The Issue Does Petitioner, Department of Financial Services (DFS), have authority to determine if Respondent, Alberto Luis Sotero (Mr. Sotero) and Respondent, FalconTrust Group, Inc. (FalconTrust), wrongfully took or witheld premium funds owed an insurance company while a civil action between the insurance company and Mr. Sotero and FalconTrust pends in Circuit Court presenting the same issues? Should the insurance agent license of Mr. Sotero be disciplined for alleged violations of Sections 626.561(1), 626.611(7), 626.611(10), 626.611(13), and 626.621(4), Florida Statutes (2007)?1. Should the insurance agency license of FalconTrust be disciplined for alleged violations of Section 626.561(1), 626.6215(5)(a), 626.6215(5)(d). 626.6215(5)(f), and 626.6215(5)(k), Florida Statutes?
Findings Of Fact Based on the testimony and other evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Mr. Sotero is licensed by DFS as an insurance agent in Florida and has been at all times material to this matter. He holds license number A249545. FalconTrust is licensed by DFS as an insurance agency in this state and has been at all times material to this matter. It holds license number L014424. Mr. Sotero is an officer and director of FalconTrust and held these positions at all times material to this proceeding. Mr. Sotero also controlled and directed all actions of FalconTrust described in these Findings of Fact. Zurich American Insurance Company is a commercial property and casualty insurance company. FalconTrust Commercial Risk Specialists, Inc., and Zurich-American Insurance Group entered into an "Agency-Company Agreement" (Agency Agreement) that was effective January 1, 1999. The Agency Agreement bound the following Zurich entities, referred to collectively as Zurich: Zurich Insurance Company, U.S. Branch; Zurich American Insurance Company of Illinois; American Guarantee and Liability Insurance Company; American Zurich Insurance Company; and Steadfast Insurance Company. The Agreement specified that FalconTrust was an "independent Agent and not an employee of the Company [Zurich.]". . .. The Agency Agreement also stated: All premiums collected by you [Falcontrust] are our [Zurich's] property and are held by you as trust funds. You have no interest in such premiums and shall make no deduction therefrom before paying same to us [Zurich] except for the commission if any authorized by us in writing to be deducted by you and you shall not under any circumstances make personal use of such funds either in paying expense or otherwise. If the laws or regulations of the above state listed in your address require you to handle premiums in a fiduciary capacity or as trust funds you agree that all premiums of any kind received by or paid to you shall be segregated held apart by you in a premium trust fund account opened by you with a bank insured at all times by the Federal Deposit Insurance Corporation and chargeable to you in a fiduciary capacity as trustee for our benefit and on our behalf and you shall pay such premiums as provided in this agreement. (emphasis supplied. The Agency Agreement commits Zurich to pay FalconTrust commissions "on terms to be negotiated . . . ." It requires FalconTrust to pay "any sub agent or sub producer fees or commissions required." The Agency Agreement also provides: Suspension or termination of this Agreement does not relieve you of the duty to account for and pay us all premiums for which you are responsible in accordance with Section 2 and return commissions for which you are responsible in accordance with Section 3 [the Commission section.] The Agency Agreement was for Mr. Sotero and Falcontrust to submit insurance applications for the Zurich companies to underwrite property and casualty insurance, primarily for long- haul trucking. The Agency Agreement and all the parties contemplated that Mr. Sotero and FalconTrust would deduct agreed-upon commissions from premiums and remit the remaining funds to Zurich. On September 14, 2000, Zurich and Mr. Sotero amended the Agency Agreement to change the due date for premium payments and to replace FalconTrust Group, Inc. (FalconTrust) for FalconTrust Commercial Risk Specialists, Inc., and to replace Zurich-American Insurance Group and Zurich Insurance Company, U.S. Branch, with Zurich U.S. Mr. Sotero and Zurich's authorized agent, Account Executive Sue Marcello, negotiated the terms of the commission agreement as contemplated in the Agency Agreement. Mr. Sotero confirmed the terms in a July 20, 1999, letter to Ms. Marcello. The parties agreed on a two-part commission. One part was to be paid from the premiums upon collection of the premiums. The second part, contingent upon the program continuing for five years, was to be paid by Zurich to Mr. Sotero and FalconTrust. The total commission was 20 percent. FalconTrust and Mr. Sotero were authorized to deduct 13 percent of the commission from premiums before forwarding them to Zurich. The remaining seven percent Zurich was to pay to Mr. Sotero and FalconTrust at the end of the program or after the fifth year anniversary date. The letter spelled out clearly that Zurich would hold the money constituting the seven percent and was entitled to all investment income earned on the money. The passage describing the arrangement reads as follows: Our total commission is 20 percent however Zurich will hold and retain the first 7 percent commission where they are entitle [sic] to earn investment income. I understand that FalconTrust will not benefit from this compounded investment income. However you mentioned you would increase our initial commission that is set at 13 percent currently from time to time depending on FalconTrust reaching their goals, but it will never exceed a total commission of 20 percent. It is to our understanding that the difference will be paid at the end of the program or after the fifth year anniversary date being 12/31/2005, but not earlier than five years. I do understand that if Zurich and/or FalconTrust cancels the program on or before the fourth year being 12/31/2004 that we are not entitle [sic] to our remaining commission that you will be holding. If the program is cancelled after 12/31/2004 by FalconTrust and/or Zurich it is understood that all commission being held will be considered earned. (emphasis added.) Until the program ended, the parties conducted themselves under the Agency Agreement as described in the letter. At some point the parties agreed to decrease the percentage retained by Zurich to five percent and increase the percentage initially paid to and kept by FalconTrust to 15 percent. During the course of the relationship FalconTrust produced approximately $146,000,000 in premiums for Zurich. At all times relevant to this matter, all premium payments, except for the portion deducted by sub-agents and producers before forwarding the payments to Mr. Sotero and FalconTrust were deposited into a trust account. The various sub-agents of FalconTrust collected premiums and forwarded them to FalconTrust, after deducting their commissions, which were a subpart of the FalconTrust 13 percent commission. FalconTrust in turn forwarded the remaining premium funds after deducting the portion of its 13 percent left after the sub-agent deduction. This was consistent with the Agency Agreement and accepted as proper by Zurich at all times. All parties realized that the held-back seven percent, later five percent, was money that Zurich would owe and pay if the conditions for payment were met. The parties conducted themselves in keeping with that understanding. Mr. Sotero and FalconTrust described the practice this way in their Third Amended Complaint in a court proceeding about this dispute: "In accordance with the Commission Agreement, Zurich held the contingency/holdback commission and received investment income thereon." (Emphasis supplied.) In 2006 Zurich decided to end the program. In a letter dated December 8, 2006, Tim Anders, Vice President of Zurich, notified Mr. Sotero that Zurich was terminating the Agency-Company Agreement of January 1, 1999. The letter was specific. It said Zurich was providing "notification of termination of that certain Agency-Company Agreement between Zurich American Insurance Company, Zurich American Insurance Co. of Illinois, American Guarantee and Liability Insurance Co., American Zurich Insurance Company, Steadfast Insurance Company . . . and FalconTrust Grup, Inc. . . ., dated January 1, 1999, . . .." Mr. Sotero wrote asking Zurich to reconsider or at least extend the termination date past the March 15, 2007, date provided in the letter. Zurich agreed to extend the termination date to April 30, 2007. At the time of termination FalconTrust had fulfilled all of the requirements under the Agency-Agreement for receipt of the held-back portion of the commissions. Mr. Sotero asked Zurich to pay the held-back commission amounts. He calculated the amount to exceed $7,000,000. Zurich did not pay the held- back commission amounts. As the program was winding down and the termination date approached, FalconTrust continued to receive premiums. As the Agency Agreement and negotiated commission structure provided, FalconTrust deducted its initial commission from the premium payments. But, reacting to Zurich's failure to begin paying the held back commission amounts, Mr. Sotero engaged in "self help." He deducted at least $6,000,000 from the premium payments from customers, received and deposited in the trust account. He took the money as payment from Zurich of earned and held back commissions.3 Nothing in the Agency Agreement or negotiated commission agreement authorized this action. In March of 2007, Mr. Sotero and FalconTrust also brought suit against Zurich in the Circuit Court for the Eleventh Judicial Circuit, Miami, Florida. The issues in that proceeding include whether Mr. Sotero and FalconTrust wrongfully took premiums and how much Zurich owes them for commissions. As of the final hearing, that cause (Case Number 07-6199-CA-01) remained pending before the court and set for jury trial in August 2010. There is no evidence of a final disposition. But the court has entered a partial Summary Judgment determining that FalconTrust wrongfully took premium funds for the commissions that it maintained Zurich owed. The court's Order concludes that the issue is not whether Zurich owed money to FalconTrust, but whether FalconTrust was entitled to take the funds when it did. Like the undersigned, the court determines that it was not. Between December 8, 2006, the date of the cancelation letter, and April 30, 2007, the program termination date, Mr. Sotero and FalconTrust did not remit to Zurich any of the approximately $6,000,000 in premium payments received. Despite not receiving premiums, Zurich did not cancel or refuse to issue the policies for which the premiums taken by Mr. Sotero and FalconTrust were payment. The policies remained in effect.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services suspend the license of Adalberto L. Sotero for nine months and suspend the license of FalconTrust Group, Inc. for nine months. DONE AND ENTERED this 15th day of October, 2010, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 2010.
