reasonable geographic access to such care. . . . AHCA has adopted the Title XIX Long-Term Care Reimbursement Plan (the "Plan") by reference in Florida Administrative Code Rule 59G-6.010. The Plan incorporates the Centers for Medicare and Medicaid Services ("CMS") Publication 15-1, also called the Provider Reimbursement Manual (the "Manual" or "PRM"), which provides "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services furnished under the Health Insurance for the Aged Act of l965, as amended." CMS Pub. 15-1, Foreword, p. I. The audit period in these cases spans two versions of the Plan: version XXIII, effective July 1, 2002, and version XXIV, effective January 1, 2003. It is unnecessary to distinguish between the two versions of the Plan because their language is identical as to the provisions relevant to these cases. Section I of the Plan, "Cost Finding and Cost Reporting," provides as follows, in relevant part: The cost report shall be prepared by a Certified Public Accountant in accordance with chapter 409.908, Florida Statutes, on the form prescribed in section I.A. [AHCA form 5100-000, Rev. 7-1-90], and on the accrual basis of accounting in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants (AICPA) as incorporated by reference in Rule 61H1-20.007, F.A.C., the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, the Provider Reimbursement Manual (CMS-PUB. 15-1)(1993) incorporated herein by reference except as modified by the Florida Title XIX Long Term Care Reimbursement Plan and State of Florida Administrative Rules. . . . Section III of the Plan, "Allowable Costs," provides as follows, in relevant part: Implicit in any definition of allowable costs is that those costs shall not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII Principles of Reimbursement, CMS-PUB. 15-1 (1993) and this plan, to exceed the level that a prudent buyer would incur, then the excess costs shall not be reimbursable under the plan. The Plan is a cost based prospective reimbursement plan. The Plan uses historical data from cost reports to establish provider reimbursement rates. The "prospective" feature is an upward adjustment to historical costs to establish reimbursement rates for subsequent rate semesters.2 The Plan establishes limits on reimbursement of costs, including reimbursement ceilings and targets. AHCA establishes reimbursement ceilings for nursing homes based on the size and location of the facilities. The ceilings are determined prospectively, on a semiannual basis. "Targets" limit the inflationary increase in reimbursement rates from one semester to the next and limit a provider's allowable costs for reimbursement purposes. If a provider's costs exceed the target, then those costs are not factored into the reimbursement rate and must be absorbed by the provider. A nursing home is required to file cost reports. The costs identified in the cost reports are converted into per diem rates in four components: the operating component; the direct care component; the indirect care component; and the property component. GL/PL insurance costs fall under the operating component. Once the per diem rate is established for each component, the nursing home's reimbursement rate is set at the lowest of four limitations: the facility's costs; the facility's target; the statewide cost ceiling based on the size of the facility and its region; or the statewide target, also based on the size and location of the facility. The facility's target is based on the initial cost report submitted by that facility. The initial per diem established pursuant to the initial cost report becomes the "base rate." Once the base rate is established, AHCA sets the target by inflating the base rate forward to subsequent six- month rate semesters according to a pre-established inflation factor. Reimbursement for cost increases experienced in subsequent rate semesters is limited by the target drawn from the base rate. Thus, the facility's reimbursement for costs in future rate semesters is affected by the target limits established in the initial period cost report. Expenses that are disallowed during the establishment of the base rate cannot be reclaimed in later reimbursement periods. Petitioners entered the Medicaid program on June 29, 2002. They filed cost reports for the nine- month period from their entry into the program through February 28, 2003. These reports included all costs claimed by Petitioners under the accrual basis of accounting in rendering services to eligible Medicaid beneficiaries. In preparing their cost reports, Petitioners used the standard Medicaid Cost Report "Chart of Accounts and Description," which contains the account numbers to be used for each ledger entry, and explains the meaning of each account number. Under the general category of "Administration" are set forth several subcategories of account numbers, including "Insurance Expense." Insurance Expense is broken into five account numbers, including number 730810, "General and Professional Liability -- Third Party," which is described as "[c]osts of insurance purchased from a commercial carrier or a non-profit service corporation."3 Petitioners' cost report stated the following expenses under account number 730810: Facility Amount Palm Garden of Clearwater $145,042.00 Palm Garden of Gainesville $145,042.00 Palm Garden of Jacksonville $145,042.00 Palm Garden of Largo $171,188.00 Palm Garden of North Miami $145,042.00 Palm Garden of Ocala $217,712.00 Palm Garden of Orlando $145,042.00 Palm Garden of Pinellas $145,042.00 Palm Garden of Port St. Lucie $145,042.00 Palm Garden of Sun City $145,042.00 Palm Garden of Tampa $145,042.00 Palm Garden of Vero Beach $217,712.00 Palm Garden of West Palm Beach $231,151.00 Palm Garden of Winter Haven $145,042.00 AHCA requires that the cost reports of first-year providers undergo an audit. AHCA's contract auditing firm, Smiley & Smiley, conducted an examination4 of the cost reports of the 14 Palm Gardens nursing homes to determine whether the included costs were allowable. The American Institute of Certified Public Accountants ("AICPA") has promulgated a series of "attestation standards" to provide guidance and establish a framework for the attestation services provided by the accounting profession in various contexts. Attestation Standards 101 and 601 set out the standard an accountant relies upon in examining for governmental compliance. Smiley & Smiley examined the Palm Gardens cost reports pursuant to these standards. During the course of the audit, Smiley & Smiley made numerous requests for documentation and other information pursuant to the Medicaid provider agreement and the Plan. Petitioners provided the auditors with their general ledger, invoices, audited financial statements, bank statements, and other documentation in support of their cost reports. The examinations were finalized during the period between September 28, 2006, and October 4, 2006. The audit report issued by AHCA contained more than 2,000 individual adjustments to Petitioners' costs, which the parties to these consolidated proceedings have negotiated and narrowed to two adjustments per Palm Gardens facility.5 As noted in the Preliminary Statement above, the first adjustment at issue is AHCA's disallowance of Palm Gardens' accrual of expenses for contingent liability under the category of GL/PL insurance, where Palm Gardens could not document that it had purchased GL/PL insurance. The second adjustment at issue is ACHA's disallowance of a portion of the premium paid by Palm Gardens for the Mature Care Policies. The total amount of the adjustment at issue for each facility is set forth in the Preliminary Statement above. Of that total for each facility, $18,849.00 constituted the disallowance for the Mature Care Policies. The remainder constituted the disallowance for the accrual of GL/PL related contingent liabilities. Janette Smiley, senior partner at Smiley & Smiley and expert in Medicaid auditing, testified that Petitioners provided no documentation other than the Mature Care Policies to support the GL/PL entry in the cost reports. Ms. Smiley testified that, during much of the examination process, she understood Petitioners to be self-insured. Ms. Smiley's understanding was based in part on statements contained in Petitioners' audited financial statements. In the audited financial statement covering the period from June 28, 2002, through December 31, 2002, Note six explains Petitioners' operating leases and states as follows, in relevant part: The lease agreement requires that the Company maintain general and professional liability in specified minimum amounts. As an alternative to maintaining these levels of insurance, the lease agreement allows the Company to fund a self-insurance reserve at a per bed minimum amount. The Company chose to self-insure, and has recorded litigation reserves of approximately $1,735,000 that are included in other accrued expenses (see Note 9). As of December 31, 2002, these reserves have not been funded by the Company. . . . The referenced Note nine, titled "Commitments and Contingencies," provides as follows in relevant part: Due to the current legal environment, providers of long-term care services are experiencing significant increases in liability insurance premiums or cancellations of liability insurance coverage. Most, if not all, insurance carriers in Florida have ceased offering liability coverage altogether. The Company's Florida facilities have minimal levels of insurance coverage and are essentially self-insured. The Company has established reserves (see Note 6) that estimate its exposure to uninsured claims. Management is not currently aware of any claims that could exceed these reserves. However, the ultimate outcome of these uninsured claims cannot be determined with certainty, and could therefore have a material adverse impact on the financial position of the Company. The relevant notes in Petitioner's audited financial statement for the year ending December 31, 2003, are identical to those quoted above, except that the recorded litigation reserves were increased to $4 million. The notes provide that, as of December 31, 2003, these reserves had not been funded by Petitioners. Ms. Smiley observed that the quoted notes, while referencing "self-insurance" and the recording of litigation reserves, stated that the litigation reserves had not been funded. By e-mail dated April 21, 2005, Ms. Smiley corresponded with Stanley Swindling, the shareholder in the accounting firm Moore Stephens Lovelace, P.A., who had primary responsibility for preparing Petitioners' cost reports. Ms. Smiley noted that Petitioners' audited financial statements stated that the company "chose to self-insure" and "recorded litigation reserves," then wrote (verbatim): By definition from PRM CMS Pub 15-1 Sections 2162.5 and 2162.7 the Company does in fact have self-insurance as there is no shifting of risk. You will have to support your positioning a letter addressing the regs for self-insurance. As clearly the financial statement auditors believe this is self- insurance and have disclosed such to the financial statement users. If you cannot support the funding as required by the regs, the provider will have to support expense as "pay as you go" in accordance with [2162.6] for PL/GL. * * * Please review 2161 and 2162 and provide support based on the required compliance. If support is not complete within the regulations, amounts for IBNR [incurred but not reported] will be disallowed and we will need to have the claims paid reports from the TPA [third party administrator] (assuming there is a TPA handling the claims processing), in order to allow any expense. Section 2160 of the Manual establishes the basic insurance requirement: A. General.-- A provider participating in the Medicare program is expected to follow sound and prudent management practices, including the maintenance of an adequate insurance program to protect itself against likely losses, particularly losses so great that the provider's financial stability would be threatened. Where a provider chooses not to maintain adequate insurance protection against such losses, through the purchase of insurance, the maintenance of a self-insurance program described in §2161B, or other alternative programs described in §2162, it cannot expect the Medicare program to indemnify it for its failure to do so. . . . . . . If a provider is unable to obtain malpractice coverage, it must select one of the self-insurance alternatives in §2162 to protect itself against such risks. If one of these alternatives is not selected and the provider incurs losses, the cost of such losses and related expenses are not allowable. Section 2161.A of the Manual sets forth the general rule as to the reimbursement of insurance costs. It provides that the reasonable costs of insurance purchased from a commercial carrier or nonprofit service corporation are allowable to the extent they are "consistent with sound management practice." Reimbursement for insurance premiums is limited to the "amount of aggregate coverage offered in the insurance policy." Section 2162 of the Manual provides as follows, in relevant part: PROVIDER COSTS FOR MALPRACTICE AND COMPREHENSIVE GENERAL LIABILITY PROTECTION, UNEMPLOYMENT COMPENSATION, WORKERS' COMPENSATION, AND EMPLOYEE HEALTH CARE INSURANCE General.-- Where provider costs incurred for protection against malpractice and comprehensive general liability . . . do not meet the requirements of §2161.A, costs incurred for that protection under other arrangements will be allowable under the conditions stated below. . . . * * * The following illustrates alternatives to full insurance coverage from commercial sources which providers, acting individually or as part of a group or a pool, can adopt to obtain malpractice, and comprehensive general liability, unemployment compensation, workers' compensation, and employee health care insurance protection: Insurance purchased from a commercial insurance company which provides coverage after a deductible or coinsurance provision has been met; Insurance purchased from a limited purpose insurance company (captive); Total self-insurance; or A combination of purchased insurance and self-insurance. . . . part: Section 2162.3 of the Manual provides: Self-Insurance.