The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
The Issue Whether the Petitioner's application of January 11, 1991, for examination as a general lines agent should be granted.
Findings Of Fact Petitioner Paul L. Kornya was licensed in 1974 as a general lines insurance agent in the State of Florida. Prior to 1984, Respondent Department of Insurance had taken no formal disciplinary action against the Petitioner. In 1983, while licensed as an insurance agent and employed in the capacity of office manager for the Milton Carpenter Insurance Agency, Petitioner established a demand deposit account in the name of "Atlantic Association Insurance" and listed himself as the sole signatory and beneficiary on the account. Petitioner thereafter wrote four unauthorized checks on the Milton Carpenter Agency Account totaling $47,132.14 made payable to Atlantic Association Insurance and deposited them into his demand deposit account. In order to conceal his activity, the Petitioner altered the payee of the checks. In a prior administrative case (Case No. 84-L-4085F), Petitioner admitted misappropriating and converting the funds. In 1983, while licensed as an insurance agent and employed in the capacity of office manager for the Milton Carpenter Insurance Agency, Petitioner wrote two unauthorized checks on the Milton Carpenter Agency Account totaling $3,455 made payable to Blinder, Robinson and Co., Inc., Investment Bankers. In order to conceal his activity, the Petitioner listed an agency account code designated for miscellaneous companies on said checks. In a prior administrative case (Case No. 84-L- 4085F), Petitioner admitted misappropriating and converting the funds which were used for Petitioner's personal stock purchases. In 1984, a judgement in the amount of $52,013.35 was entered against Petitioner in the case styled Milton Carpenter Insurance, Inc., a Florida Corporation, and Cincinnati Insurance Company vs. Paul L. Kornya, Case No. 84-3235 CA(L)A, Fifteenth Judicial Circuit Court, Palm Beach County, Florida. On October 31, 1985, the Department entered a Final Order revoking Petitioner's license qualifications and eligibility for licensure for a period of two years, based upon the misappropriation and conversion of said funds. By application signed December 16, 1987 and filed December 28, 1987, Petitioner submitted an application for examination as a general lines insurance agent. By Insurance Commissioner Bill Gunter's letter to the Petitioner of February 29, 1988, the Department requested that the Petitioner submit certain certificates of employment to verify his prior experience. The letter stated that, "[t]o qualify for this examination through experience you must have completed within the past 4 years, at least 1 year of substantially full-time responsible duties as the bona fide employee of an agent or insurer. Your duties during this time must have been in all lines of property, casualty, surety, health and marine insurance. ... One certificate should be completed by you and the other by your employer." The Petitioner claims to have submitted said employment certificates shortly following the Department's request. However, the Department's files do not contain the documents or any other response to the letter, and there is no evidence beyond Petitioner's testimony to support the claim. By letter of March 17, 1988, Department representative Franklin Thompson again requested the experience information cited in the February 29 letter or in the alternative, that Petitioner submit proof that a course of education had been completed. The letter further stated that "we will need a statement from Milton Carpenter Insurance Inc. Agency of Belle Glade, Florida stating that any and all indebtedness you may have had relative to their firm has been satisfied". Both the February 29 and March 17 letters provided that failure to file the information within 30 days from the date of each letter is grounds for denial of the application. Three months passed following the March 17 letter to the Petitioner. According to the records of the Department, no response to either letter was received. On June 17, 1988, the Petitioner's December 1987 application was closed by the Department based upon the failure of Petitioner to submit the previously requested information. By letter of June 23, 1988, the Petitioner advised the Department that the indebtedness was not to the Milton Carpenter Insurance Agency, but was to Cincinnati Insurance Company, which had insured the Carpenter agency against such losses. The letter further stated that approximately $5,000 had been repaid to the Cincinnati Insurance Company. By letter of August 3, 1988, Department representative Thompson