Findings Of Fact The Respondent, Teresa Jean Watson, at all times material to this proceeding was licensed as an ordinary life agent, a disability insurance agent and a general lines insurance agent. She was the only general lines agent licensed to sell insurance at the T. J. Watson Insurance Agency, Inc. and all insurance sold by that firm at times pertinent hereto was sold and issued under authority of her license. During times material to this proceeding, Teresa Jean Watson sold insurance coverage under authority of her general lines license either as direct agent for various insurance companies for whom she was general agent or, on behalf of MacNeill and Son, Inc. (MacNeill), her managing agency, which represented various insurance companies for whom the Respondent wrote coverage. Between February 1st and February 15, 1982, a homeowner's insurance policy was sold to Tony and Martha Williams by the Respondent's agency under the authority of the Respondent's general lines insurance agent's license. That homeowner's policy required a premium of $211.00. The policyholder, Tony Williams, wrote two checks to the T. J. Watson Agency dated January 22, 1982 and February 12, 1982. Those two checks totalled $174.00. The checks were cashed by the Respondent's agency on January 26, 1982 and on February 6, 1982. The Independent Fire Insurance Company issued the policy to Tony and Martha Williams and on August 4, 1982 a representative of the Independent Fire Insurance Company wrote the Respondent to advise her that she owed that company a balance of $179.35, as of May 1982. Petitioner asserts that the $179.35 represents the amount of Tony Williams' premium owed to the insurer, less the Respondent's commission, which if added together would equal the $211.00 premium on the Williams' policy. Although it was established that $179.35 was owed by the Respondent to the Independent Fire Insurance Company, and never paid, it was not established that it represented the premium due specifically for the Williams' policy as was charged in count 1 of the Administrative Complaint. For instance, the checks paid by the Williamses to the Watson Agency total $174.00 and therefore there is a discrepancy between the total of those checks and the $179.35 amount Independent Fire Insurance company was owed by the Respondent. This fact coupled with the fact that the dates on the checks from the Williamses (January and February) substantially predate the May 1982 billing date to Respondent from Independent Fire, renders it unproven that the checks written to the Watson Agency which Respondent negotiated and retained the benefit of, related to the amount of unremitted premium owed by Respondent to the Independent Fire Insurance Company. In short, it was established that $174.00 was paid the Respondent and her agency by the Williamses. But, it was not established that the premium paid by the Williamses became misappropriated fiduciary funds converted by the Respondent to her own use and benefit. It was merely established that as of May 1982 the Respondent owed the Independent Fire Insurance Company $179.35 as a past-due account It was not established that the Williamses ever suffered a lapse of insurance coverage or were otherwise harmed by the Respondent's failure to pay Independent Fire the $179.35. Indeed, the $179.35 figure was not proven to be more than a mere debt owed by Respondent to Independent Fire Insurance Company. The figure was not shown to have been related to any particular policy. The Respondent and her insurance agency in the regular course of business wrote insurance coverage for companies represented by MacNeill and Son, Inc., the Respondent's managing agency. The regular business practice between the Respondent and MacNeill was for the Respondent to write coverage on behalf of insurers represented by MacNeill and to remit on a regular open account" basis insurance premiums due MacNeill on behalf of its insurance company principals on a monthly basis. The Respondent became delinquent in submitting premiums to MacNeill and Son in November 1981. After unsuccessful efforts to collect the delinquent premium funds from the Respondent, MacNeill and Son, Inc. suspended T. J. Watson Insurance Agency and the Respondent from writing further coverage for companies they represented in January 1982. The Respondent purportedly sold her agency to one Thomas Zinnbauer in December 1981, but had already fallen into a pattern of failing to remit insurance premiums over to MacNeill before that time. In any event, the purported sale to Thomas Zinnbauer was a subterfuge to avoid collection of delinquent premiums inasmuch as the Respondent held herself out, in correspondence with MacNeill, (See Petitioner's Exhibit 4) to be the president of the agency at least as late as April 1982 and, at that time and thereafter, the agency continued to sell insurance under the aegis of the Respondent's license. After the Respondent made up the delinquency in premium remissions to the MacNeill Agency that agency restored her underwriting authority in January 1982. Shortly thereafter however, the Respondent and the T. J. Watson Agency again became delinquent in remitting insurance premiums to the MacNeill Agency and followed a quite consistent pattern of failing to forward these fiduciary funds to MacNeill for some months. Ultimately the Respondent and her agency failed to forward more than $6500.00 in premium payment funds to MacNeill and Son, Inc. as was required in the regular course of business. MacNeill and Son, Inc. made repeated futile attempts to secure the misappropriated premium payments from the Respondent and her agency. MacNeill made several accountings of the amount of the acknowledged debt to the Respondent. The Respondent communicated with MacNeill concerning the delinquent premium payments and acknowledged the fact of the debt, but sought to reach an amicable arrangement for a repayment schedule. Re- payment was never made, however, and ultimately the Petitioner agency was informed of the deficiencies and prosecution resulted. The Respondent knew that the premiums had been collected by herself and her agency and had not been forwarded to those entitled to them. She knew of and actively participated in the improper withholding of the premium payments. This withholding and diversion of premium payments from the agency and companies entitled to them was a continuing pattern of conduct and Respondent failed to take action to halt the misappropriation of the premium payments. Further, it is established by the testimony of Matthew Brewer, who investigated the delinquent premium accounts for MacNeill, that Ms. Watson failed to advise MacNeill of the purported sale of her agency until November of 1982, almost a year after it is supposed to have occurred and then only in response to Brewer's investigation. When confronted by Mr. Brewer concerning the ownership of her agency Ms. Watson refused to tell him to whom she had sold the agency. When Mr. Brewer learned that Thomas Zinnbauer had apparently bought the agency from the Respondent Mr. Brewer conferred with him and he refused to release the agency records unless Ms. Watson gave her permission. This fact, together with the fact that Ms. Watson held herself out as president of the agency some four months after she had purportedly sold the agency to Zinnbauer, establishes that Respondent, by representing to Brewer and other personnel of MacNeill and Sons, Inc. that she had sold her agency, was attempting to evade liability for failure to forward the fiduciary premium funds obtained under the authority of her agent's license. As a result of the failure to forward the above- mentioned premium payments some of the insureds who had paid those premiums suffered lapses in coverage and cancellations of policies because MacNeill and Company and the insurers they represented believed that no premiums had ever been paid. Ultimately, MacNeill and Company learned that the premiums had been paid by the policyholders, but not remitted by the Respondent and her agency and undertook steps to reinstate coverage, but those policyholders in some instances had substantial periods of time when their coverage was lapsed due to the Respondent's failure to remit the premium funds to the managing agency and the insurance companies involved. MacNeill and Company ultimately reimbursed the appropriate insurers and insureds at its own expense, incurring substantial financial detriment as a result of the Respondent's failure to have premium payments obtained under her licensed authority properly forwarded. Had the insureds who had their policies cancelled suffered losses for which claims could have been filed during the period of the lapses of coverage, they could have encountered substantial financial difficulty.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is therefore recommended that the General Lines Insurance Agent's license of Respondent Teresa Jean Watson be revoked. DONE and ORDERED this 27th day of December, 1985, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 FILED with the Clerk of the Division of Administrative Hearings this 27th day of December, 1985. APPENDIX RULING OF PETITIONER'S PROPOSED FINDINGS OF FACT: Accepted. Accepted, although the amount represented by the two subject checks totalled $174.00 instead of $175.00. Accepted. Rejected as not comporting with the competent, substantial credible evidence adduced. Rejected inasmuch as it was not established that the amount of $179.35 owed the Independent Fire Insurance Company represented the premium on the Williamses' insurance policy. Accepted. Accepted. Accepted. Accepted, although the last sentence in that Proposed Finding constitutes, in reality, mere argument of counsel. Accepted. Rejected as not comporting with the competent, substantial credible testimony and evidence actually before the Hearing Officer. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. RULINGS ON RESPONDENT'S PROPOSED FINDINGS OF FACT: Respondent submitted a post-hearing document entitled "Proposed Findings of Fact." There are few actual Proposed Facts in that one-and-a-half page pleading which is interlaced throughout with argument of counsel. However, to the extent the six paragraphs of that document contain Proposed Findings of Fact they are ruled on as follows: This Proposed Finding is rejected, but for reasons delineated in the above Conclusions of Law, Count 1 has been recommended to be dismissed anyway. This Finding is accepted but is immaterial and irrelevant to, and not necessary to, the Findings of Fact reached herein and the Conclusions of Law based thereon. Paragraph Number 3 does not really constitute a Proposed Finding of Fact or even multiple Proposed Findings of Fact in the same paragraph. In reality, it constitutes argument of Respondent's counsel concerning admissibility of certain documents into evidence which have already been ruled to be admissible by the Hearing Officer during the course of the hearing. To the extent that the last two sentences in the third paragraph of the Respondent's Proposed Findings of Fact are proposed findings of fact, they are accepted, but are immaterial, irrelevant and unnecessary to the findings of fact made herein and the conclusions predicated thereon and recommendation made herein. Rejected as not being in accordance with the competent, substantial credible testimony and evidence adduced. Rejected as constituting mere argument of counsel and not being in accordance with the competent, substantial, credible evidence adduced. Rejected as not in accordance with the competent, substantial, credible evidence presented as to Count 2. In reality, counsel obviously intended to refer to the two checks referenced in Count 1 of the complaint which has been recommended to be dismissed anyway. COPIES FURNISHED: Dennis Silverman, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 Mark A. Steinberg, Esquire Post Office Box 2366 Ft. Myers, Florida 33902 Bill Gunter Insurance Commissioner and Treasurer The Capitol Tallahassee, Florida 32301
Findings Of Fact The Respondent was licensed as a General Lines Insurance Agent at all times material hereto. He generally wrote insurance for the various insurance companies he represented through General Agents such as Frank MacNeill and Son, Inc. and Amalex, Inc. The Respondent operated his insurance agency under the corporate name Pennington Insurance Agency, Inc. The Respondent was owner and President of Pennington Insurance Agency, Inc. and exercised supervision and control over its employees, and in particular the employee Earnest L. Middleton. All funds collected from insured pertinent to this proceeding were premium payments and represented trust funds held by the Respondent in a fiduciary capacity on behalf of his General Agent or the insurance companies whose policy contracts generated the premiums. From August through December, 1981, the Respondent engaged in negotiations with representatives of Amalex, Inc. and specifically, Mr. Walter Gibson, President of Amalex, Inc. and Mr. Larry Durham of Durham and Company Insurance Agency. These negotiations ultimately led, in November of 1981, to the Respondent becoming an employee-agent of Amalex, Inc. The Respondent was to be paid a salary which was to be an advance upon commissions earned at the rate of 75% on new policies and 60% on "renewals." This commission-salary arrangement was entered into pursuant to an oral agreement between the Respondent and Walter Gibson of Amalex. There was never any written contract between the Respondent and Amalex, Inc. delineating the employment arrangement or the compensation which Respondent was to be provided by Amalex, Inc. in return for his "brokering" business for Amalex, Inc. There was never any written contract concerning the method of forwarding of premium payments to Amalex, Inc. This oral agreement was modified at the behest of Amalex, Inc. on or about March 19, 1982, so as to reduce the compensation of the Respondent. The Respondent's new compensation under the modified arrangement provided for a 60% draw against commissions for new business and a 50% draw against commissions on renewal business. The Respondent received payments from Amalex, Inc., totaling $5,980 as advances on commissions for times pertinent to the allegations in the Complaints. The regular course of business practice established by Amalex, Inc. with the Respondent, required the Respondent to forward premium collections within 45 days of receiving a statement or bill from Amalex, Inc. During the period August, 1981, until December, 1981, numerous discussions and negotiations were had between the Respondent and Mr. Gibson in an effort to work out the details of the employment terms between Respondent and Amalex, Inc. Additionally, these negotiations hinged somewhat upon a proposed merger of Durham and Company and Amalex, Inc., which never occurred. In any event, the Respondent held the good faith belief that during the period of time from August, 1981, through December, 1981, until their business relationship got successfully started, that he had been authorized