-- You may believe that it is more prudent to maintain a total self- insurance program (i.e., the assumption by you of the risk of loss) independently or as part of a group or pool rather than to obtain protection through purchased insurance coverage. If such a program meets the conditions specified in §2162.7, payments into such funds are allowable costs. Section 2162.7 of the Manual provides, in relevant Conditions Applicable to Self-Insurance.-- Definition of Self-Insurance.-- Self- insurance is a means whereby a provider(s), whether proprietary or nonproprietary, undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. . . . * * * Self-Insurance Fund.-- The provider or pool establishes a fund with a recognized independent fiduciary such as a bank, a trust company, or a private benefit administrator. In the case of a State or local governmental provider or pool, the State in which the provider or pool is located may act as a fiduciary. The provider or pool and fiduciary must enter into a written agreement which includes all of the following elements: General Legal Responsibility.-- The fiduciary agreement must include the appropriate legal responsibilities and obligations required by State laws. Control of Fund.-- The fiduciary must have legal title to the fund and be responsible for proper administration and control. The fiduciary cannot be related to the provider either through ownership or control as defined in Chapter 10, except where a State acts as a fiduciary for a State or local governmental provider or pool. Thus, the home office of a chain organization or a religious order of which the provider is an affiliate cannot be the fiduciary. In addition, investments which may be made by the fiduciary from the fund are limited to those approved under State law governing the use of such fund; notwithstanding this, loans by the fiduciary from the fund to the provider or persons related to the provider are not permitted. Where the State acts as fiduciary for itself or local governments, the fund cannot make loans to the State or local governments. . . . The quoted Manual provisions clarify that Ms. Smiley's message to Mr. Swindling was that Petitioners had yet to submit documentation to bring their "self-insurance" expenses within the reimbursable ambit of Sections 2161 and 2162 of the Manual. There was no indication that Petitioners had established a fund in an amount sufficient to liquidate its anticipated liabilities, or that any such funds had been placed under the control of a fiduciary. Petitioners had simply booked the reserved expenses without setting aside any cash to cover the expenses. AHCA provided extensive testimony regarding the correspondence that continued among Ms. Smiley, Mr. Swindling, and AHCA employees regarding this "self-insurance" issue. It is not necessary to set forth detailed findings as to these matters, because Petitioners ultimately conceded to Ms. Smiley that, aside from the Mutual Care policies, they did not purchase commercial insurance as described in Section 2161.A, nor did they avail themselves of the alternatives to commercial insurance described in Section 2162.A. Petitioners did not purchase commercial insurance with a deductible, did not self- insure, did not purchase insurance from a limited purpose or "captive" insurance company, or employ a combination of purchased insurance and self-insurance. Ms. Smiley eventually concluded that Petitioners had no coverage for general and professional liability losses in excess of the $25,000 value of the Mutual Care Policies. Under the cited provisions of the Manual, Petitioners' unfunded self- insurance expense was not considered allowable under the principles of reimbursement. Petitioners were uninsured, which led Ms. Smiley to further conclude that Section 2162.13 of the Manual would apply: Absence of Coverage.-- Where a provider, other than a governmental (Federal, State, or local) provider, has no insurance protection against malpractice or comprehensive general liability in conjunction with malpractice, either in the form of a limited purpose or commercial insurance policy or a self-insurance fund as described in §2162.7, any losses and related expenses incurred are not allowable. In response to this disallowance pursuant to the strict terms of the Manual, Petitioners contend that AHCA should not have limited its examination of the claimed costs to the availability of documentation that would support those costs as allowable under the Manual. Under the unique circumstances presented by their situation, Petitioners assert that AHCA should have examined the state of the nursing home industry in Florida, particularly the market for GL/PL liability insurance during the audit period, and further examined whether Petitioners had the ability to meet the insurance requirements set forth in the Manual. Petitioners assert that, in light of such an examination, AHCA should have concluded that generally accepted accounting principles ("GAAP") may properly be invoked to render the accrued contingent liabilities an allowable expense. Keith Parnell is an expert in insurance for the long- term care industry. He is a licensed insurance broker working for Hamilton Insurance Agency, which provides insurance and risk management services to about 40 percent of the Florida nursing home market. Mr. Parnell testified that during the audit period, it was impossible for nursing homes to obtain insurance in Florida. In his opinion, Petitioners could not have purchased commercial insurance during the audit period. To support this testimony, Petitioners offered a study conducted by the Florida Department of Insurance ("DOI") in 2000 that attempted to determine the status of the Florida long-term care liability insurance market for nursing homes, assisted living facilities, and continuing care retirement communities. Of the 79 companies that responded to DOI's data call, 23 reported that they had provided GL/PL coverage during the previous three years but were no longer writing policies, and only 17 reported that they were currently writing GL/PL policies. Six of the 17 reported writing no policies in 2000, and five of the 17 reported writing only one policy. The responding insurers reported writing a total of 43 policies for the year 2000, though there were approximately 677 skilled nursing facilities in Florida. On March 1, 2004, the Florida Legislature's Joint Select Committee on Nursing Homes issued a report on its study of "issues regarding the continuing liability insurance and lawsuit crisis facing Florida's long-term care facilities and to assess the impact of the reforms contained in CS/CS/CS/SB 1202 (2001)."6 The study employed data compiled from 1999 through 2003. Among the Joint Select Committee's findings was the following: In order to find out about current availability of long-term care liability insurance in Florida, the Committee solicited information from [the Office of Insurance Regulation, or] OIR within the Department of Financial Services, which is responsible for regulating insurance in Florida. At the Committee's request, OIR re-evaluated the liability insurance market and reported that there has been no appreciable change in the availability of private liability insurance over the past year. Twenty-one admitted insurance entities that once offered, or now offer, professional liability coverage for nursing homes were surveyed by OIR. Six of those entities currently offer coverage. Nine surplus lines carriers have provided 54 professional liability policies in the past year. Representatives of insurance carriers that stopped providing coverage in Florida told OIR that they are waiting until there are more reliable indicators of risk nationwide to re-enter the market. Among the Joint Select Committee's conclusions was the following: In the testimony the Committee received, there was general agreement that the quality of care in Florida nursing homes is improving, in large part due to the minimum staffing standards the Legislature adopted in SB 1202 during the 2001 Session. There was not, however, general agreement about whether or not lawsuits are abating due to the tort system changes contained in SB 1202. There was general agreement that the long-term care liability insurance market has not yet improved. After hearing the testimony, there is general agreement among the members of the Joint Select Committee that: * * * General and professional liability insurance, with actual transfer-of-risk, is virtually unavailable in Florida. "Bare- bones" policies designed to provide minimal compliance with the statutory insurance requirement are available; however, the cost often exceeds the face value of the coverage offered in the policy. This situation is a crisis which threatens the continued existence of long-term care facilities in Florida. To further support Mr. Parnell's testimony, Petitioners offered actuarial analyses of general and professional liability in long-term care performed by AON Risk Consultants, Inc. (AON) on behalf of the American Health Care Association. The AON studies analyzed nationwide trends in GL/PL for long-term care, and also examined state-specific issues for eight states identified as leading the trends in claim activity, including Florida. They provided an historical perspective of GL/PL claims in Florida during the audit period. The 2002 AON study for Florida was based on participation by entities representing 52 percent of all Florida nursing home beds. The study provided a "Loss Cost per Occupied Bed" showing GL/PL liability claims losses on a per bed basis. The 2002 study placed the loss cost for nursing homes in Florida at $10,800 per bed for the year 2001. The 2003 AON study, based on participation by entities representing 54 percent of Florida nursing home beds, placed the loss cost for nursing homes in Florida at $11,810 per bed for the year 2002. The studies showed that the cost per bed of GL/PL losses is materially higher in Florida than the rest of the United States. The nationwide loss per bed was $2,360 for the year 2001 and $2,880 for the year 2002. The GL/PL loss costs for Texas were the second-highest in the country, yet were far lower than the per bed loss for Florida ($5,460 for the year 2001 and $6,310 for the year 2002). Finally, Petitioners point to the Mature Care Policies as evidence of the crisis in GL/PL insurance availability. The aforementioned SB 1202 instituted a requirement that nursing homes maintain liability insurance coverage as a condition of licensure. See Section 22, Chapter 2001-45, Laws of Florida, codified at Subsection 400.141(20), Florida Statutes. To satisfy this requirement, Petitioners entered the commercial insurance market and purchased insurance policies for each of the 14 Palm Gardens facilities from a carrier named Mature Care Insurance Company. The policies carried a $25,000 policy limit, with a policy premium of $34,000. These were the kind of "bare bones" policies referenced by the Joint Select Committee's 2004 report. The fact that the policies cost more than they could ever pay out led Mr. Swindling, Petitioners' health care accounting and Medicaid reimbursement expert, to opine that a prudent nursing home operator in Florida at that time would not have purchased insurance, but for the statutory requirement.7 The Mature Care Policies were "bare bones" policies designed to provide minimal compliance with the statutory liability insurance coverage requirement. The policies cost Petitioners more than $37,000 in premium payments, taxes, and fees, in exchange for policy limits of $25,000. In its examination, AHCA disallowed the difference between the cost of the policy and the policy limits, then prorated the allowable costs because the audit period was nine months long and the premium paid for the Mature Care Policies was for 12 months. AHCA based its disallowance on Section 2161.A of the Manual, particularly the language which states: "Insurance premiums reimbursement is limited to the amount of aggregate coverage offered in the insurance policy." Petitioners responded that they did not enter the market and voluntarily pay a premium in excess of the policy limits. They were statutorily required to purchase this minimal amount of insurance; they were required to purchase a 12-month policy; they paid the market price8; and they should not be penalized for complying with the statute. Petitioners contend they should be reimbursed the full amount of the premiums for the Mature Care Policies, as their cost of statutory compliance. Returning to the issue of the contingent liabilities, Petitioners contend that, in light of the state of the market for GL/PL liability insurance during the audit period, AHCA should have gone beyond the strictures of the Manual to conclude that GAAP principles render the accrued contingent liabilities an allowable expense. Under GAAP, a contingent loss is a loss that is probable and can be reasonably estimated. An estimated loss from a loss contingency may be accrued by a charge to income. Statement of Financial Accounting Standards No. 5 ("FAS No. 5"), Accounting for Contingencies, provides several examples of loss contingencies, including "pending or threatened litigation" and "actual or possible claims and assessments." Petitioners assert that the contingent losses reported in their cost reports were actual costs incurred by Petitioners. The AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, provides: The ultimate costs of malpractice claims, which include costs associated with litigating or settling claims, are accrued when the incidents that give rise to the claims occur. Estimated losses from asserted and unasserted claims are accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claims payments. All relevant information, including industry experience, the entity's own historical experience, the entity's existing asserted claims, and reported incidents, is used in estimating the expected amount of claims. The accrual includes an estimate of the losses that will result from unreported incidents, which are