wrote, "[t]he information you have furnished has been thoroughly reviewed. It appears that your indebtedness with Milton Carpenter Insurance has been assigned to Cincinnati Insurance Company. Please request that Cincinnati Insurance Company furnish us with a statement indicating that all of your indebtedness to their company has been satisfied". The letter stated that failure to respond within 30 days from the date of the letter was grounds for denial of the application. The evidence does not explain the reason for Mr. Thompson's letter of August 3, 1988. Given the June 17 closure of the pending application based upon the Petitioner's failure to supply additional information, the information furnished apparently consisted of the Petitioner's untimely filed letter of June 23. As of August 3, no pending application existed. In any event, the Petitioner did not respond to the August 3 request. By second application signed October 31, 1989, and filed November 3, 1989, Petitioner submitted an application for examination as a general lines insurance agent. By undated letter, Department representative Thompson again requested Petitioner to submit either certificates of employment to verify his prior experience or proof of completion of certain educational requirements, and further requested a reply to the letter of August 3, 1988 seeking statement from Cincinnati Insurance Company indicating that "all of your indebtedness to their company has been satisfied". Again the letter provides that failure to furnish the requested information within 30 days would result in the file being closed. 1/ The Petitioner, subsequent to the undated letter and prior to February 2, 1990, submitted said certificates of employment. Early in 1990, the Petitioner's application file was assigned to Department representative, Patricia Lehman. On February 2, 1990, Ms. Lehman informed that Petitioner that his certificates of employment were not acceptable, and that he would be required to complete a 240 hour educational requirement. Further, Ms. Lehman's letter provided that, "[i]n addition, you will need to furnish us with a certified letter from Cincinnati Insurance Company that you have made full restitution or a certified copy of the written agreement between you and the party(s) involved that you are making restitution satisfactory to all parties concerned. The information you sent to us is not certified and reflects no signatures". Beginning February 26, 1990, Mr. Kornya took and completed the 240 hour insurance course as identified in the Department's previous communications. The $595 course met for six weeks, five days each week, from 8:00 a.m. to 5:00 p.m. On September 17, 1990, the pending application was closed by the Respondent based upon the failure of Petitioner to submit the previously requested information. There is no evidence that Petitioner submitted evidence of completing the educational requirement. On or about January 8, 1991, Petitioner entered into an restitution agreement with Cincinnati Insurance Company setting forth a payment schedule which requires that Petitioner make a payment of $300 each month to the Cincinnati Insurance Company in order to eventually satisfy the entire $52,013.35 judgement against him. By application signed January 11, 1991, and filed January 16, 1991, Petitioner submitted an application for examination as a general lines agent. By memorandum of February 18, 1991, to her superior, Bob Stewart, Ms. Lehman recommended that the Petitioner's application be denied. Specifically, her memo provides as follows: Mr. Kornya's license qualification and eligibility for licensure were revoked by the Department in 1985 for the mishandling of funds in a fiduciary capacity. It does not appear Mr. Kornya attempted to make restitution until the signed Agreement in 1991. He has demonstrated lack of fitness and trustworthiness to engage in the business of insurance. Therefore pursuant to Sections 626.611(1) (7) , [sic] 626.641(2) and 626.731(1), I recommend his application be denied. Although Ms. Lehman's memo states that "[i]t does not appear Mr. Kornya attempted to make restitution until the signed Agreement in 1991", prior to the January 8, 1991 execution of the restitution agreement, the Petitioner had paid $12,237.94 to Cincinnati Insurance Company realized from the sale of vehicles and real estate. The executed copy of the restitution agreement reflects that such funds were paid, although the agreement fails to indicate when the payment was made. The payment was applied towards interest which had accumulated on the judgement, not towards the $52,013.35 principle judgement amount. At the time of the hearing, the restitution payments were current (although