by Mr. Gibson to retain all premiums on commercial lines policies written by his office. In his testimony, Mr. Gibson disagreed with the Respondent's version of their arrangement concerning business insurance premiums. There was clearly a disagreement between Gibson and Respondent as to what the terms of the Respondent's compensation were to be. In fact, the Respondent received notice no later than March 19, 1982, in a letter from Gibson to the Respondent, that indeed there was a dispute as to his compensation arrangement and the manner in which he was to remit premium payments to Amalex, Inc. In a letter to Mr. Gibson of May 27, 1982, the Respondent reveals his recollection of the oral agreement and states it to be his belief that he was authorized to retain commercial account premiums only from September 1, 1981, through December, 1981. The letter reveals, by its content, that he was aware that Amalex, Inc. opposed his retention of commercial policy premiums, at least after December, 1981 (Respondent's Exhibit 5, in evidence). The Respondent was clearly not permitted by Amalex to retain all premiums collected on commercial policies sold by him during the entire period of their business relationship. Indeed, many of the commercial accounts were, in fact, paid when collected, in whole or in part, by the Respondent during the business relationship with Amalex which extended through most of 1982. One account, the American Legion Policy Account, eventually was paid in full by Respondent to Amalex. The Respondent's testimony and that of his former employee, Ernest Middleton, is at odds with that of Mr. Gibson, the president of Amalex and the Respondent's own testimony, in different portions of the record, is to some extent, inconsistent. At one point the Respondent indicated that he was authorized to retain all commercial premiums for coverage of his office operating expenses. At another point, both he and Middleton testified there was an allowance of $1,200 a week from Amalex for expenses to run the office. At still another point, by way of an exhibit (Petitioner's Exhibit No. 13 in evidence), the Respondent appeared to be of the belief that the expense allowance from Amalex was to be $400 per week for operating his office. In any event, by his letter of May 27, 1982, to Amalex and Mr. Gibson, the Respondent clearly reveals it to be his belief that the authorization to retain all commercial account premiums did not extend beyond December, 1981, which arrangement is more logical since it was, in the Respondent's own words, an arrangement to cover expenses until the business "got rolling." Thus the Respondent knew no later than May 27, 1982, by his own admission, that he was expected, after December, 1981, to forward all premium payments, both on personal lines and commercial lines policies to Amalex or the policies would be cancelled. This letter, the letter of March 19, 1982, from Mr. Gibson to the Respondent, portions of the Respondent's testimony, as well as the testimony of Mr. Gibson and his employee Mary Stratton, taken together, belies the Respondent's assertion that he could retain the commercial premiums to cover his own office expenses without accounting for them and forwarding them to Amalex. Such was clearly not the case after December 31, 1981, at the very latest. The Respondent additionally had agency contracts with Frank MacNeill and Son, Inc., a General Agent, for which concern the Respondent wrote insurance policies. These contracts required him to forward premium collections within 30 days of receipt of them from the insured. On or about March 20, 1984, the Respondent sold to Ollie Rodgers an automobile insurance policy and collected $211 from Mr. Rodgers as a down payment and also received $428 from National Premium Budget Plan for financing the balance of the premium payment over time. Count 1 of the Administrative Complaint involves solely the Ollie Rodgers policy. That policy was brokered through Frank MacNeill and Son, Inc. This only count concerning the MacNeill business arrangement with the Respondent does not charge a general failure to remit premiums to MacNeill in violation of the agency agreements and Chapter 626, Florida Statutes. Thus, although evidence is of record concerning the Ollie Rodgers incident and several thousand dollars in disputed other premium amounts MacNeill maintains the Respondent owes it, the charge in the Administrative Complaint concerning MacNeilles and the Respondent's business arrangement, and the question concerning the withholding of premiums due MacNeill, only concerns the Ollie Rodgers' policy and account. The alleged failure of the Respondent to remit several thousand dollars in premiums owed to Frank MacNeill contained in the testimony of Petitioner's witnesses at hearing, specifically Joe McCurdy, the secretary- treasurer of Frank MacNeill and Son, Inc., is not the subject matter of any charge or allegation in the Administrative Complaint. Mr. McCurdy testified that the Respondent had ultimately paid all monies due Frank MacNeill except for $734.23 in court costs and attorneys fees. He was the only witness testifying concerning the Frank MacNeill business arrangement and none of his testimony linked the premiums paid by Ollie Rodgers to the Respondent with any delinquent premium amount actually owed Frank MacNeill and Son, Inc. There was no testimony tying the account balance which Pennington ultimately paid MacNeill, after litigation ensued, with the Ollie Rodgers account and premium amount paid to the Respondent by Rodgers. There is no specific proof that the Ollie Rodgers account itself was unpaid by the Respondent. From March 4, 1982, to November 9, 1982, the Respondent received premium payments from one Irving Herman in the amount of $7,161 on a commercial insurance premium account. The Respondent forwarded some of these funds to Amalex, Inc., but an outstanding balance of $2,353 remains which has not been paid by the Respondent to Amalex. The Respondent has asserted that he could lawfully retain this balance because it was a commercial account and he was authorized to keep all premiums for commercial insurance to pay his office expenses. For the reasons found above, the Respondent was not authorized to retain any commercial premium funds in his own account and in his own business after December, 1981, as he admits himself in his letter of May 27, 1982, to Gibson of Amalex, Inc. The Respondent was required to forward all the premium payments attributable to the Herman policy, and in this instance, he forwarded only some of them, without accounting to Amalex as to why he retained the balance of the Herman premiums. The Respondent also collected $799 in premium payments from Irving Herman on an individual insurance policy. The Respondent forwarded most of this premium to Amalex, Inc. but retained $95 of it. The business practice of Amalex was to send a monthly statement to the Respondent detailing amounts payable on new business. When a policy was sent to the Respondent for coverage he had written, an invoice was included. Additionally, Amalex and its president, Mr. Gibson, sent numerous letters to the Respondent requesting payment of the large amount of past due accounts. The premium amounts paid by Mr. Herman for his individual policy and his commercial policy to Respondent was received on behalf of his General Agent, Amalex, a substantial amount of which he failed to remit. Since the above amounts were not remitted to Amalex, Inc. by the Respondent, it can only be inferred that he used the unremitted funds for his own purposes. On September 23, 1982, or thereafter, the Respondent collected premium payments from Joseph S. Middleton on behalf of his company, Florida Lamps, Inc., in the amount of $1,467. The Respondent remitted a portion of this to Amalex, but retained $917.55. This premium, for insurance for that business, was collected for insurance written well after the Respondent was on notice from Amalex that he was not authorized to retain premiums collected on commercial lines or business insurance, as found above. A monthly statement, invoice, as well as numerous letters were directed from Amalex to the Respondent requesting payment of this past due amount, to no avail. Thus, the above- referenced balance of the premiums related to the Florida Lamps, Inc. insurance policy and account were retained by the Respondent for his and his agency's own benefit and use rather than remitted to Amalex, the entity entitled to them. The Respondent failed to properly account to Amalex regarding the use of or the whereabouts of these funds. On or about October 20, 1982, the Respondent received from Eric Gunderson, on behalf of Eric's Garage, $182, which represented the premium down payment on a garage liability policy, a type of commercial-lines insurance. About the same time, the Respondent also received $438 as the remaining balance., on the premium on this policy from the Capitol Premium Plan, Inc., a premium financing company. This premium payment was received by the Respondent well after notice by Amalex, his General Agent, that it was not acceptable for the Respondent to retain commercial account premiums on policies written for companies for whom Amalex was General Agent. None of this premium payment was ever forwarded to Amalex, even after repeated demands for it. Rather, the premium funds were retained by the Respondent and used for other purposes. On March 3, 1982, the Respondent sold to Citiweld Welding Supply, a package business policy including workers' compensation coverage issued by the Insurance Company of North America through Amalex, Inc., as its General Agent. The Respondent collected a total of $2,162.62 in premium payments from Citiweld. He collected those payments in six monthly installments following a down payment of $500. The Respondent made monthly payments of $163 to Amalex, Inc., and then later monthly payments of $153. The Respondent collected a total of $2,162.62 which was $80.62 in excess of the actual premium due on the policy. This policy was not financed by a financing agreement, which might be characterized by an additional financing fee, thus the Respondent collected $80.62 in excess of the amount of premium due on the policy. The Respondent ultimately remitted to Amalex a total of $1,275. Thus, $807 is still due and owing to Amalex by the Respondent. The Respondent, according to his own former employee, Earnest Middleton, was collecting an additional $20 a month service charge on the Citiweld account. There is no evidence that he was authorized to collect the additional $20 per month service charge, and no portion of that service charge was ever forwarded to Amalex. It was retained by the Respondent. The fact that the Respondent was making periodic monthly payments to Amalex during this period, without the existence of a financing agreement with the insured, corroborates the position of Amalex, established by Mr. Gibson and Ms. Stratton, that there was no authority to withhold commercial account premium payments at this time, and that premiums due Amalex from the Respondent were to be paid pursuant to monthly statements or billings sent to the Respondent. Ms. Stratton's and Mr. Gibson's testimony in this regard is corroborated by the letter of March 19, 1982, to the Respondent from Gibson (in evidence), wherein he was informed that such commercial insurance business and related premiums should be billed and paid for on a monthly basis. On or about August 31, 1981, Respondent sold a package workman's compensation policy to B & L Groceries, Inc. to be issued through Amalex, Inc., who represented the insurance company for whom the policy was written. The Respondent received approximately $3,350 from B & L Groceries, which represented the premium on the above policies. The premium payments were not forwarded in the regular course of business to Amalex, the General Agent. On or about December 17, 1981, the Respondent sold to B & L Seafood Restaurant, Inc., a package commercial insurance policy and endorsement also issued through Amalex. The Respondent collected $2,112 premium on that policy. That premium was not forwarded in the regular course of business to Amalex. On September 1, 1981, the Respondent sold to Parker's Septic Tank Company, a general liability and business automobile insurance policy, also issued through the General Agent, Amalex, Inc. He collected from that business approximately $2,542 as premium payment on the insurance policies. The automobile policy was cancelled thereafter, such that a total net premium of $1,056 remained due and owing to Amalex, which the Respondent failed to forward in the regular course of business. These policies sold to B & L Groceries, B & L Seafood Restaurant and Parker's Septic Tank Company, were sold during the time when the Respondent believed that he was authorized by Amalex, Inc., and its president, Mr. Gibson, to retain premiums on all such commercial or business insurance policies to cover his office expenses, and thus it cannot be found that he willfully retained and misappropriated those premiums, although Amalex's entitlement to those premiums was later the subject of a civil action between the Respondent and Amalex, Inc., such that Amalex did demand payment of those premiums, which the Respondent failed to do. On or about March 4, 1982, the Respondent sold to The Cypress Gallery a package business insurance policy and endorsement issued through Amalex, Inc. The Respondent collected at least $883 from The Cypress Gallery, representing the earned premium on that policy which was cancelled on July 22, 1982. He failed to forward the earned premium in the regular course of business to Amalex, the General Agent. On March 16, 1982, Respondent sold to Eurohouse Custom Builders, Inc., fire, general liability, automobile and builder's risk policies together with several endorsements issued through Amalex, Inc. He collected premium payments on those policies in the earned amount of $1,197, although the policies were later cancelled after that amount of premium was earned by the insurance company and Amalex. He failed to forward the $1,197 earned premium to Amalex in the regular course of business. On July 9, 1982, the Respondent sold to Byron Hood, a package commercial insurance policy and automobile policies issued through Amalex, Inc., on which the Respondent collected a total premium amount of $1,430 from IMAC, a premium finance company. The Respondent failed to forward this premium amount in the regular course of business to Amalex, Inc. On May 14, 1982, the Respondent sold to Jeanes Swap Shop, a package commercial insurance policy with an endorsement which was issued through Amalex, Inc., and upon which the Respondent collected and received a $314 premium. The Respondent forwarded most of the premium to Amalex, but failed to forward $39 of it. On or about March 31, 1982, the Respondent sold to Lawns Unlimited a commercial policy issued through Amalex, Inc. The Respondent collected and received from Lawns Unlimited $816, which represented the premium payment for that policy. This premium payment