probable of having occurred before the end of the reporting period. Section 8.10 of AICPA Guide provides: Accrued unpaid claims and expenses that are expected to be paid during the normal operating cycle (generally within one year of the date of the financial statements) are classified as current liabilities. All other accrued unpaid claims and expenses are classified as non-current liabilities. As noted above, Petitioners' audited financial statements for the fiscal years ending December 31, 2002, and December 31, 2003, showed that the accrual was incurred and recorded by Petitioners during the audit period. Mr. Swindling prepared Petitioners' cost reports, based on information provided by Petitioners, including trial balances reflecting their costs, statistics on patient days, cost data related to square footage, and revenue information. Mr. Swindling advised Petitioners to include the accrued losses. He believed that the loss contingency was probable and could be reasonably estimated. The losses were probable because it was "a given in the state of Florida at that time period that nursing homes are going to get sued." Mr. Swindling testified that the accrual reflected a per bed loss amount of $1,750, which he believed to be a reasonable estimate of the contingent liabilities faced by Petitioners during the audit period. This amount was much less than the per bed loss indicated by the AON studies for Florida. Mr. Swindling used the criteria set forth in Section 8.05 of the AICPA Guide to establish the estimate. He determined that the lesser amount was adequate based on his discussions with Petitioners' management, who indicated that they had a substantial risk management program. Management also disclosed to Mr. Swindling that Petitioners' leases required $1,750 per bed in liability coverage. See Finding of Fact 22, supra. Mr. Swindling believed that the estimated loss per bed was reasonable based on the AON studies and his knowledge and experience of the state of the industry in Florida during the audit period, as further reflected in the DOI and Joint Committee on Nursing Homes materials discussed above. Mr. Swindling's opinion was that the provisions of the Manual relating to GL/PL insurance costs do not apply under these circumstances. The costs at issue in this proceeding are not general and professional liability insurance costs subject to CMS Pub. 15-1; rather, they are loss contingencies related to general and professional liability, including defense costs, litigation costs, and settlement costs. Mr. Swindling placed the loss contingency under number 730810, "General and Professional Liability -- Third Party" because, in the finite chart of accounts provided by Medicaid, that was the most appropriate place to record the cost.9 Despite the initial confusion it caused the agency's auditors, the placement of the loss contingency under number 730810 was not intended to deceive the auditors. Mr. Swindling opined that, under these circumstances, Sections 2160 through 2162 are in conflict with other provisions in the Manual relating to the "prudent buyer" concept, and further conflict with the Plan to the extent that the cited regulations "relate to a retrospective system as opposed to prospective target rate-based system." Mr. Swindling agreed that the application of Sections 2160 through 2162 to the situation presented by Petitioners would result in the disallowance of the loss contingencies. Mr. Swindling observed, however, that Sections 2160 through 2162 are Medicare regulations. Mr. Swindling testified that Medicare reimbursements are made on a retrospective basis.10 Were this situation to occur in Medicare -- in which the provider did not obtain commercial insurance, self-insurance, or establish a captive insurer -- the provider would be deemed to be operating on a pay-as-you-go basis. Though its costs might be disallowed in the current period, the provider would receive reimbursements in subsequent periods when it could prove actual payment for its losses. Mr. Swindling found a conflict in attempting to apply these Medicare rules to the prospective payment system employed by Florida Medicaid, at least under the circumstances presented by Petitioners' case. Under the prospective system, once the contingent loss is disallowed for the base period, there is no way for Petitioners ever to recover that loss in a subsequent period, even when the contingency is liquidated. During his cross-examination, Mr. Swindling explained his position as follows: . . . Medicare allows for that payment in a subsequent period. Medicaid rules would not allow that payment in the subsequent period; therefore you have conflict in the rules. When you have conflict in the rules, you revert to generally accepted accounting principles. Generally accepted accounting principles are what we did. Q. Where did you find that if there's a conflict in the rules, which I disagree with, but if there is a conflict in the rules, that you follow GAAP? Where did you get that from? I mean, we've talked about it and it's clear on the record that if there is no provision that GAAP applies, but where did you get that if there's a conflict? Just point it out, that would be the easiest way to do it. A. The hierarchy, if you will, requires providers to file costs on the accrual basis of accounting in accordance with generally accepted accounting principles. If there's no rules, in absence of rules -- and I forget what the other terms were, we read it into the record before, against public policy, those kind of things -- or in my professional opinion, if there is a conflict within the rules where the provider can't follow two separate rules at the same time, they're in conflict, then [GAAP] rules what should be recorded and what should be reimbursed. * * * Q. [T]he company accrued a liability of $2 million for the cost reporting period of 2002-2003, is that correct? A. Yes. * * * Q. Do you have any documentation supporting claims paid, actually paid, in 2002-2003 beyond the mature care policy for which that $2 million reserve was set up? A. No. Q. So what did Medicaid pay for? A. Medicaid paid the cost of contingent liabilities that were incurred by the providers and were estimated at $1,750 per bed. Generally accepted accounting principles will adjust that going forward every cost reporting period. If that liability in total goes up or down, the differential under [GAAP] goes through the income statement, and expenses either go up or they go down. It's self-correcting, which is similar to what Medicare is doing, only they're doing it on a cash basis. Mr. Swindling explained the "hierarchy" by which allowable costs are determined. The highest governing law is the Federal statutory law, Title XIX of the Social Security Act, 42 U.S.C. Subsection. 1396-1396v. Below the statute come the federal regulations for implementing Title XIX, 42 C.F.R. parts 400-426. Then follow in order Florida statutory law, the relevant Florida Administrative Code provisions, the Plan, the Manual, and, at the bottom of the hierarchy, GAAP. Mr. Swindling testified that in reality, a cost report is not prepared from the top of the hierarchy down; rather, GAAP is the starting point for the preparation of any cost report. The statutes, rules, the Plan and the Manual are then consulted to exclude specific cost items otherwise allowable under GAAP. In the absence of an applicable rule, or in a situation in which there is a conflict between rules in the hierarchy such that the provider is unable to comply with both rules, the provider should fall back on GAAP principles as to recording of costs and reimbursement. John A. Owens, currently a consultant in health care finance specializing in Medicaid, worked for AHCA for several years up to 2002, in positions including administrator of the audit services section and bureau chief of the Office of Medicaid Program Analysis. Mr. Owens is a CPA and expert in health care accounting and Medicare/Medicaid reimbursement. Mr. Owens agreed with Mr. Swindling that AHCA's disallowance of the accrued costs for GL/PL liability was improper. Mr. Owens noted that Section 2160 of the Manual requires providers to purchase commercial insurance. If commercial insurance is unavailable, then the Manual gives the provider two choices: self-insure, or establish a captive program. Mr. Owens testified that insurers were fleeing the state during the period in question, and providers were operating without insurance coverage. Based on the state of the market, Petitioners' only options would have been to self-insure or establish a captive. As to self-insurance, Petitioners' problem was that they had taken over the leases on their facilities from a bankrupt predecessor, Integrated Health Services ("IHS"). Petitioners were not in privity with their predecessor. Petitioners had no access to the facilities' loss histories, without which they could not perform an actuarial study or engage a fiduciary to set up a self-insurance plan.11 Similarly, setting up a captive would require finding an administrator and understanding the risk exposure. Mr. Owens testified that a provider would not be allowed to set up a captive without determining actuarial soundness, which was not possible at the time Petitioners took over the 14 IHS facilities. Thus, Petitioners were simply unable to meet the standards established by the Manual. The options provided by the Manual did not contemplate the unique market situation existing in Florida during the audit period, and certainly did not contemplate that situation compounded by the problems faced by a new provider taking over 14 nursing homes from a bankrupt predecessor. Mr. Owens agreed with Mr. Swindling that, under these circumstances, where the requirements of the Manual could not be met, Petitioners were entitled to seek relief under GAAP, FAS No. 5 in particular. In situations where a loss is probable and can be measured, then an accounting entry may be performed to accrue and report that cost. Mr. Owens concluded that Petitioners' accrual was an allowable cost for Medicaid purposes, and explained his rationale as follows: My opinion is, in essence, that since they could not meet -- technically, they just could not meet those requirements laid out by [the Manual], they had to look somewhere to determine some rational basis for developing a cost to put into the cost report, because if they had chosen to do nothing and just moved forward, those rates would be set and there would be nothing in their base year which then establishes their target moving forward. So by at least looking at a rational methodology to accrue the cost, they were able to build something into their base year and have it worked into their target system as they move forward. Steve Diaczyk, an audit evaluation and review analyst for AHCA, testified for the agency as an expert in accounting, auditing, and Medicaid policy. Mr. Diaczyk was the AHCA auditor who reviewed the work of Smiley & Smiley for compliance with Medicaid rules and regulations, and to verify the accuracy of the independent CPA's determinations. Mr. Diaczyk agreed with Mr. Swindling's description of the "hierarchy" by which allowable costs are determined. Mr. Diaczyk affirmed that Petitioners employed GAAP rather than Medicaid regulations in preparing their cost reports. Mr. Diaczyk testified regarding the Notes to Petitioners' audited financial statements, set forth at Findings of Fact 22-24, supra, which left AHCA's auditors with the understanding that Petitioners were self-insuring. Mr. Diaczyk pointed out that Section 2162.7 of the Manual requires a self- insurer to contract with an independent fiduciary to maintain a self-insurance fund, and that the fund must contain monies sufficient to cover anticipated losses. The fiduciary takes title to the funds, the amount of which is determined actuarially. Mr. Diaczyk explained that, in reimbursing a provider for self-insurance, Medicaid wants to make sure that the provider has actually put money into the fund, and has not just set up a fund on its books and called it "self-insurance" for reimbursement purposes. AHCA's position is that it would be a windfall for a provider to obtain reimbursement for an accrued liability when it has not actually set the money aside and funded the risk. Medicaid wants the risk transferred off of the provider's books and on to the self-insurance fund. Mr. Diaczyk testified as to the differing objectives of Medicaid and GAAP. Medicaid is concerned with reimbursing costs, and is therefore especially sensitive regarding the overstatement of costs. Medicaid wants to reimburse a provider for only those costs that have actually been paid. GAAP, on the other hand, is about report presentation for a business entity and is concerned chiefly with avoiding the understatement of expenses and overstatement of revenue. Under GAAP, an entity may accrue a cost and not pay it for years. In the case of a contingent liability, the entity may book the cost and never actually pay it. Mr. Diaczyk described the self-insurance and liquidation provisions of 42 C.F.R. Section 413.100, "Special treatment of certain accrued costs." The federal rule essentially allows accrued costs to be claimed for reimbursement, but only if they are "liquidated timely." Subsection (c)(2)(viii) of the rule provides that accrued liability related to contributions to a self-insurance program must be liquidated within 75 days after the close of the cost reporting period. To obtain reimbursement, Petitioners would have had to liquidate their accrued liability for GL/PL insurance within 75 days of the end of the audit period. Mr. Diaczyk also noted that, even if the 75-day requirement were not applicable, the general requirement of Section 2305.2 of the Manual would apply. Section 2305.2 requires that all short-term liabilities must be liquidated within one year after the end of the cost reporting period in which the liability is incurred, with some exceptions not applicable in this case. Petitioners' accrued liability for general and professional liability insurance was not funded or liquidated for more than one year after the cost reporting period. It was a contingent