Petitioner did not make the $300 payment due in April, but paid $600 in May.) As of the date of hearing, approximately $49,913 remained to be paid to Cincinnati Insurance Company to satisfy the judgement. Although at the time of the hearing, a letter allegedly from Cincinnati Insurance Company indicated that they had not received documentation of Petitioner's compliance with paragraph five of the restitution agreement (a requirement that Petitioner purchase a life insurance policy naming the insurer as irrevocable beneficiary), said policy was purchased on January 9, 1991. By letter of March 1, 1991, the Department denied the application, based on an application of the statutory sections cited in Ms. Lehman's memo. On June 21, 1991, the Department issued an amended letter of denial. 2/ In the amended letter of denial, the Department cites the prior misappropriation of funds, the unsatisfied judgement, and the 1985 revocation of licensure and eligibility for licensure, which "circumstances surrounding that revocation still exist". The letter cites Sections 626.611(1), (4), (7), (9), (10) and (13), section 626.641(2), and section 626.731(1) Florida Statutes, as the statutory basis for the denial. The evidence fails to establish that any representative of the Department of Insurance, at any time, informed or assured the Petitioner that, upon his completion of the course of education and upon the execution of the restitution agreement between Cincinnati Insurance Company and the Petitioner, his application for examination for licensure as a general lines insurance agent would be approved. The Petitioner has been acquainted with his current employer, Samuel Jokich, for approximately six years. Mr. Jokich employs the Petitioner as a "Colorado Prime" freezer beef salesman. According to Mr. Jokich, the Petitioner is "extremely trustworthy" and of good character. The Petitioner had not disclosed to Mr. Jokich, and Mr. Jokich was not otherwise aware, that the Petitioner had taken approximately $52,000 from the Milton Carpenter Insurance Agency. Mr. Jeffrey Hooker, an independent insurance agent in Belle Glade and childhood friend of the Petitioner's, is aware of the Petitioner's misappropriation and conversion of approximately $52,000 from the Milton Carpenter Insurance Agency. However, Mr. Hooker stated that he would trust the Petitioner and "try to help him any way I could". Mr. Hooker desires to become partners with the Petitioner in a proposed insurance agency in Ft. Myers. Mr. Kenneth Snyder, a field representative for CNA Insurance Company, has known the Petitioner for approximately eight years. He believes the Petitioner to be of "good character" with "solid morals". Although Mr. Snyder was aware that the Petitioner had taken some funds from the Milton Carpenter Insurance Agency, he was unaware of the amount of said funds. Mr. Snyder stated that he would be willing to enter into a business relationship were the Petitioner to become licensed as a general lines agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Insurance enter a Final Order denying the application of Paul L. Kornya to sit for examination for licensure as a general lines insurance agent. DONE and RECOMMENDED this 23rd day of January, 1992, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of January, 1992.
Findings Of Fact At all times material to this proceeding, the Respondent was eligible for licensure and/or licensed as a Life and Health Insurance Agent, Fraternal Benefit Insurance Agent, Health Insurance Agent, and General Lines Insurance Agent. At all times material to this proceeding, the Respondent was associated with, and conducted insurance transactions in the name of, Consolidated Insurance Associates, Inc., (CIAI) of Largo, Florida. The evidence did not establish whether the Respondent was an officer, director or shareholder of CIAI or otherwise was able to control the business decisions of CIAI. Immediately prior to September of 1983, Thomas Canavan, the business manager for NBCS Partnership, was introduced to the Respondent by one Jerry McCall of State Farm Insurance. NBCS was a partnership of doctors who owned and operated abortion clinics. In the summer of 1983, one of its five clinics was destroyed by arson. Because of the arson and perceived threat of more arson by anti-abortion militants, State Farm gave notice that it would not renew NBCS' property and casualty insurance policy when it expired in September, 1983. McCall introduced Canavan to the Respondent and recommended the Respondent as an insurance agent who could handle the insurance needs of the NBCS Partnership. At the time of the introduction, the Respondent was introduced to Canavan as Jack Jaar of