was never forwarded to Amalex in its entirety and an earned premium of $242 is still due Amalex as General Agent. On or about July 2, 1982, the Respondent sold to Robert Lewis a package commercial insurance policy issued through Amalex. The Respondent received $500 from Lewis as a premium payment for that policy. The Respondent failed to forward $150 of that premium to Amalex. On or about April 1, 1982, the Respondent sold to Joe Strickland a homeowners and boat insurance policy issued through Amalex, Inc. He collected a premium from Mr. Strickland in the amount of $353 which he failed to forward in the regular course of business to Amalex, the General Agent. This was a personal homeowners and marine insurance policy issued to Mr. Strickland, and the $353 premium could not possibly have been the subject of any misunderstanding concerning Respondent's retention of it for coverage of office expenses. On April 30, 1982, the Respondent sold to "Pop-a Top Lounge" a general liability and fire insurance policy issued through Amalex, Inc. The Respondent collected a premium of $647 on that policy and failed to forward it in the regular course of business to Amalex, the party entitled to it as General Agent. Near the end of 1982, the Respondent sold to Arnold Construction Company various endorsements on its existing business insurance coverage so as to add coverage for additional motor vehicles. That policy and the endorsements were issued through Amalex, Inc. The Respondent collected from Arnold Construction Company a premium payment in the amount of $1,302 and failed to forward it in the regular course of business to Amalex, the General Agent. Numerous requests were made of the Respondent by Amalex, Inc. for the payment of the delinquent premiums the Respondent owed it on all outstanding accounts beginning in March, 1982. In October, 1982, Amalex began requiring cash remissions with applications for insurance written by the Respondent. The Respondent has failed to pay the outstanding account balances representing premium trust fund payments due to Amalex, Inc., such that in excess of $18,000 in outstanding premium payments have not been remitted to that firm. It is true that two of the amounts billed and depicted on Exhibit No. 12 as constituting that approximate $18,000 outstanding premium payment amount, represent $1,368 and $174 for business written in November and December of 1981, during which time the Respondent was under the genuine belief that he had an agreement with Amalex, Inc., to retain in his office all business insurance premium payments. Even though that is the case, and the B & L Groceries, B & L Seafood and Parker Septic Tank Co. premiums are attributable to this time period, the fact remains that the greater portion of the disputed approximate $18,000 amount remains outstanding and has never been paid by the Respondent to Amalex, Inc., the entity entitled to the funds. The amounts collected and not remitted by the Respondent on the insurance accounts delineated above constitute trust funds held in a fiduciary capacity by the Respondent on behalf of the General Agent, Amalex, Inc., who is General Agent for the insurance companies for whom the Respondent wrote the policies.1 The Respondent thus misappropriated these trust funds by failing to remit them in a timely fashion to the General Agent, Amalex, Inc., in the regular course of business. Although the Respondent clearly failed to properly account for and deliver the subject funds, there is no evidence to show that the Respondent was guilty of faulty record keeping in his own agency. In fact, Petitioner did not adduce any competent, substantial evidence to indicate what manner of record keeping the Respondent engaged in, good, bad or indifferent.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the Respondent, John Wayne Pennington's General Lines Insurance Agent's license be suspended for a period of two years, in accordance with Section 626.641, Florida Statutes. DONE and RECOMMENDED this 3rd day of March, 1986 in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1986.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Ralph Edward Carter, was licensed and eligible for licensure as a life and health insurance agent and general lines agent - property, casualty, surety and miscellaneous lines by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was licensed as a property and casualty insurance agent for Bankers Insurance Company (BIC) and Underwriters Guarantee Insurance Company (UGIC). In March 1987 respondent purchased an insurance franchise and began operating an insurance firm under the corporate name of Mr. Auto of South St. Petersburg, Inc. Records on file with the Department of State reflect that effective June 25, 1988 the name of the corporation was changed to Reliable Insurance of South St. Petersburg, Inc. Since February 1989 the business has been located at 3135 18th Avenue, South, No. C- 3, St. Petersburg, Florida. The corporation was primarily engaged in doing business as a general lines insurance agency. Respondent has been licensed as an agent since 1968, and during his tenure as an agent, has worked in sales with several large insurance companies. In January 1988 Betty Andrews purchased from respondent liability and property damage coverage on her two automobiles, a 979 Ford station wagon and a 1980 Chrysler. The insurance was written through UGIC and was effective for the year beginning January 8, 1988. Shortly after May 16, 1988 Andrews received a notice from UGIC reflecting that she owed an additional $38.90 on her policy. For some undisclosed reason, Andrews did not pay the additional premium owed. On July 6, 1988 Andrews visited respondent's office for the purpose of adding comprehensive and collision coverage on her two automobiles. After respondent quoted a rate, she agreed to purchase the additional coverage, filled out an application, and gave respondent two checks totaling $166. These monies were deposited into respondent's business account. The balance was to be paid in three monthly payments of approximately $55 each month through a finance company. Respondent gave Andrews a document entitled "Receipt and Binder Certificate" reflecting she had comprehensive and collision coverage with "Bankers" effective from July 6, 1988 to January 6, 1989. "Bankers" was in fact Bankers Insurance Company. When Andrews did not receive a policy from BIC, she attempted to contact respondent on several occasions to ascertain its whereabouts. Andrews could not recall when or how many times she telephoned respondent's office but indicated she was never able to reach him. This was probably because respondent operated a one-man office with no clerical help and was frequently absent from his office. In late August 1988 Andrews received a notice from UGIC advising that UGIC intended to cancel her policy effective September 7, 1988 because she failed to pay the $38.90 premium still due. At about this same time Andrews' husband sold the station wagon and purchased a truck. Accordingly, Andrews needed to transfer her insurance to the new vehicle. She went to respondent's office in early September 1988 and asked him why she had never received the new policy. She also asked him to find out why her existing policy was being cancel led and requested him to transfer coverage from the station wagon to the new truck. In Andrews' presence, respondent made a telephone call to UGIC and learned that Andrews' husband had failed to disclose on the insurance application that he had received a traffic ticket. This in turn caused a $38.90 increase in the annual premium, and because that amount had not been paid, the policy was being cancelled. Respondent attempted to persuade UGIC to reinstate the policy but was unsuccessful. Dissatisfied, Andrews told respondent she intended to file a complaint with the Department of Insurance. Respondent then wrote her a check for $166 which represented a full refund of her monies. There is no evidence to establish that respondent intended to defraud Andrews or to evade the requirements of the insurance code. Despite the fact that Andrews did not receive a policy, she was covered until September 1988 by her original policy and respondent's errors and omissions policy. Through testimony by an underwriting manager for BIC, David R. Wardlow, it was established that respondent had entered into a correspondent agreement with an agent of BIC. Wardlow's review of BIC's records reflected that BIC had never received Andrews' application and premium nor was a policy written on her behalf. However, there was no evidence to establish how promptly respondent was required to remit a new application and premium to BIC or whether respondent violated BIC policy by retaining the application and monies for some sixty days until he learned that the existing policy had been cancel led. Respondent readily conceded that he never forwarded the application and premium monies to BIC. He explained his actions by pointing out that after Andrews left his office he decided to secure the coverage from UGIC rather than BIC in order to have the entire coverage with one company at a cheaper rate. When he later learned that UGIC intended to cancel Andrews' policy for nonpayment of premium, he thought he might be able to persuade UGIC to reinstate the policy but was unsuccessful. He offered no excuse except inadvertence as to why he had not promptly followed up on Andrews' application. Petitioner also presented the testimony of Johnnie Ruth Bell who purchased automobile insurance from respondent in October 1988. Although Bell's testimony was often vague and confusing, the following facts were established. On or about October 1, 1988 Bell went to respondent's office to purchase full insurance coverage on her 1987 Toyota Corolla. After discussing various options with respondent, Bell agreed to purchase a policy issued through Redmond-Adams, a Sarasota underwriter for UGIC. Bell gave respondent a check in the amount of $227 as a down payment and agreed to finance the balance through a finance company at a rate of $78 per month for eight months. These monies were deposited into respondent's bank account. Respondent issued a "Receipt and Binder Certificate" reflecting coverage with "Underwriter - Redmond Adams". Because Bell had financed the car with a local bank, it was necessary for respondent to furnish the bank with evidence of insurance. Through inadvertence, but not intentionally or willfully, respondent misplaced the application and never forwarded the application and premium to the insurance company nor did he notify the bank of Bell's insurance coverage. However, Bell was covered during this period of time by respondent's errors and omissions policy. After Bell did not receive a copy of her policy from Redmond-Adams, but received a number of telephone calls and notices from her bank, she met with respondent around December 2, 1988. Respondent accepted an additional $156 in cash from Bell and issued her a new binder effective that date which was identical to the first binder except for the date. It is unknown why the additional money was collected. He then tore up the first binder. When Bell had still not received her policy by April 1989, she filed a complaint with petitioner. After respondent learned that Bell had filed a complaint, he contacted her in May 1989 and refunded all of her monies. There was no evidence to establish how promptly respondent was required to submit applications and premiums to UGIC or how that company construed the term "in the regular course of business" in the context of agents remitting applications and premiums. Respondent blamed his problems on the fact that he is the sole employee of his office and, according to his estimate, services some 500 active clients per year and more than 1,500 accounts. He desires to continue in the insurance profession and points to the fact that, of the many insurance transactions handled by him over the last twenty-two years, the Andrews and Bell transactions are the only two that have spawned any significant problems. Moreover, he has never been disciplined by petitioner during his tenure as an agent. Respondent asks that any penalty be limited to a period of probation during which time he can have the opportunity to improve his management and bookkeeping skills. There was no evidence to establish whether respondent's conduct demonstrated a lack of fitness or trustworthiness to engage in the insurance profession. As to respondent's knowledge and technical competence to engage in the transactions authorized by his licenses, he conceded he lacks training in bookkeeping and management skills, both needed for a general lines agent, but denied that he lacks the necessary skills in the sales part of the business. This was not contradicted. Finally, respondent has taken curative steps to insure that applications are not misplaced and the customer receives the requested insurance.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of violating sections 626.611(8) and 626.734 and that his general lines license be suspended for thirty days. All other charges should be dismissed with prejudice. DONE AND ORDERED this 13 day of March, 1990, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13 day of March, 1990. APPENDIX Petitioner: 1-4. Partially adopted in finding of fact 1. 5-7. Partially adopted in finding of fact 3. 8-11. Partially adopted in finding of fact 6. Note - Where a finding has been partially adopted, the remainder has been rejected as being irrelevant, unnecessary, cumulative, subordinate, not supported by the evidence, or a conclusion of law. Respondent: A Partially adopted in findings of fact 5 and 6. Rejected as being irrelevant. Partially adopted in finding of fact 3. Partially adopted in finding of fact 5. Partially adopted in finding of fact 6. Rejected since respondent did not move his office until February 1989. Partially adopted in finding of fact 4. Partially adopted in finding of fact 6. I. Partially adopted in findings of fact 3 and 8. Partially adopted in findings of' fact 7 and 8. Partially adopted in findings of fact 6 and 7. Partially adopted in finding of fact 10. Partially adopted in finding of fact l. Partially adopted in finding of fact 10. Partially adopted in finding of fact 1. Note - Where a finding has been partially used, the remainder has been rejected as being irrelevant, cumulative, unnecessary, subordinate, not supported by the evidence or a conclusion of law. COPIES FURNISHED: Honorable Tom Gallagher Insurance Commissioner Plaza Level, The Capital Tallahassee, FL 32399-0300 Willis F. Melvin, Jr., Esquire 412 Larson Building Tallahassee, FL 32399-0300 Richard J. DaFonte, Esquire O. Box 41750 St. Petersburg, FL 33743-1750 Donald A. Dowdell, Esquire General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 =================================================================
The Issue The issues in this case are whether Respondents violated Subsections 626.611(7), 626.611(9), 626.611(10), and 626.611(13), Florida Statutes (2008),1 and, if so, what discipline should be imposed.