liability that might never be paid. Therefore, Mr. Diaczyk stated, reimbursement was not in keeping with Medicaid's goal to reimburse providers for actual paid costs, not for potential costs that may never be paid. Petitioners responded that their accrued liabilities constituted non-current liabilities, items that under normal circumstances will not be liquidated within one year. Mr. Parnell testified that there is great variation in how long it takes for a general and professional liability claim against a nursing home to mature to the point of payment to the claimant. He testified that a "short" timeline would be from two to four years, and that some claims may take from eight to eleven years to mature. From these facts, Petitioners urge that 42 C.F.R. Section 413.100 and Section 2305.2 of the Manual are inapplicable to their situation. As to Section 2305.2 in particular, Petitioners point to Section 2305.A, the general liquidation of liabilities provision to which Section 2305.2 provides the exceptions discussed above. The last sentence of Section 2305.A provides that, where the liability is not liquidated within one year, or does not qualify under the exceptions set forth in Sections 2305.1 and 2305.2, then "the cost incurred for the related goods and services is not allowable in the cost reporting period when the liability is incurred, but is allowable in the cost reporting period when the liquidation of the liability occurs." (Emphasis added.) Petitioners argue that the underscored language supports the Medicare/Medicaid distinction urged by Mr. Swindling. In its usual Medicare retroactive reimbursement context, Section 2305.2 would operate merely to postpone reimbursement until the cost period in which the liability is liquidated. Applied to this Medicaid prospective reimbursement situation, Section 2305.2 would unfairly deny Petitioners any reimbursement at all by excluding the liability from the base rate. Mr. Diaczyk explained that, where the Medicaid rules address a category of costs, the allowable costs in a provider's cost report are limited to those defined as allowable by the applicable rules. He stated that if there is a policy in the Manual that addresses an item of cost, the provider must use the Manual provision; the provider cannot use GAAP to determine that cost item. In this case, Mr. Diaczyk agreed with Ms. Smiley as to the applicable rules and the disallowance of Petitioners' contingent liability costs. According to Mr. Diaczyk, GAAP may be used only if no provisions farther up the chain of the "hierarchy" are applicable. In this case, the Medicaid rules specifically addressed the categories of cost in question, meaning that GAAP did not apply. Under cross-examination, Mr. Diaczyk testified that the accrual made by Petitioners in their cost reports would be considered actual costs under GAAP, "[a]ssuming that they had an actuarial study done to come up with the $1.7 million that they accrued." Mr. Diaczyk acknowledged that AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, does not limit the provider to an actuarial study in estimating losses from asserted and unasserted claims. See Finding of Fact 49, supra, for text of Section 8.05. Mr. Diaczyk pointed out that the problem in this case was that Petitioners gave AHCA no documentation to support their estimate of the accrual, despite the auditor's request that Petitioners provide documentation to support their costs. Mr. Diaczyk's testimony raised a parallel issue to Mr. Swindling's concern that Medicaid's prospective targeting system permanently excludes any item of cost not included in the base rate. Mr. Swindling solved the apparent contradiction in employing Medicare rules in the Medicaid scenario by applying GAAP principles. Responding to the criticism that GAAP could provide a windfall to Petitioners by reimbursing them for accrued costs that might never actually result in payment, Mr. Swindling responded that GAAP principles would adjust the cost for contingent liabilities going forward, "truing up" the financial statements in subsequent reporting periods. This truing up process would have the added advantage of obviating the agency's requirement for firm documentation of the initial accrual. Mr. Swindling's "truing up" scenario under GAAP would undoubtedly correct Petitioners' financial statements. However, Mr. Swindling did not explain how the truing up of the financial statements would translate into a correction of Petitioners' reimbursement rate.12 If costs excluded from the base rate cannot be added to future rate adjustments, then costs incorrectly included in the base rate would also presumably remain in the facility's rate going forward.13 Thus, Mr. Swindling's point regarding the self-correcting nature of the GAAP reporting procedures did not really respond to AHCA's concerns about Petitioners' receiving a windfall in their base rate by including the accrual for contingent liabilities. On April 19, 2005, Petitioners entered into a captive insurance program. Petitioners' captive is a claims-made GL/PL policy with limits of $1 million per occurrence and $3 million in the aggregate. Under the terms of the policy, "claims-made" refers to a claim made by Petitioners to the insurance company, not a claim made by a nursing home resident alleging damages. The effective date of the policy is from April 21, 2005, through April 21, 2006, with a retroactive feature that covers any claims for incidents back to June 29, 2002, a date that corresponds to Petitioners' first day of operation and participation in the Medicaid program. The Petitioners' paid $3,376,906 for this policy on April 22, 2005. Mr. Parnell testified that April 2005 was the earliest time that the 14 Palm Gardens facilities could have established this form of insurance program. In summary, the evidence presented at the hearing regarding the contingent liabilities established that Petitioners took over the 14 Palm Gardens facilities after the bankruptcy of the previous owner. Petitioners were faced with the virtual certainty of substantial GL/PL expenses in operating the facilities, and also faced with a Florida nursing home environment market in which commercial professional liability insurance was virtually unavailable. Lacking loss history information from their bankrupt predecessor, Petitioners were unable to self-insure or establish a captive program until 2005. Petitioners understood that if they did not include their GL/PL expenses in their initial cost report, those expenses would be excluded from the base rate and could never be recovered. Petitioners' leases for the facilities required them to fund a self-insurance reserve at a per bed minimum amount of $1,750. Based on the AON studies and the general state of the industry at the time, Petitioners' accountant concluded that, under GAAP principles, $1,750 per bed was a reasonable, conservative estimate of Petitioners' GL/PL loss contingency exposure for the audit period.14 Based on all the evidence, it is found that Petitioners' cost estimate was reasonable and should be accepted by the agency. Petitioners included their GL/PL loss contingency expenses in their initial Medicaid cost report, placing those expenses under a heading indicating the purchase of insurance from a third party. The notes to Petitioners' audited financial statements stated that the facilities were "essentially self- insured." These factors led AHCA to request documentation of Petitioners' self-insurance. Petitioners conceded that they were not self-insured and carried no liability insurance aside from the Mature Care policies. The parties had little dispute as to the facts summarized above. The parties also agreed as to the applicability of the "hierarchy" by which allowable costs are determined. Their disagreement rests solely on the manner in which the principles of the hierarchy should be applied to the unique situation presented by Petitioners in these cases.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that AHCA enter a final order that allows Petitioners' accrual of expenses for contingent liability under the category of general and professional liability ("GL/PL") insurance, and that disallows the Mature Care policy premium amounts in excess of the policy limits, prorated for a nine- month period. DONE AND ENTERED this 24th day of October, 2008, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of October, 2008.
The Issue Should discipline be imposed by Petitioner against Respondent's insurance agent licenses as, Life (2-16), Life and Health (2-18), and Health (2-40), held pursuant to Chapter 626, Florida Statutes?
Findings Of Fact The Parties Petitioner was created in accordance with Section 20.13, Florida Statutes. Petitioner has been conferred general power by the Legislature, to regulate the insurance industry in Florida, in accordance with Section 624.307, Florida Statutes. Chapter 626, Florida Statutes, grants Petitioner the authority to license and discipline insurance agents doing business in Florida. Petitioner issued Respondent license No. A140590. At times relevant to the inquiry, Respondent has been licensed in Florida as agent for insurance in Life (2-16), and Life and Health (2-18). On December 2, 1992, Respondent had been issued a Health (2-40) license, but that license is no longer valid having been voluntarily cancelled. The cancellation occurred at a time previous to December 18, 2003, when a license history document was prepared, Petitioner's Exhibit numbered 1. Respondent conducts business as an insurance agent under the name Business Insurance Cafeteria. The business is located at 828 Hamilton Avenue, St. Augustine, Florida. Respondent has been licensed as an insurance agent for over 50 years, 44 years of which have been in Florida. Acting as an insurance agent has been Respondent's principal occupation. During that time the emphasis in his business has been on health insurance. TRG Affiliation In April 2001, an acquaintance and insurance agent Ellen Averill introduced Respondent to Robert Trueblood, Sr. Respondent understood that Mr. Trueblood was the Managing General Agent for TRG. Mr. Trueblood, at the time, was from Hobe Sound, Florida. Mr. Trueblood gave information to Respondent about TRG pertaining to its involvement in the insurance business. Mr. Trueblood told Respondent that individuals within TRG were personal friends of Mr. Trueblood. In turn, Respondent made a call to Petitioner at the end of April or first part of May 2001. Someone that he spoke to, whose identity and position within the Petitioner's hierarchy was not established in the record, made a comment which cannot be established as fact given its hearsay nature. Nonetheless, following this conversation, Respondent became affiliated with the TRG organization which Respondent understood to be an ERISA program, not subject to Petitioner's oversight. At that time, Respondent's knowledge of what an ERISA program entailed was based upon reading he had done in the past. Respondent was of the impression that the ERISA program was under the auspices of the federal government, as opposed to the state government. Respondent had never taken specific courses concerning the ERISA program before his engagement with TRG. Respondent's involvement with TRG was his first effort to market what he considered to be ERISA program insurance. When Respondent commenced his participation with TRG, he believed that an ERISA program was instituted by a document filed with the Department of Labor outlining insurance benefits and that TRG had put up reserves associated with the ERISA program. Respondent did not obtain anything in writing from the Department of Labor concerning TRG as an ERISA program. To begin with, Respondent believed that ERISAs had to involve 51 or more lives in being before coverage could be obtained. Again, this was not a market that Respondent had worked in but he understood that ERISAs involved coverage of that number of individuals. From conversations with Mr. Trueblood and Tom Dougherty, another managing General Agent for TRG, of Cocoa Beach, Florida, Respondent became persuaded that ERISAs could be marketed to companies with a single life being insured or two to three lives in a small group market. Respondent relied on Mr. Trueblood when Mr. Trueblood told Respondent that ERISA, as a federal program did not have to be licensed by the state. Mr. Dougherty made a similar comment to Respondent. Ms. Averill also commented to Respondent concerning her impression about TRG as an ERISA program. From this record, Respondent was not officially told by persons within the Petitioner's agency, that the TRG program was an ERISA program that did not have to be licensed in Florida. TRG provided Respondent marketing material. Respondent was impressed with the "very professional" appearance of that material. Respondent's Exhibit numbered 1 admitted into evidence is constituted of material provided to Respondent by TRG. It refers to the TRG health plan under "the Redwood Group." It refers to marketing under an organization identified as Premier Financial Group USA, Inc. It describes PPO networks available with the TRG products. The document refers to the TRG/USA health plan (the Redwood Group, L.L.C./USA Services Group, Inc.) and various versions of employer health and welfare benefit plans and a client fee schedule effective May 1, 2001, for enrollees in the 80/60 plan and 90/70 plan. Participant co- pays for physician office visits are related. Those plans identified in the material describe the amount of deductibles according to age groups and participation by members and additional family participants. The TRG document speaks of benefits attributable to the 80/60 and 90/70 health plans. This information contained comments about the Redwood Companies- Corporate Overview. Respondent's Exhibit numbered 1 comments upon the ERISA program and the provision of health benefits for employees through self-funded employee health and welfare benefit plans as a means, according to the document, to exempt those plans from state insurance regulation. Respondent's Exhibit numbered 1 touts what it claims are savings to be derived compared to current health