Findings Of Fact At all times material to the allegations in the Administrative Complaints, Mr. Holliday, III, was a licensed Florida surplus lines (1-20) agent, a life and health (2-18) agent, a general lines (property and casualty) (2-20) agent, an independent adjuster (5-20), and agent in charge at International Brokerage and Surplus Lines, Inc. (IBSL). Mr. Holliday, III, had been associated with IBSL since its inception in 1993. At all times material to the allegations in the Administrative Complaint, Mr. Holliday, IV, was licensed in Florida as a general lines (2-20) agent. At all times material to the allegations in the Administrative Complaint, Mr. Holliday, III, and Mr. Holliday, IV, were officers and owners of IBSL. Most recently, Mr. Holliday, III, was the secretary of IBSL. He handled the underwriting and risk placement for the agency. From approximately March 1993 to April 2009, Mr. Holliday, IV, was the president of IBSL. As president of IBSL, Mr. Holliday, IV's, duties included signing agreements which established IBSL's business function as that of a general managing agent and signing agreements which empowered IBSL to collect premiums on behalf of insureds. IBSL ceased doing business on May 1, 2009. In the insurance industry, a common method of procuring insurance involves a retail producer, a wholesale broker, and a program manager. A customer desiring insurance contacts its local insurance agent, which is known as a retail producer, and applies for insurance. The retail producer has a producer agreement with a wholesale broker, who has a producer agreement with a program manager. The program manager represents insurance companies. The retail producer sends the customer's application to the wholesale broker, and the wholesale broker contacts the program manager and forwards the application to the program manager. The program manager will provide a quote if the insurance company is willing to insure the customer. The quote is passed back to the customer via the wholesale broker and the retail producer. If the customer decides to take the insurance, the program manager will issue a binder to the wholesale broker, who will submit the binder to the retail producer. The wholesale broker will issue an invoice for the premium to the retail producer. The program manager pays a commission to the wholesale broker pursuant to its producer agreement with the wholesale broker, and the wholesale broker pays a commission to the retail producer pursuant to its producer agreement with the retail producer. When the retail producer sends the premium payment to the wholesale broker, the retail producer will deduct its commission. The wholesale broker sends the premium amount to the program manager less the wholesale broker's commission. If the customer is unable to pay the entire amount of the premium, part of the premium may be financed through a premium finance company. The premium finance company may pay the premium to the retail producer or to the wholesale broker. International Transportation & Marine Agency, Inc. (ITMA), is a program manager and is engaged in the business of selling, brokering, and servicing certain lines of policies of insurance written or issued by insurance companies. ITMA is a program manager for Pennsylvania Manufacturers Insurance Association (Pennsylvania Manufacturers), an insurance company. IBSL, a wholesale broker, entered into a producer's contract with ITMA on January 4, 2008. Wimberly Agency, Incorporated (Wimberly), is a retail producer located in Ringgold, Louisiana. In 2008, Wimberly had a producer's agreement with IBSL. Carla Jinks (Ms. Jinks) is the administrative manager for Wimberly. In October 2008, R.L. Carter Trucking (Carter) was a customer of Wimberly and applied for motor truck cargo insurance with Wimberly. Wimberly submitted an application to IBSL and requested that coverage be bound effective October 28, 2008, for Carter. IBSL contacted ITMA and received a binder for a policy with Pennsylvania Manufacturers. The cost of the policy was $9,500.00 plus a policy fee of $135.00 for a total of $9,635.00. Carter paid Wimberly $2,500.00 as a down payment and financed the remainder of the cost with Southern Premium Finance, LLC, who paid the financed portion directly to Wimberly. Wimberly deducted a ten percent commission of $950.00 and sent the remainder, $8,635.00 to IBSL. The check was deposited to IBSL's clearing account. On January 22, 2009, Carter contacted Ms. Jinks and advised that he had received a notice of cancellation effective January 22, 2009, due to non-payment to Pennsylvania Manufacturers. On the same date, Ms. Jinks received a facsimile transmission from IBSL, attaching the notice of cancellation and stating: "There was some confusion with the payment we send [sic] and we are working on getting it reinstated." There were some e-mails between Wimberly and Mr. Holliday, III, concerning the placement of coverage with another company. IBSL was unable to place coverage for Carter. By e-mail dated January 30, 2009, Ms. Jinks advised Mr. Holliday, III, that she had been able to place coverage for Carter and requested a return of the premium paid on a pro rata basis. She advised Mr. Holliday, III, that the return premium should be $7,651.35. By e-mail dated January 30, 2009, Mr. Holliday, III, stated: We will tender the return as quickly as it is processed by accounting. I do sorely regret the loss of this account, and our inability to get the Travelers quote agreed on a timely basis. By February 19, 2009, Wimberly had not received the return premium from IBSL. Ms. Jinks sent an e-mail to Mr. Holliday, III, on February 19, 2009, asking that the return premium be rushed to Wimberly so that it could be used to pay for the replacement policy. As of the date of Ms. Jinks' deposition on November 16, 2009, neither Mr. Holliday, III; Mr. Holliday, IV; nor IBSL had given the return premium to Wimberly. K.V. Carrier Services, Inc. (K.V.), is a retail producer located in Medley, Florida. In 2007, K.V. and IBSL entered into a business arrangement with IBSL. Under the arrangement, K.V. was the retailer, IBSL was the wholesale broker, ITMA was the program manager, and Pennsylvania Manufacturers was the insurance company. K.V. collected the down payments for the policy premiums from its customers and sent the down payments to IBSL. The remainder of the premiums were financed by financing companies, who sent the remainder of the premiums to IBSL. IBSL was supposed to send the monies paid for the premiums to ITMA. The following customers made down payments to K.V. and financed the remainder of their premiums with a financing company. E & E Trucking Service OD Transport, Inc. Fermin Balzaldua Eduardo Bravo Carlos Ramirez Edwin Bello Janet Rodriguez UTL, Inc. Prestige Transport USA JNL Transportation, Inc. Valdir Santos DJ Express PL Fast Carrier Ysis Transport K.V. sent the down payments for these customers to IBSL. The financing company sent the remainder of the premiums for these customers to IBSL. The total amount of premiums sent to IBSL for these customers was $19,768.45. IBSL did not send the premium payments for these customers to ITMA. The policies for these customers were cancelled for non-payment. K.V. found another company that was willing to insure K.V.'s customers. K.V. paid the down payments for the new policies from its own funds, hoping that IBSL would repay the finance company with any unearned premiums that would be returned to IBSL as a result of the cancellations. ITMA sent an invoice called an Account Current Statement to IBSL for the business conducted in the month of November 2008. The total amount owed to ITMA was listed as $55,116.32. The invoice included the premium for the policy issued for Carter, less IBSL's commission. The premiums for the policies issued to Eduardo Bravo; Fermin Bazaldua; JNL Transportation, Inc.; Janet Rodriguez; OD Transport, Inc.; and Prestige Transport USA were also included in the Account Current Statement for the business that IBSL conducted in November. IBSL was required to pay the $55,116.32 by December 15, 2008, but did not do so. ITMA received a check from IBSL dated December 31, 2008, for $25,000.00. A notation on the check indicated that it was a partial payment for the November business. The check was unallocated, meaning IBSL did not state to which premiums the partial payment should be applied. Mr. Holliday, III, claimed that IBSL had sent a bordereaux along with the check showing to which policies the payment applied. Mr. Holliday, III's, testimony is not credited. Donald Kaitz (Mr. Kaitz), the president of ITMA, communicated with one of the Respondents, who advised Mr. Kaitz that he needed another week or so to collect some premiums from his retail producers. On January 12, 2009, ITMA received a telephone call from IBSL, stating that IBSL could not pay the balance owed to ITMA and that ITMA should take whatever action it felt necessary. As a result of the communication from IBSL, ITMA issued notices of policy cancellation on all applicable policies listed in the Account Current Statement which was to be paid on December 15, 2008. Copies of the cancellation notices were sent to the insureds and IBSL. ITMA issued pro rata return premiums based on the number of days that each policy had been in effect. The return premiums were sent to IBSL by a check for $18,790.06. Additionally, ITMA sent IBSL a list of the policies that had been cancelled, showing the earned premiums which had been deducted from the $25,000.00. IBSL received and retained a net of $30,116.32, which was owed to ITMA. This amount is derived by deducting the $25,000.00, which IBSL sent to ITMA, from the $55,116.32, which was owed to ITMA. By letter dated April 2, 2009, IBSL sent K.V. a check for $524.80, which stated: We have totaled all amounts owing to IBSL by KV Carrier Service, and we have totaled all pro rated commissions owing by IBSL to KV Carrier Services for the benefit of your clients and have included our check # 1025 in the final amount of $524.80 to settle the account. All net unearned premiums for other than unearned commissions which are funded herein you must contact the insurance carriers involved and request payment under the provisions of Florida Statutes #627.7283. Federal Motor Carriers Risk Retention Group, Incorporated (FMC), is an insurance company, which sells commercial auto liability insurance, specifically targeted to intermediate and long-haul trucking companies. CBIP Management, Incorporated (CBIP), is a managing general underwriter for FMC. FMC had an agreement effective June 1, 2008, with IBSL, allowing IBSL to act as a general agent for FMC. As a general agent for FMC, IBSL was given the authority to accept risk on behalf of FMC. IBSL was given a fiduciary responsibility to accept insurance applications, provide quotes, and bind coverage. Once IBSL binds a policy for FMC, FMC issues a policy and is responsible for the risk. IBSL would receive the down payment from the retail agency, and, in most cases, the finance company would pay the balance of the premium directly to IBSL. The agreement between FMC and IBSL provided that IBSL was to provide FMC a monthly report of premiums billed and collected, less the agreed commission. The report was due by the 15th of the month following the reported month. In turn, FMC was to issue a statement for the balance due, and IBSL was required to pay the balance due within 15 days of the mailing of the statement following the month in which the policy was written. In August 2008, FMC began to notice that IBSL was selling premiums lower than FMC's rating guidelines. IBSL owed FMC approximately $186,000.00, which was due on August 15, 2008. IBSL sent FMC a check, which was returned for insufficient funds. FMC contacted IBSL and was assured that the check was returned due to a clerical error and an error by the bank. Assurances were given to FMC that funds would be transferred to FMC the following day; however, FMC did not receive payment until five days later. In September 2008, Joseph Valuntas (Mr. Valuntas), the chief operating officer for FMC, paid a visit to Mr. Holliday, III, and Mr. Holliday, IV. Mr. Valuntas expressed his concerns about the delay in receiving payment in August. He also pointed out that IBSL had taken some risks which were not rated properly and that there were some risks in which IBSL was not following the underwriting guidelines. After his visit with the Hollidays, Mr. Valuntas wrote a letter to IBSL, restricting IBSL to writing in Florida and limiting the amount of gross written premium to no more than $100,000.00 per month. IBSL did not adhere to Mr. Valuntas' instructions. An example of IBSL's conduct involved the writing of a policy for Miami Sunshine Transfer, which is a risk category designated as public delivery. Public delivery was not a standard that FMC insured and, as such, was not covered by FMC's reinsurance. Beginning on or about September 21, 2008, FMC began getting complaints from policyholders and retail agents about cancellations of policies that had been paid timely and in full. Although the retail agents had paid the premiums in full to IBSL, IBSL had not forwarded the premiums to FMC. By October 2008, IBSL owed FMC approximately $120,000.00 in past due premiums. FMC officially terminated the IBSL agreement in October 2008. IBSL sued FMC for breach of contract. On December 22, 2008, FMC received a check from IBSL in the amount of $25,122.80, but IBSL did not specify what premiums were being paid by the check. From February 1, 2006, through November 20, 2008, IBSL had a business relationship with Markel International Insurance Company Limited (Markel), an entity for which IBSL was writing insurance. IBSL was a coverholder for Markel, meaning that IBSL could produce insurance business for Markel and had the authority to collect and process premiums and bind insurance on Markel's behalf. Once the premiums were collected by IBSL, they were to be reported to Markel, and, within a maximum of 45 days, IBSL was to remit to Markel the aggregate gross written premiums less IBSL's commission. T. Scott Garner (Mr. Garner) is an expert auditor and financial analyst who currently works for Northshore International Insurance Services (Northshore), an insurance and reinsurance consulting firm. Markel retained Mr. Garner to determine the amount of money that IBSL should have sent to Markel for business transacted by IBSL for the period between February 1, 2006, and November 20, 2008. In doing his analysis, Mr. Garner used the bordereauxs which IBSL prepared and provided to Markel. Bordereauxs are monthly billing reports or accounts receivable reports. Mr. Garner also used data from Omni, which is a software system that was used by IBSL. Mr. Garner used the following procedure to determine what IBSL owed Markel. He determined how much risk IBSL wrote during the time period, that is, the gross written premium. He identified the amount of money that Markel had received from IBSL for the time period. Next he determined the amount that should have been received from IBSL, the gross written premiums minus IBSL's commissions. He compared what should have been remitted to Markel with the amount that was actually received by Markel. Based on his analysis, Mr. Garner calculated that IBSL owed Markel $1,208,656.61. Mr. Garner's analysis is credited. Respondent submitted a FSLSO Compliance Review Summary, which was done by the Florida Surplus Lines Office. At the final hearing, Mr. Holliday, III, viewed the report to mean that Markel was incorrect in the amount of money that was owed to it by IBSL. The report does not indicate that the policies on which the premium variances were noted were policies issued by Markel. Additionally, in his review, Mr. Garner eliminated duplicate transactions in determining the amount owed to Markel. The report did give a long list of policies, which should have been reported to Florida Surplus Lines Office, but IBSL had failed to report the policies.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that Respondents committed the violations alleged in Counts I through V of the Administrative Complaints, dismissing Count VI of the Administrative Complaints, and revoking the licenses of Respondents. DONE AND ENTERED this 15th day of October, 2010, in Tallahassee, Leon County, Florida. S SUSAN B. HARRELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 2010.
The Issue Whether Respondents committed the violations alleged in the Administrative Complaints, and, if so, what penalties should be imposed on either or both of them.
Findings Of Fact Based on 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: Respondent, Eduardo Enrique Mendez ("Mendez"), at all times material to this matter, was a licensed insurance agent subject to the regulatory jurisdiction of the Petitioner. Petitioner issued Mendez license number A176292. Mendez is licensed as a 2-18 life and health agent and a 2-20 general lines agent for the sale of property and casualty. Mendez first started in the insurance business in 1969 while in Panamá. He came to the United States in 1988. In South Florida, he has been known as "Mr. Panama" in the insurance industry for approximately 20 years. Respondent, Insurance Resources of the Americas, Inc. ("Insurance Resources"), is and was, at all times material in this matter, a corporation registered as a Florida insurance agent subject to the regulatory jurisdiction of Petitioner, having been issued license number R054007. Mendez is the corporation's owner and president. Insurance Resources typically handles all kinds of property and casualty insurance, but for approximately the last six years has specialized in the used car dealer business by providing bonds for the car dealers to open their operation. Bass Underwriters ("Bass") is a managing general agent which works with insurance agents who purchase insurance for their customers. Bass has no direct relationship with the customers only with the retail agent who is responsible for collecting the premium. On January 22, 2003, Insurance Resources, as producer, and Bass signed a producer agreement which allowed Insurance Resources to sell insurance through Bass or certain carriers that Bass obtains as a wholesaler. Insurance Resources received commissions as compensation under the agreement. The agreement contained a provision which guaranteed the collection of additional premiums that might arise as a result of an audit of the insurance customers. The provision provided in relevant part: Producer shall be liable to Bass Underwriters, Inc. for the full amount of premium, fees and applicable sum taxes, less commission, including additional and/or adjustable premiums developed under audits or applicable rating plan on every insurance contract placed by Producer through Bass Underwriters, Inc. Producer shall remit Twenty Five Percent (25%) of the premium upon binding. The full amount of premium, fees and applicable state taxes, less commission is due to Bass Underwriters, Inc. not later than the 15th day of the first (1st) month after the effective date of such contract, audit, rating plan, or other adjustment. During the term of the producer agreement, three policies were issued that Bass determined additional premiums were owed by Insurance Resources. On June 29, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, L. Boulevard Café, in the amount of $6,955.00. L. Boulevard Cafe, a restaurant, obtained a Century Surety policy through Insurance Resources effective November 15, 2004. In making the application, the restaurant declared a certain amount of projected sales. The premium was based upon the total sales recorded by the customer. Century Surety did a self audit and determined that the amount of sales was significantly more than the coverage. Subsequently, the carrier went back and assessed additional premiums to make up the difference between the amount of coverage represented and the self reported amount, which totaled $6,955.00. Around August 2005, after receiving the Bass invoice with the additional premiums, Insurance Resources notified L. Boulevard Café about the invoice and explained that the additional insurance premium of $6,955.00 was owed because of the difference in the amount calculated from the audit. Mendez notified Rafael Garcia, prior owner of L. Boulevard Café, about the additional insurance premium but L. Boulevard Cafe was having financial problems. L. Boulevard Café never made the additional premium payment. On July 1, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Winner's Circle, in the amount of $418.00. Winner's Circle obtained a XL Specialty Insurance Company policy through Insurance Resources effective May 23, 2005. An inspection was performed after the policy quote was bound and issued. The subsequent inspection concluded that the construction code of the building was different from the construction code represented on the application. The difference triggered a premium increase of $418.00. When Insurance Resources found out about the additional premium for Winner's Circle, Mendez sent an invoice explaining the increase and requesting payment. Winner's Circle refused to pay the amount because the policy was issued under a lower premium. Winner's Circle decided not to keep the policy when Respondent requested that they make payment of the additional premium amount and the balance of the premium on the policy. Payment was never made. The policy was cancelled. The account was credited and the final total owed was $160.40, which Bass became responsible for with the carrier. On July 11, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Venecar, Inc., in the amount of $1,298.00. Venecar, a small used car dealership, obtained a Century Surety policy through Insurance Resources effective July 18, 2004. The insurance inspectors did an inspection after the policy was issued and determined that one more employee and driver than had been represented in the application existed and that employee generated a change in the rating for the premium, which Bass ultimately decided was an additional premium of $1,298.00. After Insurance Resources learned about the results of the inspection, Mendez called Bass and told Ms. Rodriguez, the accountant, that the premium increase of $1,298.00 was too high and could not be the proper rate for one driver because one driver should be around $400.00. Bass ignored Mendez's proposition. Subsequently, Mendez told Venecar about the outstanding premium amount owed and they refused to pay. Insurance Resources followed up and contacted Venecar several more times requesting the additional premium payment to no avail. Soon thereafter, Venecar closed. Mendez reported his efforts to Bass while he tried to collect the three changed premium amounts. Insurance Resources never collected the additional premium from L. Boulevard Café, Winner's Circle, or Venecar even though Mendez repeatedly sought to get the outstanding premiums from all three insured customers. Despite Respondents best efforts, they never received any of the additional premiums that accrued. Bass still expected Insurance Resources to pay the additional premiums pursuant to the producer agreement. On May 1, 2006, Bass sent Insurance Resources a statement of account. The invoice statement informed Insurance Resources that the premium due for the three different accounts totaled $8,021.39. The statement outlined the amount owed from each insured. After Bass made several demands for the three accounts, Bass submitted the account to collections and the matter ultimately ended in litigation. On November 5, 2007, a final judgment was entered against Insurance Resources in favor of Bass for the principal of $8,021.39, costs of $275.00, and prejudgment interest of $1,298.14, for a total of $9,594.53. The judgment remains unsatisfied. On February 15, 2008, Insurance Resources paid $1,919.00 on the judgment. On February 29, 2008, Insurance Resources paid $640.00 on the judgment. There is a balance owed of $7,035.53. Insurance Resources also had a relationship with AAPCO, a premium finance company that financed the balance of what an insured could not pay. Respondent Insurance Resources was an authorized entity to accept premium finance contracts utilizing AAPCO premium finance. Insurance Resources had the authority to write check drafts on AAPCO's bank account for the entire premium amount owed on a customer's insurance policy and remit it to the insurer. Respondent would then submit the policy application together with the premium down payment received from the consumer to AAPCO, which would finance the rest of the policy premium. In 2009, Insurance Resources was having problems financially. Mendez approached Mrs. Blanco, AAPCO's office manager, and told her Insurance Resources sales had dropped fifty percent. Mendez, on behalf of Insurance Resources requested to make a payment arrangement.1 Blanco refused to make any type of arrangements. She insisted that Insurance Resources pay everything up front. Mendez approached her several more times but she would not negotiate. At one point, Mendez even requested that AAPCO place the $4,000.00 in producers fees owed to Insurance Resources against the monies owed and she refused to pay Respondent the $4,000.00 In 2009, Mendez submitted three checks to AAPCO's as down payments for insureds' accounts. Check number 1347 was for $10,228.47. The check was from account number 2000034377804 Mr. Panama Inc.'s account. Check number 1342 was from the same account in the amount of $2,828.15. However, check number 159 was for $3,368.44 from Insurance Resources account number 2000040742805. Checks 1347, 1342, and 159 totaled approximately $16,425.00. The funds were intended to be premium down payments on insurance policies purchased by Florida insurance consumers. Insurance policies were issued for each of the checks for down payments for insured's accounts Insurance Resources submitted. AAPCO deposited the three checks and they were submitted to the bank for negotiation. Each check was returned for insufficient funds. AAPCO attempted to collect the money for the three checks that were returned for non-sufficient funds. AAPCO demanded payment of the funds and even called Mendez in an effort to collect the funds. Mendez admitted at hearing that the three checks bounced because he had used the funds for his business operating account since the business was doing bad financially. Insurance Resources had not yet repaid AAPCO their monies owed for the three checks. AAPCO has suffered a financial loss due to nonpayment. After nonpayment, AAPCO turned the matter over to AAPCO's legal department. After an investigation, Petitioner charged Respondents with numerous violations by separate Administrative Complaints dated April 21, 2010. The Charges: In Count I of the Administrative complaint filed against Mendez, Petitioner charges Mendez with violations of sections 626.561(1), 626.611(7), (9), (10), and 626.621(4), Florida Statutes, for failing to remit all premiums due to Bass. In Count II, Petitioner charges Mendez with violations of sections 626.561(1),626.611(7), 626.611(9) and (10), and 626.621(4) for submitting the three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand. In Count I of the Administrative complaint filed against Insurance Resources, Petitioner charges Insurance Resources with violation of sections 626.561(1),626.6251(5)(a),(d),(f),(j), and (k) for failing to remit all premiums due to Bass.2 In Count II Petitioner charges Insurance Resources with violations of sections 626.561(1), and 626.6251(5)(a),(d), (f),(j), and (k) for remitting three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order that: (a) finds Respondents not guilty as charged in Count I, of the Administrative Complaints; (b) finds Respondents guilty in Count II; (c) suspends Respondent Mendez's license for 12 months with reinstatement conditioned upon repayment to AAPCO; and (d) suspends Respondent Insurance Resources' license for three months with reinstatement conditioned upon repayment to AAPCO. DONE AND ENTERED this 28th day of February, 2011, in Tallahassee, Leon County, Florida. S JUNE C. MCKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 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 February, 2011.