insurance plans held by prospective purchasers. Respondent's Exhibit numbered 1 contains an associate application agreement setting forth policies and procedures that Respondent would be obligated to meet as an associate with TRG acting as an independent contractor. Respondent's Exhibit numbered 1 contains an application format for prospective enrollees in the TRG preferred provider plans to execute in applying for coverage. Respondent's Exhibit numbered 1 refers to Robert W. Trueblood, Sr., as being affiliated with Premier Financial Group, USA Inc., under the TRG banner. Mr. Trueblood sent Respondent's Exhibit numbered 1 to Respondent. Respondent began his contacts with TRG in May 2001 and wrote his first enrollment contract in association with TRG in August or September 2001. Beyond that time, Respondent was notified on November 27, 2001, that effective November 30, 2001, a cease and desist order had been issued against TRG's offering its health coverage in Florida. The commissions earned by Respondent in selling the TRG health insurance product ranged from five to seven percent. Respondent earned less than $1,000.00 in total commissions when selling TRG health insurance products. The persons who participated with TRG in its preferred provider plan were referred to the claims administrator of USA Services. Participants in the TRG preferred provider plan sold by Respondent received information outlining the benefits. Participants received medical I.D. cards. This information was provided directly to the participants. Respondent was aware of the information provided to the participants. An example of this information is set out in Respondent's Exhibit numbered 2. In offering the TRG health coverage, Respondent told his customers that this plan was not under the purview of the Department of Insurance in Florida, that this was an ERISA program. Respondent told his customers that any problems experienced with the program could be addressed through resort to the federal court. Respondent did remind the customers that making the Florida Department of Insurance aware of their claims could create a record in case they went to federal court. Respondent is familiar with the prohibition against acting as an insurance agent for companies not authorized to transact business in Florida. But he held to the opinion that TRG was an ERISA program under the federal auspices and not subject to Petitioner's control. At the inception, Respondent believed that offering the TRG health insurance coverage would be an acceptable choice. That proved not to be true. When it was discovered that TRG would not pay claims related to health coverage for policies Respondent sold to his customers, Respondent made an attempt to find replacement coverage. To this end, Respondent had received information reflected in Respondent's Exhibit numbered 5. The document discussed the prospect that insurance would be provided from the Clarendon Insurance Company (Clarendon), using the provider Network Beechstreet, with Baftal/Quik Quote Insurance Brokers in Plantation, Florida, being involved in the process to substitute coverage for TRG. Baftal is the shorthand reference for Bertany Association for Travel and Leisure, Inc. Baftal is an insurance agency. Respondent made some explanation to his customers insured through TRG of the prospect of using Clarendon to take over from TRG, which had not honored any of the claims for reimbursement made by Respondent's customers. A copy of this December 28, 2001, correspondence from Respondent to TRG's insureds who had been sold policies through Respondent, is reflected in Respondent's Exhibit numbered 6. As described in Respondent's Exhibit numbered 7, Baftal sent information concerning health care coverage to business owners, to include Respondent's customers, as described in the Amended Administrative Complaint. This correspondence indicated that the benefit plan would become effective December 1, 2001, upon condition that the insured meet applicable underwriting standards. This communication was made following receipt of premiums paid by the insured. Reimbursement for claims were to be processed through Advancement Administration in Maitland, Florida. Baftal did not assume the claims that had not been honored by TRG, and Clarendon did not become the insurer for those customers. Baftal did not follow through with the offer to provide health benefits to Respondent's customers who had begun with TRG. On February 11, 2002, as evidenced by Respondent's Exhibit numbered 8, Baftal wrote the customers to advise that health benefits would not be provided. That exhibit mentions American Benefit Plans through a Mr. David Neal and some intention for Mr. Neal's organization to provide a benefits program, including insurance through Clarendon, as administered through Advanced Administration. The Baftal communication goes on to say that Baftal had learned that Clarendon was not an insurer on the program, that the only insurer on the program was an offshore insurance company about which Baftal had not received credible information. The letter remarks that premiums paid to Baftal by the customers were being returned. On April 4, 2002, as related in Respondent's Exhibit numbered 9, TRG wrote to persons who were identified as health plan participants, to include Respondent's customers who are the subject of the Amended Administrative Complaint. The letter stated that due to a problem with USA Services Group, the claims administrator on November 30, 2001, when the TRG plan ended, claims were not being paid. The correspondence remarks about difficulties with USA Services experienced by TRG, promising that TRG would fulfill obligations to the customers who were participants in the health plan. Contrary to this promise, TRG has not honored claims for those customers who are the subject of the Amended Administrative Complaint. On December 12, 2001, as reflected in Respondent's Exhibit numbered 4, Petitioner had written consumers who had enrolled in the TRG health plan to advise that the Petitioner did not consider the TRG health plan to be an ERISA program. Under the circumstances, the correspondence indicated that TRG should have sought authorization from Petitioner to sell health plans in Florida, which had not been done. The correspondence refers to some acknowledgement by TRG that it was not an ERISA program and needed to be licensed in Florida to conduct business. The correspondence advises the consumer to cease payment of any further premiums to TRG, to include the cancellation of automatic bank drafts for payment of premiums. The correspondence advises the consumer to obtain replacement insurance through Florida licensed insurance companies or HMOs. The letter goes on to remind the consumer of certain plans that were not licensed in Florida to conduct business because they were perceived to be illegitimate companies. The communication urged the consumer not to enroll in those health insurance plans. Respondent was made aware of this communication. Count I: Vicki Brown Vicki Brown has a business known as Rainbows End Ranch located in St. Johns County, Florida. This is a one-person business involving boarding and training of horses. Ms. Brown was interested in obtaining permanent health insurance, in that her COBRA policy was expiring. As a consequence, she was referred to Respondent by a friend. Respondent met Ms. Brown at her place of business. She explained to him her health insurance needs. Respondent suggested obtaining health insurance through TRG. Ms. Brown agreed. Ms. Brown paid $165.00 to TRG by check to cover the premium for September 2001. Two additional amounts of $165.00 were withdrawn from her checking account to pay premiums to TRG for the months that followed. Subsequently, Ms. Brown received Petitioner's December 12, 2001, letter informing her that TRG was not allowed to conduct business in Florida, Petitioner's Exhibit numbered Beyond that point, Ms. Brown had difficulties in her attempt to be reimbursed for her medical treatment, presumably covered by the TRG plan, by seeking reimbursement through another insurance firm other than by TRG. That process was pursued through Baftal in relation to insurance offered by Clarendon. Ms. Brown made Respondent aware that she had problems with reimbursement and of the receipt of Petitioner's letter. Respondent told her not to worry about the situation, that things were going to be taken care of by Clarendon taking over where TRG left off. Ms. Brown received Respondent's form correspondence dated December 28, 2001, explaining the switch from TRG to Clarendon, Petitioner's Exhibit numbered 6. Ms. Brown also received information from Advancement Administration concerning Clarendon as the insurance company, Beechstreet as the provider network, mentioning Baftal/Quik Quote Insurance as brokers, Petitioner's Exhibit numbered 7. Following her difficulties with TRG, on January 2, 2002, Ms. Brown wrote a check to the Baftal Escrow Account in the amount of $513.40 for premiums in relation to Clarendon. As can be seen, the payment to Clarendon represented an increase in premium compared to TRG. The check for $513.40 had been written out to LPI Clarendon and changed by Respondent to reflect the Baftal Escrow Account. In January 2002, Ms. Brown called Respondent and was told that the paperwork he was filling out was wrong and that he needed to complete new forms for Baftal "Insurance Brokers." According to Respondent, that explained why the coverage through Baftal had not gone into effect. Ms. Brown had received Petitioner's Exhibit numbered 11, the communication from Baftal calling for additional information as a prerequisite to obtaining insurance benefits effective December 1, 2001. Information provided in the document concerning issues related to her coverage was not useful to Ms. Brown when she made inquiry consistent with the instructions contained in the document. Concerning her claims for reimbursement, Ms. Brown had a health problem with her throat. In addressing the condition, she was told by her primary care doctor, that when trying to arrange for a specialist to attend her care through the Beechstreet Provider Network, which was part of the health care offered through the Baftal Agency, it was reported that Beechstreet was bankrupt. Then Ms. Brown called Respondent to ask his advice. Respondent told her he was not sure how to respond "right now things are in a haywire." Beyond that point Ms. Brown found out that Clarendon, part of the Baftal arrangement was not going to insure her business. In particular, Ms. Brown received the February 11, 2002, communication from Baftal commenting that insurance would not be provided through Baftal, remarking that Clarendon was not an insurer. This communication is Petitioner's Exhibit numbered 12. After the TRG and Baftal experiences, Ms. Brown tried to be placed on her husband's health insurance policy but had trouble getting a certificate to allow her to obtain that coverage. This was in relation to the need for the existence of continuing coverage before being placed on the husband's policy. Fortunately, Ms. Brown was eventually able to get insurance through her husband's policy. Ms. Brown was dismayed by the difficulty experienced in obtaining health insurance when she discovered that TRG and Baftal would not meet her health insurance needs. From the evidence, it has been determined that the TRG plan purchased by Ms. Brown was the 80/60 plan with the $1,000.00 deductible. Although Ms. Brown testified that her medical bills in the period in question would total close to $1,000.00, the evidence found in Petitioner's Exhibit numbered 8, constituted of medical bills around that time do not approximate than amount. Ms. Brown had received a TRG benefit handbook and membership card, Petitioner's Exhibits numbered 9 and 10, associated with her participation in the 80/60 plan with a $1000.00 deductible and co-pay of $10.00 for a physician office visit and $20.00 for a specialist office visit. In summary, none of the companies from whom Ms. Brown purchased insurance through Respondent, commencing with TRG, have paid for any of her claims for reimbursement for medical care during the relevant time period. In addition to not receiving a reimbursement for premiums paid to TRG, Ms. Brown did not receive the return of her premium paid to Baftal either. Count II: Alicia Moore Alicia Moore at one time was employed by Respondent. The position Alicia Moore held with Respondent's insurance agency was that of general office clerk. Ms. Moore has never been licensed in any capacity by Petitioner, related to the sale of insurance and has not taken courses to educate herself about the insurance business. In addition to her employment with Respondent, she purchased health insurance through Respondent with TRG around September 2001. Ms. Moore purchased the TRG health insurance policy in the interest of her husband's subchapter S corporation, small business. Her husband's name is Randy Moore. The name of the company operated by the husband is M-3 Enterprises, Inc. The husband's company has one employee, Randy Moore. The Moores resided in St. Augustine, Florida, at times relevant to the inquiry. The husband's business had been insured for health coverage by Humana, until Humana determined that it was not willing to provide health insurance for the company and the Moores decided that the individual policies offered by Humana in substitution for the group policy were too expensive. The Moores chose TRG for health insurance after Respondent had discussed several health insurance plans including individual or group policies. The reason for the choice was the premium price. On September 19, 2001, Randy Moore paid $434.00 for the health insurance premium to Redwood Group, in the interest of obtaining health insurance from TRG. On November 2, 2001, an additional $434.00 was debited from the checking account for M-3 Enterprises, to TRG for premiums related to the health insurance coverage. Ms. Moore recalls Respondent telling her that the TRG health plan was an ERISA plan but she has no knowledge about ERISA plans being regulated under federal law. In that connection, Ms. Moore