The Issue Whether the School Board of Broward County's award of a contract for Excess General and Auto Liability insurance coverage to United National Insurance Company is barred because of illegality?
Findings Of Fact The Parties Ranger Insurance Company, Petitioner, is the holder of a Certificate of Authority dated September 9, 1996 and issued by the Department of Insurance and Bill Nelson, Insurance Commissioner and Treasurer. Good through June 1, 1997, the certificate authorizes Ranger to write in a number of lines of insurance business, including, Private Passenger Auto Liability, Commercial Automobile Liability, Private Passenger Automobile Auto Physical Damage, Commercial Auto Physical Damage and Other Liability. As such, Ranger is an "authorized" or "admitted" insurer in the State of Florida. L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., is a joint venture and co- petitioner with Ranger in this proceeding through whom Ranger proposed to procure the Excess General and Auto Liability (“Excess GL/AL”) coverage. A timely proposal under Request for Proposal 97- 072S was submitted to the School Board of Broward County by the petitioners to provide the Excess GL/AL Insurance Coverage sought by the RFP. United National Insurance Company is an "eligible" surplus lines insurer, approved by the Florida Department of Insurance to transact all surplus lines coverages in the State of Florida and licensed as such. The Department has notified insurance agents of United Nation's eligibility as a surplus lines insurer since 1978. It is the insurer of the Excess General and Excess Auto Liability insurance coverage awarded by the School Board under RFP 97-072S. Arthur J. Gallagher & Company ("Gallagher,") is the eighth largest insurance broker in the world. It has four sales offices, nine service offices, and approximately 150 employees in the State of Florida alone. The office from which it conducted business related to this proceeding is in Boca Raton, Florida, an office for which Area President David L. Marcus is responsible. Gallagher submitted a timely proposal (the "Gallagher proposal,") in response to the RFP on behalf of United National. The School Board of Broward County is the authority that operates, controls, and supervises all free public schools in the Broward County School District, "[i]n accordance with the provisions of s. (4)(b) of Article IX of the State Constitution ...". Section 230.03(2), F.S. In accord with its powers, the School Board may contract directly to purchase insurance. It is not required by its purchasing rules to use a competitive bidding or procurement process to purchase insurance. Nonetheless, on Friday, April 26, 1996, it issued a request for proposals, the RFP at issue in this proceeding, for insurance coverages including for Excess GL/AL insurance coverages. Siver Insurance Management Consultants Siver Insurance Management Consultants ("Siver,") are the drafters of RFP 97-072S. The School Board relied on Siver to draft the RFP, particularly its technical sections. Technical review of the proposals made under the RFP was conducted by Siver. And Siver put together for the School Board's use a summary of the policies proposed by both United National and Ranger. The summary was considered by the School Board's Evaluation Committee when it evaluated the competing proposals. The determination of whether the competing proposers were properly licensed was made by Siver. The School Board's Evaluation Committee, indeed the School Board, itself, played no role in determining the licensing credentials of the proposers while the proposals were under consideration. Under the arrangement between Siver and the School Board, however, the School Board retained the primary responsibility for administering the RFP. The RFP Request for Proposal 97-072S was mailed to 324 vendors (prospective proposers) the same day as its issuance, April 26, 1996. None of the vendors knew the contents of the RFP until it was issued. The RFP sought proposals for seven coverages, each of which was severable from the remainder of the coverages and was allowed to be proposed separately. The scope of the request was described in the RFP as follows: The School Board of Broward County, Florida ... is seeking proposals for various insurance coverages and risk management services. To facilitate distribution of the underwriting data and the requirements for each of the coverages, this consolidated Request for Proposals ... has been prepared. However, each of the coverages is severable and may be proposed separately. The following are included: Boiler & Machinery Excess General and Automobile Liability Excess Workers' Compensation School Leaders Errors & Omissions Crime Including Employee Dishonesty - Faithful Performance, Depositor's Forgery Claim and Risk Management Services (Including Managed Care Services) Statutory Death Benefits Petitioner's Ex. 1, pg. I-1. Since the seven coverages are severable and no proposer had to submit a proposal on all seven coverages, one way of looking at RFP 97-072S is as a consolidated RFP composed of seven, separate proposals, each for a different type of insurance coverage. Of the 324 vendors to whom the RFP was sent, only two, Gallagher, on behalf of United National, and Ranger, through the action of the joint venture, submitted proposals with respect to the Excess GL/AL coverages. Reasons for Using an RFP The School Board, under the auspices of Siver, chose to seek insurance coverage through an RFP rather than an Invitation to Bid, or what is colloquially referred to as a "straight bid," for a number of reasons. As one familiar with RFPs and Invitations to Bid might expect, the School Board and Siver were attracted to the RFP by the increased flexibility it offered in the ultimate product procured in comparison to the potentially less flexible product that would be procured through an invitation to bid. More pertinent to this case, however, Siver chose to use an RFP for the School Board in this case because "as explained ... by the Department of Insurance over the ... years, while there may... [be a] prohibition against any surplus lines agents submitting a straight bid, there would not be a prohibition against a ... [surplus lines] agent responding to a request for proposal " (Tr. 149.) The RFP approach was not chosen, however, in order to avoid any legal requirement or to circumvent the Insurance Code. As explained by Mr. Marshall, the approach was born of hard reality: Id. [O]ne of the primary motivations [for using an RFP rather than an Invitation to Bid] was to allow us [The School Board and Siver] to consider surplus lines companies because of the fact that very often they were the only insurers that would respond on the number of coverages and clients that we were working for. The Insurance Code and the Surplus Lines Law The Insurance Code in Section 624.401, Florida Statutes, requires generally that an insurer be authorized by the Department of Insurance (the "Department,") to transact business in the State of Florida before it does so: (1) No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the department, except as to such transactions as are expressly otherwise provided for in this code. One place in the code where transactions are "expressly otherwise provided for ...," is in the Surplus Lines Law, Section 626.913 et seq., Florida Statues. The purposes of the law are described as follows: It is declared that the purposes of the Surplus Lines Law are to provide for orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law, would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law. Section 626.913(2), F.S. Surplus lines insurance is authorized in the first instance only if coverages cannot be procured from authorized insurers: If certain insurance coverages of subjects resident, located, or to be performed in this state cannot be procured from authorized insurers, such coverages, hereinafter designated "surplus lines," may be procured from unauthorized insurers, subject to the following conditions: The insurance must be eligible for export under s. 626.916 or s. 626.917; The insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918; The insurance must be so placed through a licensed Florida surplus lines agent; and The other applicable provisions of this Surplus Lines Law must be met. Section 626.915, Florida Statutes, and then only subject to certain other conditions: No insurance coverage shall be eligible for export unless it meets all of the following conditions: The full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state ... . Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, to be in compliance with the diligent effort requirement, the surplus lines agent's reliance must be reasonable under the particular circumstances surrounding the risk. Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by-risk basis. It is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount. Section 626.916, F.S. Authorized vs. Unauthorized Insurers Unlike authorized insurers, unauthorized insurers do not have their rates and forms approved by the Department of Insurance, (the "Department.") Similarly, unauthorized insurers are not member of the Florida Insurance Guaranty Association, which guarantees payment of claims if an insurer becomes insolvent. Unauthorized insurers may qualify to transact Florida insurance business under the Surplus Lines Law and so, for purposes of the Surplus Lines Law, be considered "eligible" to transact surplus lines business in Florida. When a Surplus Lines insurer is eligible, Department of Insurance employees refer to the insurer in Surplus Lines terms as "authorized," a term in everyday English that is synonymous with "eligible." But an eligible surplus lines insurer remains an "unauthorized" insurer when compared to an "authorized" insurer for purposes of the Insurance Code and that part of the code known as the Surplus Lines Law. Submission and Review of Proposals Both L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., (the "Joint Venture") and Gallagher submitted timely proposals with regard to Excess GL/AL coverage in response to the RFP. The Joint Venture's proposal was submitted, of course, on behalf of Ranger, an authorized insurer, and Gallagher's was submitted on behalf of United National, an insurer eligible to transact insurance in the State of Florida as a surplus lines insurer but otherwise an unauthorized insurer. The School Board's Insurance Evaluation Committee met on May 30, 1996, to evaluate proposals received pursuant to the RFP. Although briefly discussed by the Evaluation Committee, the issue of proper licensing was not determined independently by the committee. Instead of making that determination, the committee turned to its insurance consultant, Siver. Siver had determined that both proposers, Ranger and United National, were properly licensed for purposes of responding to the RFP and being considered by the committee. Siver communicated that determination to the committee. The committee relied on Siver's determination. Aside from receiving Siver's determination of proper licensing when "briefly discussed" (Tr. 108,) the Evaluation Committee did not address whether either Ranger or United National were properly licensed. Certainly, no issue of whether Ranger should take precedence over United National by virtue that it was an authorized insurer when United National was an unauthorized insurer and a mere eligible Surplus Lines insurer was ever discussed by the committee. In evaluating the proposals, the Committee awarded 73 points to the Gallagher proposal and 69 points to the Ranger proposal. Points were awarded on the basis of three criteria or in three categories: Qualifications (20 points maximum); Scope of Coverages/Services Offered (30 points maximum); and, Points for Projected Costs (50 points maximum.) The Ranger proposal outscored the Gallagher proposal in the "projected cost" category, 50 to 23, but it scored lower in the "qualifications" category, 14 versus 20 for Gallagher, and significantly lower in the "scope of coverages" category, five points versus 30 for Gallagher. The United National coverage was more than twice as costly as Ranger's, a $491,000 annual premium as opposed to Ranger's $226,799, which explains the points awarded in the "projected cost" category. The Gallagher proposal received more points than the Ranger proposal in the "qualifications" category because United National has provided the School Board with Excess GL/AL coverage for a number of years and Ranger has never provided the School Board with such coverage. The Ranger proposal fell so drastically short of the Gallagher proposal in the "scope of coverages/services offered" category primarily because of an athletic participation exclusion appearing in a rider to the specimen policy appearing in its proposal. Ranger had intended to cover athletic participation and the rider was included with the Ranger proposal in error. Ranger notified the School Board of its intent immediately after the