commented in a statement given by affidavit, that Respondent told her that TRG was not regulated by Petitioner. Respondent explained to Ms. Moore that the premium payments to TRG were lower in costs because TRG was an ERISA program. TRG sent correspondence to the Moores as participants in the health plan. This is found as Petitioner's Exhibit numbered 15. It enclosed a membership issued to Randy Moore setting forth the $10.00 co-pay for a physician visit, $20.00 co-pay for a specialist office visit, and $50.00 co-pay for emergency room visits associated with the participation in Plan 8033. The nature of the plan that the Moores had was a member- plus family. The cover letter listed the telephone number for the claims administrator USA Services to address claims or customer services questions. Ms. Moore also received a packet from TRG explaining the process of filing claims for health care. After obtaining the TRG health coverage, Ms. Moore and her son received treatment for medical conditions contemplated under the terms in the TRG plan. Notwithstanding the submission of information for reimbursement related to the charges, the charges were not paid under the TRG plan. The total of these claims was approximately $727.00. That $727.00 was less co- payments already made for the medical services. Ms. Moore made the Respondent aware that TRG was not reimbursing her for medical bills. Respondent gave Ms. Moore the telephone number for Tom Dougherty, Managing General Agent for TRG, expecting Mr. Dougherty to be able to assist Ms. Moore in dealing with outstanding medical bills. Ms. Moore called Mr. Dougherty several times, but this did not lead to the payment of the medical bills. Ms. Moore also sent TRG a certified letter in August 2002 concerning bills outstanding since October 2001, attaching the bills and information concerning payment of premiums for the coverage. This is reflected in Petitioner's Exhibit numbered 18. Petitioner's Exhibit numbered 21 is a compilation of information concerning the outstanding medical bills, and a statement from Medical Accounts Services, Inc. (Medical Accounts) concerning a current balance on June 17, 2002, of $229.00. The Moores had to make an arrangement to repay the money which was being collected through Medical Accounts. It is not clear from the record the exact nature of the member with family plan that had been purchased by the Moores. Consequently, the deductible in force when claims were submitted for reimbursement is not readily apparent. Ms. Moore in her testimony was unable to recall the amount of the deductible for the policy issued from TRG. It does appear from a review of the fee schedule associated with the 80/60 plan and the 90/70 plan offered by TRG, that the premium payments made did not entitle the Moores to coverage associated with a $500.00 deductible or $250.00 deductible. The other possible amount for the deductible, by process of elimination is $1,000.00. The Moores received correspondence dated November 28, 2001, sent to Randy Moore as a TRG enrollee, indicating that the coverage would end effective November 30, 2001, and reminding Mr. Moore that, according to the correspondence, he would have to find other health coverage as of December 1, 2001. This correspondence, as with other similar correspondence that has been discussed, promised to continue to process claims for covered services incurred before the coverage ended. The TRG letter terminating coverage for the Moores was received by the Moores five days after the date upon which the correspondence indicated that the coverage would no longer be in effect. This circumstance was very disquieting to Ms. Moore. The claims by Ms. Moore and her child were within the covered period for the TRG policy as to their dates. The letter received from TRG is Petitioner's Exhibit numbered 17. Ms. Moore spoke to Respondent about obtaining coverage when TRG discontinued its coverage. Respondent suggested that the Moores affiliate with Baftal. The Moores made a premium payment to Baftal but within a week of being accepted for coverage, Baftal wrote to advise that coverage had been declined. Beyond that time, the Moores obtained coverage from Medical Savings Insurance, a company that they still use for health insurance. Concerning Baftal, by correspondence dated February 11, 2002, Baftal wrote the Moores as a member, the form letter that has already been described, in which the Moores were told that they would not be provided health benefits. Given the problem described with Clarendon Insurance Company, the letter noted the return of the premium paid for coverage through Baftal. A copy of the letter sent to the Moores is Petitioner's Exhibit numbered 19. Baftal did not reimburse the Moores for the outstanding claims totaling approximately $727.00. Count III: Bruce Chambers Bruce Chambers was another customer who bought TRG health insurance from Respondent. Mr. Chambers was a Florida resident at the time he purchased the TRG coverage. Mr. Chambers and his wife moved to Florida from Georgia earlier in 2001. When they moved, the prior health insurance coverage that the Chambers held carried a high premium given Ms. Chambers diabetic condition. Moving from one state to the next also increased that premium. Under the circumstances, the Chambers agreed to purchase the TRG Health Plan. At one time related to the transaction promoted by Respondent, Mr. Chambers believed that TRG was licensed in Florida. He held this belief even in the instance where Respondent had commented that TRG was an ERISA program. Mr. Chambers also executed a coverage disclaimer in November 2001, upon a form from Respondent's agency noting that the health, welfare program applied for was not under the auspices of the Florida Department of Insurance. This is found as Petitioner's Exhibit numbered 36. After purchasing the TRG policy, the wife developed an illness, and costs were incurred for services by the family's personal physician and for hospitalization. In addition Mr. Chambers had medical expenses. Exclusive of co-pays and the deductibles that are applicable, Mr. Chambers paid $7,478.46 for the health care he and his wife received. None of that amount has been reimbursed through TRG as expected under the terms of the TRG coverage. Mr. Chambers paid $487.00 a month, plus $18.00 in other fees, for two months related to coverage effective October 1, 2001, extending into November 2001, a total of $1,010.00 in premiums and fees paid to TRG. No premiums and fees paid to TRG have been reimbursed. The amount of premium paid by Mr. Chambers corresponds under the client fee schedule in effect May 1, 2001, associated with the TRG Health Plan, as pertaining to an 80/60 plan for a member and family with a $1,000.00 deductible. Petitioner's Exhibit numbered 26 is constituted of the calculation of the expenses, $7,478.46 and attaches billing information, some of which is for services and care received prior to December 1, 2001, and some of which is for services and care beyond that date. When Mr. Chambers discovered that TRG was not reimbursing the costs which it was obligated to pay for health care received by the Chambers, he contacted the Respondent and TRG to gain satisfaction. He also contacted Petitioner. When Mr. Chambers enrolled in the TRG plan he received the transmittal letter enclosing his benefits card, Petitioner's Exhibit numbered 23. The membership card identified his participation in plan 8033, with a co-pay for physician office visits of $10.00, specialty office visits of $20.00, and emergency room visits of $50.00. Mr. Chambers received notice from the Petitioner, presumably the December 12, 2001, notification concerning the lack of authority for TRG to business in Florida and the advice that CHEA (Consumer Health Education Association) was not authorized to do business in Florida either. On December 20, 2001, the Chambers wrote Respondent concerning the unavailability of insurance through TRG and CHEA. The Chambers asked Respondent to give them advice about a list of "small group market carriers" they understood to offer health plans. This letter to Respondent is found within Petitioner's Exhibit numbered 25. Also, within Petitioner's Exhibit numbered 25 was a copy of the letter from Respondent to TRG insureds dated December 28, 2001, which made mention of Clarendon as an alternative to TRG. Within that same exhibit is correspondence dated January 21, 2002, from the Respondent to enrollees in the TRG plan, to include the Chambers, discussing Baftal and the prospect that the latter company might honor TRG claims. Finally, Petitioner's Exhibit numbered 25 contains an August 21, 2002, letter from Mr. Chambers to TRG asking TRG to pay for its portion of the medical expenses as reimbursement. Petitioner's Exhibit numbered 27 is the December 1, 2001, application by Mr. Chambers to obtain medical benefits through CHEA. The application also refers to EOS Health Services. This predates Petitioner's warning about CHEA and EOS being licensed to do business in Florida. On December 1, 2001, Mr. Chambers paid $487.00 for premium payments to EOS Health Services and provided a voided check for future payments for premiums by automatic withdrawal from his account. This effort was made as a follow on to obtain health coverage when TRG no longer provided health insurance to the Chambers. To obtain health coverage, Mr. Chambers paid $1,465.88 to the Baftal Escrow Account. This payment was made by a check dated January 14, 2002. That money was refunded by Baftal on January 12, 2002, and no coverage was offered through that company for health insurance. Mr. Chambers had been provided information about the opportunity to obtain insurance from Baftal as reflected in Petitioner's Exhibit numbered 31. Respondent had also suggested that Mr. Chambers apply for health insurance from American Benefit Plan, following the discontinuance of the TRG coverage. Mr. Chambers applied for that coverage by documents dated February 18, 2002, in the interest of his company, Bruce A. Cambers, CFP. Information concerning that application is found in Petitioner's Exhibit numbered 32. American Benefit Plans was listed by Petitioner as an entity not allowed to conduct business in Florida in the December 12, 2001, letter of advice to insurance consumers following the problem with TRG. Mr. Chambers wrote two checks, one in the amount of $628.60 to Independent Managers Association and one for $799.68 to the Association of Independent Managers, Petitioner's Exhibits numbered 35 and 33 respectively. The two checks were written on February 18, 2002. Those checks were voided in relation to payment for monthly insurance premiums and association dues. The effect was to not accept those checks for premium payments to obtain health insurance. On March 5, 2002, ACH Corporation of America wrote Mr. Chambers stating that because of incorrect procedures, or untimely submission, health coverage would not be extended, pertaining to an application for Ultra Med Choice EPO. Ultra Med was another health insurance business which Petitioner in its December 12, 2001, correspondence to health care consumers had been identified as unlicensed to conduct health insurance business in Florida. The letter declining coverage from ACH and application information for a policy sought to become effective December 1, 2001, is found within Petitioner's Exhibit numbered This application was in relation to Bruce Chambers, CFP as employer. Mr. Chambers remains out of pocket for payments he had to make for health care extended, principally to his wife, for which TRG was obligated to provide reimbursement in part. None of the other policies that Mr. Chambers attempted to obtain worked out to substitute for the TRG obligation for reimbursement for health care claims. Eventually the Chambers were able to obtain health insurance. At present the Chambers have a two-man group policy through Mr. Chambers' business to provide health coverage. Because of the problem with health insurance coverage, Ms. Chambers was required to return to work. Her employment was outside Mr. Chambers' company, as well as within his company. As a result of Ms. Chambers' failure to make payments to Flagler Hospital, where Ms. Chambers had received care, under terms that should have involved TRG providing reimbursement for costs, the bills were turned over to a collection agency compromising the credit standing of the Chambers. For the most part, the credit problems have been resolved. Due Diligence As established by testimony from Linda Davis, Analyst II in Petitioner's Jacksonville Office, there is a means to determine whether an insurance company has the necessary certificate of authority to conduct insurance business in Florida. This is accomplished by resort to the electronic data base maintained by Petitioner. A certificate of authority is an indication that the insurance company has completed the necessary requirements to be licensed or authorized to sell insurance in Florida. As established through Petitioner's Exhibit numbered 39, TRG/USA Health Plans, TRG Marketing L.L.C. was not authorized to do business in Florida. An insurance agent licensed in Florida, to include the time frame envisioned by the Amended Administrative Complaint, would have had access to the data base identifying whether an insurance company had the necessary certificate of authority to conduct insurance business in Florida and could properly have been expected to seek this information before engaging in the sale of products from a company such as TRG. Rather than avail himself of that opportunity, Respondent made some form of inquiry to Petitioner on the subject of TRG, while apparently ignoring the more fundamental consideration of whether TRG had been granted a certificate of authority to conduct its business in Florida, which should have been pursued. Ascertaining the existence or nonexistence of a certificate of authority, constitutes "due diligence" incumbent upon an agent before engaging in the sale of insurance from a prospective insurance company. Respondent's Disciplinary History Petitioner has not taken disciplinary action against Respondent before this case.