tabulations were released. Nonetheless, the Evaluation Committee was never informed of the error and no attempt was made by the School Board to negotiate with Ranger to improve the coverages offered, despite authority in the RFP for the School Board to negotiate with any of the proposers. (The language used in the RFP is "with one or more" of the proposers.) The Ranger proposal also fell short of the Gallagher proposal in the "scope of coverages/service offered" category because the Gallagher proposal was made in several ways. One way was as to only Excess GL/AL coverage. Another way included School Leaders' Errors and Omissions ("E & O") coverage. The E & O coverage was offered by United National in the Gallagher proposal together with the Excess GL/AL coverage in a "combined lines" package, similar to United National coverages already existing for the School Board. Furthermore, the Ranger proposal expressly excluded coverage for Abuse and Molestation, a needed coverage due to the School Board's prior claims history. On June 5, 1996, the Evaluation Committee submitted its recommendations to the School Board's Purchasing Department. With regard to GL/AL coverage, the Evaluation Committee recommended the purchase of the GL/AL/E & O "combined lines" coverage offered by Gallagher through United National. The School Board posted its Proposal Recommendation/Tabulations adopting the recommendation, two days later, on June 7, 1996. Ranger Seeks Redress from the Department Following the School Board's award, Ranger, thinking that it should have received the award under the RFP as the only authorized insurer to submit a proposal for Excess GL/AL coverage, sought redress from the Department. On June 14, 1996, Ranger personnel met with the head of the Department's Surplus Lines Section, Carolyn Daniels, alleging a violation of the Insurance Code's Surplus Lines Law. On June 18, 1996, Ranger reiterated its complaint in writing and asked Ms. Daniels to find a violation that day. On June 24, 1996, Ranger, now through its attorneys, met with Ms. Daniels and her supervisor. Again, on July 4, 1996, Ranger's attorneys wrote to Ms. Daniels, further pleading for her to find a violation and asking for an administrative hearing if Ms. Daniels did not find in favor of the Ranger position. On a fifth attempt, Ranger wrote Ms. Daniels on July 11, 1996, requesting that she adopt Ranger's position. Ms. Daniels reviewed Ranger's five complaints with her supervisor, the Chief of the Bureau of Property and Casualty Solvency and Market Conduct. In a letter dated August 14, 1996, to the School Board's Purchasing Agent, Ms. Daniels announced her determination: I did not find any evidence to indicate that Mr. David L. Marcus of Arthur J. Gallagher & Company or United National Insurance Company violated the Surplus Lines Law in providing a quote for the School Board. Intervenor's Ex. No. 2. Ms. Daniel's determination was based on a number of factors, including the School Board's position in the transaction as an "informed consumer," (Tr. 422-423,) and that the School Board had possessed a United National policy for 13 years. But, the determination was primarily based on the fact that Gallagher had received three declinations from authorized insurers to provide Excess GL/AL coverage and so had performed that which was required prior to deciding that the coverage was eligible for export and provision by a surplus lines insurer: due diligence. Due Diligence Section 626.916(1)(a), Florida Statutes, provides, [n]o insurance coverage shall be eligible for export unless it meets ... the following condition[]: ... [t]he full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers. (e.s.) The statute goes on to require that the diligent effort, "be reasonable under the particular circumstances surrounding the export of that particular risk." Reasonableness is assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by- risk basis. Section 626.916(1)(a), F.S. "'Diligent effort' means seeking coverage from and having been rejected by at least three authorized insurers currently writing this type of coverage and documenting these rejections." Section 626.914(4), F.S. Under this definition, the "producing agent should contact at least three companies that are actually writing the types of clients and the business in the area [that they are] wanting to write." (Tr. 268.) A specific form to help insurance agents document their three rejections is adopted by Department rule. The rule provides: When placing coverage with an eligible surplus lines insurer, the surplus lines agent must verify that a diligent effort has been made by requiring from the retail or producing agent a properly documented statement of diligent effort on form DI4-1153 (7/94), "Statement of Diligent Effort", which is hereby adopted and incorporated by reference. Rule 4J-5.003(1), F.A.C. Fully aware of the requirement for documentation of diligent effort to find authorized insurers, and cognizant that it would be unlikely that an authorized insurer could be found based on experience, Gallagher began soliciting proposals for coverage in the middle of April, 1996, several weeks before the School Board had issued the RFP. In fact, at the time that Gallagher started soliciting bids, the School Board had not yet assembled or distributed the underwriting data needed by bidders. Nonetheless, with good reason based on experience, Gallagher expected that the School Board would seek a "combined lines" package of GL/AL/E & O coverages like the School Board then received through United National, and that it would be unlikely that an authorized insurer would step forward to propose coverage. Gallagher, therefore, used the policy form current in April of 1996, that is the form providing Excess GL/AL/E & O coverage in a "combined lines" package, "as an example of what the School Board had been looking for this type of program and seeking a program similar to that and similar in coverage." (Tr. 242.) But it also sought Excess GL/AL without combination with E & O coverage. As Mr. Marcus testified, when seeking coverage from authorized insurers beginning in April of 1996, Gallagher "would be looking at a variety of different ways, whether they were package or not." (Tr. 243.) One authorized insurer, Zurich-American, declined to quote because it could not offer a combined line SIR program (a package of excess general liability and excess auto liability coverages) as requested by the RFP. Furthermore, the School Board risk was too large for Zurich-American to handle. A second authorized insurer, American International Group, declined to quote due to the School Board's adverse loss experience. A third authorized insurer, APEX/Great American, declined to provide a quote to Gallagher due to the large size of the School Board account. The responses of these three authorized insurers were listed in a Statement of Diligent Effort provided to Ms. Daniels, which she considered in determining that Gallagher and Mr. Marcus had committed no violation of the Surplus Lines Law. Gallagher also provided Ms. Daniels with a second Statement of Diligent Effort. The statement documented the attempt to attract quotes by adding a school leaders errors and omission component to the Excess GL/AL coverage. It, too, was used by Ms. Daniels in making her determination of no violation of the Surplus Lines Law by Gallagher. The same three insurers refused to quote for the "combined lines" program. Attempts by other Authorized Insurers Gallagher requested that any responses to its requests for quotes be submitted by May 10, 1996, so that it could prepare and submit its proposal by the RFP's deadline for submission of original proposals by all vendors, 2:00 p.m. May 16, 1996. One insurer, Discover Re/USF&G attempted to submit a quote on May 15, 1996, one day before the RFP deadline but five days after May 10. By then, Gallagher had already started printing its 625 page proposal. Furthermore, the company failed to provide the required policy forms until the day after the School Board's deadline for filing proposals. Coregis Insurance Company offered coverage of up to $700,000 for each claim and for each occurrence, but like Discover Re/USF&G, failed to provide the required policy forms until after the RFP deadline. Furthermore, definitive coverage under the Coregis policy would only be provided on the condition that the Florida Legislature pass a Legislative Claims bill, a limiting condition not authorized in the RFP or requested by Gallagher. American Home Assurance Company never responded to Gallagher with the School Board's required quote or policy forms. Rather, the company merely provided an "indication" that the company declined to provide a quote. An "indication" consists of an approximate premium rate, without any terms or conditions. A "quote," on the other hand, includes the terms and conditions of a policy. The Department places with the producing agent the responsibility of determining whether an insurer's communication constitutes and "indication" or a "quote." An agent, according to Ms. Daniels, can only violate the Surplus Lines Law if the agent receives a reliable quote. Gallagher even requested a quote from Ranger, despite never having been appointed to transact insurance on its behalf. But Ranger declined. In response to a request by Gallagher's minority business partner, McKinley Financial Services, Ranger, through E. Michael Hoke on American E & S letterhead, wrote in a letter dated May 6, 1996, "[w]e have received a prior submission on this account so we are returning the attached." Intervenor's Ex. No. 7. The Petition Ranger's petition for formal administrative hearing is the letter dated June 19, 1996, to the Director of Purchasing for the School Board under the signature of E. Michael Hoke, CPCU, Assistant Vice President of AES/Ranger Insurance Company. The letter asks its readers to "bear[] in mind we are not attorneys," p. 1 of the letter, before it outlines three protest issues. The third protest issue is the one about which Ms. Daniels made her determination that no violation of the statute had been committed by Gallagher or its employees: "3) Florida Statute 626.901 (Representing or aiding unauthorized insurer prohibited)." The other two issues deal not with the propriety of Gallagher's actions but the legality of the School Board's award to an unauthorized insurer, United National, when coverage was available from an authorized insurer, Ranger: Florida Statute 626.913 (Surplus Lines Law). . . Our Position * * * Ranger Insurance Company is an admitted authorized insurer ... Its proposal for excess general and auto liability is proof that the Board requested coverage was procurable. United National Insurance Company is an unauthorized insurer under the laws of the State of Florida ... . The United National Insurance Company proposal and/or its offer to extend it's current policies appear to us as "unwarranted competition." Ranger Insurance Company is protected from unwarranted competition from United National Insurance Company in accordance with the Florida Statute 626.913. Florida Statute 626.913 (Eligibility for Export) ... Our Position * * * Ranger Insurance Company is an admitted authorized insurer under the laws of the State of Florida. ... It's proposal for excess general and auto liability is proof that the Board requested amounts were available. The proposal and/or contract extensions offered by United National are for the full amount of coverage sought and not excess over the amount procurable from Ranger, an authorized insurer. The petition, therefore, set in issue not just whether Gallagher acted illegally but whether the School Board acted illegally when it made the award to United National, an unauthorized insurer when Ranger, an authorized insurer, had also submitted a proposal. Extension As soon as the School Board was made aware of the Ranger protest, it extended the existing insurance contracts procured under RFP 92-080S, awarded approximately five years earlier. The extension was on a month-to-month basis until resolution of the protest. The extension was necessary to avoid a lapse in the School Board's coverage during this proceeding.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the award to United National under the Gallagher proposal in response to RFP 97-072S be rescinded. DONE AND ENTERED this 28th day of January, 1997, in Tallahassee, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1997. COPIES FURNISHED: Paul R. Ezatoff, Esquire Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman, Marks, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302-1877 Edward J. Marko, Esquire Robert Paul Vignola, Esquire Office of the School Board Attorney K.C. Wright Administrative Building 600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301 A. Kenneth Levine, Esquire Blank, Risby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068 Dr. Frank Petruzielo, Superintendent Broward County School Board 600 Southeast Third Avenue Fort Lauderdale, Florida 33301-3125