Recommendation Upon the consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That a Final Order be entered finding Respondent in violation of Sections 624.11, 626.611(7) and (8), 626.621(2) and (6), 626.901(1), Florida Statutes (2001); suspending his licenses for nine months; placing Respondent on two-years probation; and requiring attendance at such continuing education classes as deemed appropriate. DONE AND ENTERED this 2nd day of April, 2004, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 2nd day of April, 2004. COPIES FURNISHED: David J. Busch, Esquire Department of Financial Services Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Joseph O. Stroud, Jr., Esquire Rogers Towers, P.A. 1301 Riverplace Boulevard, Suite 1500 Jacksonville, Florida 32207 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue Should discipline be imposed by Petitioner against Respondent's insurance agent licenses, life including variable annuity (2-14), and general lines (2-20), pursuant to Chapters 624 and 626, Florida Statutes (2004)?
Findings Of Fact Stipulated Facts Respondent is licensed by Petitioner as a life including variable annuity (2-14) and a general lines (2-20) insurance agent and has been issued license D029506. During the time referenced in the Administrative Complaint, Respondent was licensed as a customer representative (4-40) and a life including variable annuity (2-14) agent. The Department has jurisdiction over Respondent's insurance licenses and appointments. At all times relevant to the dates and occurrences referenced in the Administrative Complaint, Respondent was employed or affiliated with Direct General Insurance Agency, Inc., a Tennessee corporation, doing business in Florida as Florida No-Fault Insurance Agency (Cash Register). Additional Facts: At times relevant to the case Respondent held his life including variable annuity license (2-14) under an appointment with Direct Life Insurance Company. At times relevant to the case Respondent had a customer representative license (4-40) under appointment with Direct General Insurance Agency, Inc. At present Respondent continues to hold the life including variable annuity license (2-14) under an appointment with Direct General Life Insurance Company. At present he has a general lines license property and casualty license (2-20) under appointments with Direct General Insurance Company and American Bankers Insurance Company of Florida. On February 8, 2005, Brandi Dean called Cash Register to receive a quote for the purchase of basic automobile insurance coverage. She was provided a quote at that time. On February 8, 2005, Brandi Dean, went to the Cash Register to purchase basic automobile insurance coverage. She had done business with the insurance agency before. Her policy with Direct General Insurance Company was Policy No. FLCR162714439, as reflected in Petitioner's Exhibit numbered 15, with a scan cover sheet entitled "Renewal Auto." On February 8, 2005, Ms. Dean purchased automobile insurance coverage that would be effective from February 10, 2005 through February 10, 2006. She was charged $316 for property damage liability (PD) and $216 for basic injury protection (PIP) for a total of $532, with a $25 policy fee. The application information within the exhibit reflects the customer's name, signature, and initials in various places. On February 8, 2005, Ms. Dean was provided another form referred to as an Explanation of Policies, Coverages and Cost Breakdown (including non-insurance products). Petitioner's Exhibit numbered 16. She signed that document. It reflected the auto policy coverage information. It also set forth under a category referred to as optional policies, the purchase of Lloyd's Accident Medical Protection Plan for $110. Petitioner's Exhibit numbered 17 is additional information concerning the Accident Medical Protection Plan application by the customer signed by her. It details a $110 annual premium for individual coverage of $1,000 medical expense, and 125/day-365 day hospital coverage. Within that same exhibit there is a form signed by the customer titled 100% certain underwriters @ Lloyd's/London (DB/33) Accident Medical Protection Plan. This reflects $110 cost, $125 daily coverage and the total annual benefit of $45,625. Petitioner's Exhibit numbered 18 is a scan cover sheet entitled Renewal Finance with Premium Finance Agreement Information in association with Direct General Financial Services, Inc., in which the customer Ms. Dean paid $69.63 down, financed $599.82, with a total price of $748.61 when considering the annual percentage rate for financing. This document in totality was initialed and signed by Ms. Dean. Ms. Dean was provided a receipt for her cash down-payment on the purchase. Petitioner's Exhibit numbered 14. Petitioner's Exhibit numbered 19 is an Insurance Premium Financing Disclosure Form signed by the customer, reflecting the cost of the automobile insurance and the hospital indemnity plan, the amount of total cost and includes the policy fee for the automobile insurance, document stamp tax, the down payment, and the total amount financed $599.82. Ms. Dean was left with the impression that she had only purchased automobile insurance. She believed that the monthly payments for the financing were only in relation to automobile insurance. Ms. Dean does not recall having the accidental medical protection plan explained to her as to its terms. She does not recall anyone explaining that it was an optional plan unassociated with automobile insurance. She told the agent that she dealt with that she was only interested in purchasing the state-required automobile insurance coverage. Had she realized that she was purchasing optional accident medical protection, not part of the automobile insurance purchase, she would have declined the optional policy. Ms. Dean does recall that the agent she dealt with made some brief explanation about the documents involved in the transaction but not every page was explained. Ms. Dean recalls explanations about the automobile policy but nothing about optional coverage. Ms. Dean glanced over the documents but did not read every word included in the documents. Ms. Dean does not recall whom she dealt with on February 8, 2005. Otherwise, the record does not reflect the person who sold the automobile insurance and accidental medical protection plan to her at that time. At times relevant, Denise Daley Turnbull worked at Cash Register. She was a customer representative license (4- 40), appointed by Direct General Insurance Agency, Inc. On March 24, 2005, William L. Green, Jr., came to Cash Register to purchase automobile insurance. He dealt with Ms. Turnbull. He made a $170.02 down payment for his purchases, as reflected in Petitioner's Exhibit numbered 4, which is a receipt provided to Mr. Green. A scan cover sheet related to an auto policy purchased, together with the application information for the automobile insurance purchased through Direct General Insurance Company is found within Petitioner's Exhibit numbered Mr. Green purchased automobile insurance for property damage liability (PD) in the amount of $590 and basic personal injury protection (PIP) for $370, with a $25 policy fee, totaling $985. He signed and initialed parts of the forms in association with the automobile insurance. Ms. Turnbull also signed forms in association with the automobile insurance. Petitioner's Exhibit numbered 6 is an explanation of policies, coverages and cost breakdown (including non-insurance products) reflecting the overall purchases by Mr. Green. He signed that form. It relates the automobile insurance purchase. It also relates the purchase of an American Bankers Travel Protection Plan for $60, a Lloyd's Accidental Medical Protection Plan for $110 and life insurance of $98. With fees and other costs the total purchase was $1270.99. Of relevance here, Petitioner's Exhibit numbered 9 is a scan cover sheet in relation to the life policy signed by Ms. Turnbull. It also includes application information to Direct Life Insurance Company with certain questions reflected that were initialed by the purchaser. Mr. Green signed the application. Respondent also signed the application, as well as printing his name and insurance license number on the form. Petitioner's Exhibit numbered 10 is a scan cover sheet for a New Finance with Direct General Financial Services, Inc., which reflects a $162.03 down-payment, $1105.17 in amount financed, with a $129 finance charge. The total sales price for all purchases was $1396.20, to include the life insurance with Direct Life Insurance Company. Mr. Green signed the premium finance agreement. Petitioner's Exhibit numbered 11 is a copy of the Insurance Premium Finance Disclosure Form signed by Mr. Green. Ms. Turnbull has no recollection of the Respondent's participation in the sale of the life insurance policy to Mr. Green. She does recall that Respondent was in the insurance agency office when the life insurance was purchased. She recognizes Respondent's signature in association with the life insurance application and purchase. Mr. Green had no intention of purchasing life insurance when he went to Cash Register on March 24, 2005. He recalls dealing with Ms. Turnbull. No one else sat with Mr. Green and explained policy information to him. Specifically, Respondent did not sit with Mr. Green and offer explanations about the policy. Mr. Green did not see Respondent sit with Ms. Turnbull and Respondent remained silent while she sold the life policy. Had Mr. Green realized that he was purchasing life insurance he would have declined the opportunity.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That Petitioner enter a final order finding a violation under Count I as set forth in the conclusions of law, dismissing Count II and suspending Respondent's license for six months for the violation. DONE AND ENTERED this 7th day of May, 2007, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 7th day of May, 2007. COPIES FURNISHED: William Gautier Kitchen, Esquire Gregg Marr, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0333 L. Michael Billmeier, Jr., Esquire Galloway, Brennan and Billmeier, P.A. 240 East Fifth Avenue Tallahassee, Florida 32303 Michael L. Rothschild, Esquire Larry S. Davis, P.A. 1926 Harrison Street Hollywood, Florida 33020 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0307
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Amended Administrative Complaint and, if so, what action should be taken.
Findings Of Fact HSH No. 2 is a six-bed assisted living facility. It provides services to individuals with mental deficits and/or psychiatric issues. HSH No. 2 is located at 20700 Southwest 122nd Avenue, Miami, Florida. After a settlement agreement with AHCA, South Dade was allowed to submit a CHOW to purchase HSH No. 2 from the prior owner. South Dade became the legal owner of HSH No. 2 on December 28, 2005. Prior to obtaining initial licensure from AHCA, South Dade was required to provide AHCA with proof of liability insurance. Liability insurance coverage is for the protection of residents at the assisted living facility in case of injury or death. Without liability insurance, a resident injured at a facility would have no recourse if he/she was harmed or injured in any way. AHCA, not the facility, is listed on each facility’s certificate of insurance as the certificate holder. Additionally, the address of AHCA’s licensure department is listed on each facility’s certificate of insurance in order that AHCA will be notified in the instance of a lapse of insurance coverage. South Dade provided proof of liability insurance to AHCA on October 17, 2005, for the period of September 23, 2005, through September 23, 2006. South Dade obtained the liability coverage from an insurance company in Miami, Florida. Having obtained liability insurance and having provided proof of liability insurance, South Dade obtained licensure from AHCA. South Dade was eventually issued a standard biennial license by AHCA for the period of December 28, 2007, through December 27, 2009. South Dade was the licensee. On September 4, 2007, South Dade, as a corporation, was administratively dissolved due to its failure to file its annual report as required by law. At the time, South Dade was 100 percent owned by Larazo Martinez. South Dade does not dispute that Mr. Martinez allowed the dissolution of South Dade in order for Natalie Egea, who had recently become HSH No. 2’s administrator, to gain ownership of HSH No. 2.1 South Dade continued to carry-on business, as HSH No.2, even though it (South Dade) was administratively dissolved. South Dade’s corporate status was reinstated on May 11, 2009, over two years after its dissolution. Mr. Martinez was listed as the only officer, i.e., president. Instead of applying for a CHOW to begin the process of new ownership of HSH No. 2, an application for renewal of the license was submitted to AHCA. An application for licensure renewal was filed on November 13, 2007, with AHCA. Only South Dade, as the licensee, could apply for renewal of the license. Ms. Egea completed the application for the licensure renewal. She listed Mr. Martinez, the individual, as the owner of HSH No. 2, not South Dade, the corporation. Furthermore, she indicated that the applicant was an individual, not a corporation. Ms. Egea was aware that there was a difference between South Dade, the corporation, and Mr. Martinez, the individual, owning HSH No. 2.2 After receiving the renewal application, AHCA sent a letter dated December 6, 2007, by certified mail, return receipt, to Ms. Egea, as the administrator of HSH No. 2, advising her, among other things, that the application omitted several documents and was, therefore, incomplete; that the liability insurance for HSH No. 2 had expired; and that proof of current liability insurance coverage needed to be provided. Further, the letter advised Ms. Egea that, in several items on one of the forms, she listed herself as the owner of the facility, but, on another document, she listed Mr. Martinez as the owner of the facility and listed herself as the administrator. By letter dated December 20, 2007, Ms. Egea responded to AHCA’s letter dated December 6, 2007, and, among other things, provided the omitted documents and corrected the documents referring to the owner of HSH No. 2 to reflect Mr. Martinez as the owner. Furthermore, Ms. Egea advised AHCA that the facility was having difficulty in obtaining liability insurance coverage. The evidence demonstrates that, when Ms. Egea filed the renewal application, the intent in the application process was to change the ownership of HSH No. 2 to Mr. Martinez, and, eventually, to herself. Further, the evidence demonstrates that Ms. Egea considered Mr. Martinez as owning HSH No. 2, even though AHCA’s licensure documents showed South Dade as owning HSH No. 2 and as the licensee. AHCA issued South Dade a conditional license for the period December 28, 2007, through February 27, 2008, pending proof of liability insurance coverage. Through the issuance of a license to an assisted living facility, AHCA is guaranteeing to the public that that facility is in compliance with all the requirements set by AHCA. But through the issuance of a conditional license, AHCA is putting the public on notice that there are outstanding conditions of licensure that the facility has not met. Even though AHCA renewed the license in the name of South Dade, the application should have been considered a CHOW. AHCA mistakenly treated the application as a renewal, instead of a CHOW. The renewal application was in actuality an application for licensure by an individual, not previously licensed by AHCA. As a result, the application was a CHOW, not a renewal application for licensure. When a facility’s liability insurance coverage expires, the facility is required to provide AHCA with proof of a renewal policy or proof of a new policy. At the expiration of its liability insurance on September 23, 2006, South Dade was unable to immediately renew its liability insurance or obtain new liability insurance from companies in Miami. South Dade blamed the recent hurricanes in the South Florida area as causing insurance companies to become reluctant to issue new liability insurance policies. However, AHCA was the agency licensing and renewing the licensure of assisted living facilities in the entire State of Florida; but AHCA was not aware of any other assisted living facilities in the South Florida area having such difficulty. The undersigned does not find the reason put forth by South Dade for the difficulty in obtaining liability insurance coverage as a plausible reason. AHCA sent a notice of violation (NOV) dated December 4, 2007, by certified mail, return receipt, to Ms. Egea, as the administrator, for the lapse of liability insurance coverage. The NOV, among other things, requested proof of current liability insurance within ten days and indicated, among other things, that the failure to comply could result in an administrative proceeding to revoke the license or deny licensure. AHCA’s interpretation of the ten-day period is the maximum amount of time that a facility has to provide evidence to AHCA that it has current liability insurance and that there has not been a lapse and, therefore, no violation. AHCA’s interpretation is found to be reasonable. South Dade failed to provide proof of insurance within the ten-day period or during the month of December 2007. A second NOV dated January 2, 2008, was sent by certified mail, return receipt, to Ms. Egea, as the administrator, for the failure to have liability insurance coverage. The second NOV also requested proof of current liability insurance within ten days and indicated, among other things, that the failure to comply could result in an administrative proceeding to revoke the license or deny licensure. South Dade was finally able to obtain liability insurance coverage, effective January 2, 2008, through January 2, 2009. AHCA was provided proof of the coverage. However, approximately three months later, the liability insurance coverage was canceled, effective March 24, 2008, for non-payment of premium. Notification of the canceled liability insurance coverage was faxed to AHCA on July 17, 2008. AHCA sent a NOV dated July 18, 2008, the next day by certified mail, return receipt, to Ms. Egea, as the administrator, for the failure to have liability insurance coverage. The NOV also requested proof of current liability insurance within 21 days and indicated, among other things, that the failure to comply could result in an administrative proceeding to revoke the license or deny licensure. AHCA states that the purpose of the NOV dated July 18, 2008, was to make certain that there was no lapse in the policy providing liability insurance coverage, not to provide South Dade a time frame in which to purchase the required liability insurance coverage. The purpose stated by AHCA is found to be reasonable. South Dade received the NOV dated July 18, 2008, on July 23, 2008. South Dade obtained liability insurance coverage on August 12, 2008, effective August 12, 2008, through August 12, 2009. The usual procedure of the insurance agent from whom South Dade obtained the liability insurance coverage was to mail the Certificate of Liability Insurance to both the insured and AHCA when the insurance carrier approves and binds coverage. A finding of fact is made that the insurance agent followed the same procedure in the instant case. On November 3, 2008, AHCA issued its Administrative Complaint charging South Dade, among other things, with failure to maintain liability insurance coverage. After receiving the Administrative Complaint, Ms. Egea contacted the insurance agent regarding the Certificate of Liability Insurance. The insurance agent reiterated to Ms. Egea that the Certificate of Liability Insurance was mailed to AHCA in August 2008. On November 5, 2008, AHCA received the Certificate of Liability Insurance, as proof of insurance, when it was faxed to AHCA by the insurance agent. Also, the liability insurance policy, effective August 12, 2008, had a different policy number than the last liability insurance policy. The different policy number indicated that the liability insurance coverage effective on August 12, 2008, was a new, not a renewal, policy.3 South Dade was without liability insurance coverage from March 24, 2008, until August 12, 2008, when liability insurance coverage was obtained. South Dade failed to maintain continuous liability insurance coverage from March 24, 2008, to August 11, 2008. South Dade had a lapse in liability insurance coverage from March 24, 2008, to August 11, 2008. No evidence was presented to show that any resident was harmed in any form or manner at HSH No. 2.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a final order: Finding that South Dade Elderly Care Corporation, d/b/a Home Sweet Home No. 2, committed the offenses set forth in Counts I, II, and III in the Amended Administrative Complaint. Revoking the license of South Dade Elderly Care Corporation, d/b/a Home Sweet Home No. 2. DONE AND ENTERED this 3rd day of May, 2010, in Tallahassee, Leon County, Florida. ERROL H. POWELL 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 3rd day of May, 2010.
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 =================================================================
Findings Of Fact Introduction At all times relevant hereto, respondent, Charles Lee Anderson, was licensed as a general lines insurance agent by petitioner, Department of Insurance and Treasurer. Respondent presently resides at 2291 Northwest 12th Court, Pompano Beach, Florida. He has been licensed by petitioner since 1968, and, prior to this proceeding, had no blemishes on his record. When the events herein occurred, Anderson was the president and director of Payless and Save Insurance Underwriters Corporation (Payless), an insurance agency located and doing business at 2401 Northwest 21st Avenue, Fort Lauderdale, Florida. Anderson was also the general lines agent of record for the corporation. Count I In early January, 1984 Anderson was working from midnight until 8:00 a.m. as a security guard. Because of this, he hired one Mamie Baugh as an independent contractor to operate his insurance agency. Anderson authorized Baugh to sell policies and sign his name on insurance applications and other documents. Anderson would drop by his office two or three times a week to "check on (Baugh)" and "look at the paperwork." On or about January 3, 1984 Blanche Jones went to Payless to purchase an automobile insurance policy. She chose Payless because it was located just around the corner from her home in Fort Lauderdale, and was more convenient than her former insurance agent in Hallandale. Because Anderson was not present, Jones met with Baugh and discussed her insurance needs. Baugh filled out an application on behalf of Jones for automobile insurance with Industrial Fire and Casualty Insurance Company (Industrial) in Hollywood, Florida. Anderson was a licensed agent with Industrial, and authorized to act as a brokering agent for that company. Baugh signed Anderson's name on the application as brokering agent. Jones then gave Baugh a check for $456 as payment for the policy and was given a receipt. In February Jones had not received her policy or any evidence that she was insured. Her husband decided to visit the Payless office and obtain an insurance identification card in the event they had an accident. He met with Anderson who promised to give him a card. The following day, Anderson went to Jones' house and dropped off a business card. 1/ While there, Jones told Anderson she had paid for a policy but had never received anything. Anderson promised to "check into the particulars." After not hearing from Anderson for two months, Jones' husband went to Payless' office and found it closed. Jones thereafter went to her old insurance agent in Hallandale, and then to Public Insurance Agency (Public) in Hollywood. Public was the managing general agent for Industrial, the insurance company with whom Jones thought she had a policy. Public had no record of having received Jones' application or the $456 premium paid to Anderson. It also had no record of Anderson having telephoned Public on its "application telephone", a procedure that Anderson should have followed in order to have a binder issued on the policy. Consequently, Public never issued a policy insuring Jones. In late 1985 Jones was reading a copy of the Hollywood Sun Tattler, a local newspaper, and noticed an article about Anderson, who was then running for chief of police in Dania. She contacted the reporter who wrote the story who in turn contacted Anderson. Respondent telephoned Jones the next day and promised to return her money. A week later (January 10, 1986) Jones received a $456 money order from Anderson. A representative of Public established that Anderson was given a copy of an underwriting guide which contained explicit instructions on how to bind coverage and fill out applications. Among other things, the guide required that Anderson, and not his surrogate, sign all applications. Therefore, he was not authorized to allow Baugh to sign in his stead. Count II On or about December 20, 1983 Joseph V. Baxter visited Payless for the purpose of purchasing insurance coverage on various rental properties he owned. Baxter met with Anderson who prepared six "Homeowners Application for Quotation Only" with International Bankers Insurance Company (IBIC). Baxter gave Anderson a check for $818 as payment for the coverage. Anderson later endorsed the check. On January 11, 1984 Baxter returned to Payless and made application for a seventh insurance policy on another rental property. He gave Anderson a $318 check which Anderson subsequently endorsed. At that time Baxter was given a certificate of insurance indicating coverage with Great Southwest Fire Insurance Company (GSFIC). Several months later Baxter received a telephone call from a representative of the lending institution which held the mortgages on his property. Baxter then instructed Anderson to contact the institution and certify that Baxter had coverage on his properties. Anderson telephoned the institution in Baxter's presence and told the representative that Baxter was insured. Sometime later Baxter was again contacted by the mortgagee concerning his insurance coverage. Baxter attempted to visit Anderson but found Payless had closed its offices and gone out of business. Baxter then filed a complaint with petitioner. He never received insurance policies from IBIC or GSFIC. On January 10, 1986 Anderson repaid Baxter $1,136, the amount received by Anderson some two years earlier. A representative of IBIC established that Anderson never remitted the premiums or mailed the six quotation forms to the home office. It was further established that although GSFIC quoted a rate for Anderson on Baxter's seventh piece of property, it never received the follow-up application or premium. Respondent's Case Respondent blamed the Jones mishap on Baugh, who he claimed may have misplaced the application and taken the money. According to Anderson, she now lives in California and was unable to attend the hearing. However, he had no explanation for failing to follow up on Baxter's applications. Anderson said he closed his business in February, 1984 after a series of break- ins at his office, and left a note on the door giving a telephone number where he could be reached. However, he made no effort to personally contact those persons who held policies. Anderson further stated that he was unaware of the Jones and Baxter complaints until contacted by the newspaper reporter and petitioner, and then promptly repaid all monies due.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of the violations set forth in the Conclusions of Law portion of this order, and that his license and eligibility for licensure be REVOKED. DONE and ORDERED this 10th day of September, 1986, in Tallahassee, Florida. DONALD R. ALEXANDER 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 10th day of September, 1986.