Consolidated Insurance Associates, Inc. At least one other licensee, Shirley Cramer, also was associated with CIAI at the time. In September of 1983, Canavan, on behalf of NBCS, purchased a Home Insurance Company policy (No. BOS-P 247002) through the Respondent. In August of 1984, Canavan applied for and obtained renewal of the insurance policy through the Respondent and, as part of that transaction, provided a check, in payment of the premium ($2,526.00) due, to the Respondent. On or about March 13, 1985, The Home Insurance Company mailed a Notice of Cancellation of the policy to Canavan, effective April 16, 1985. Canavan received the Notice of Cancellation near the end of March and immediately telephoned the Respondent. During the initial telephone conversation between Canavan and the Respondent, Canavan told the Respondent that it was imperative that he have insurance coverage on the NBCS properties, and he requested that the Respondent obtain insurance coverage on the properties. During that initial telephone conversation, the Respondent indicated that he would get busy and attempt to secure insurance coverage for the NBCS properties. During the initial telephone conversation, the Respondent never stated or indicated in any manner that he intended to charge Canavan or NBCS a fee for his services or expenses or out-of-pocket costs incurred in attempting to secure insurance coverage. At the time of the initial telephone conversation between Canavan and the Respondent, Canavan never expected, based upon his prior experiences with and knowledge of insurance agents, to compensate Respondent or CIAI for obtaining insurance coverage on the NBCS properties, other than by paying a premium for the policy and thereby enabling the Respondent and CIAI to earn a commission from the insurer. At no time during that initial telephone conversation did Thomas Canavan agree to compensate the Respondent or CIAI for services rendered or for expenses or out-of-pocket costs incurred in attempting to obtain insurance coverage for the NBCS properties. After the aforementioned initial telephone conversation, Canavan spoke with the Respondent by telephone eight to ten times. At no time during those telephone calls did Respondent state to Canavan, or indicate in any manner, that he intended to charge Canavan or NBCS a fee for his services or expenses or out- of-pocket costs incurred in attempting to secure insurance coverage. At no time during those telephone calls did Canavan agree to compensate the Respondent or CIAI for services or for expenses or out-of-pocket costs incurred in attempting to obtain insurance coverage for the NBCS properties. At some point during those eight to ten telephone calls, the Respondent indicated he was doing everything he could to secure insurance coverage and that he intended to call the Insurance Commissioner's office for assistance in obtaining insurance coverage on the NBCS properties, specifically by getting the cancelled Home Insurance Company policy reinstated. On April 16, 1985, The Home Insurance Company cancelled the policy of insurance (No. BOS-P247002). On April 19, 1985, Mr. William Scisiani, Assistant Vice President and General Manager of The Home Insurance Company, in charge of their Orlando office, received a telephone inquiry from the State of Florida, Department of Insurance, concerning the cancellation of the policy in question. Scisiani obtained the policy file, reviewed it, determined that there was no basis for the cancellation, and instructed the underwriter to reinstate the policy. The policy was reinstated on April 26, 1985, with an effective date of April 16, 1985. No inquiries were received at The Home Insurance Company Orlando office concerning the policy, its cancellation, or reinstatement except for the one inquiry from the Department of Insurance. On the date Canavan received the reinstatement notice, he contacted the Respondent. During that conversation, they discussed securing insurance coverage to take effect after the expiration of the reinstated policy. The Respondent did not state or indicate in any manner that he intended to charge Canavan or NBCS a fee for his services or expenses or out-of-pocket costs incurred in attempting to secure insurance coverage through the expiration date, and Canavan did not agree or indicate that he would compensate the Respondent or CIAI. On or about May 1, 1985, Canavan received a bill for services and expenses in the amount of $1,867 and a letter from the Respondent. In the letter, the Respondent indicated that the bill concerned expenses "incurred in securing new coverages" for NBCS. In the next sentence of the letter, Jaar stated that the cancelled Home Insurance policy had been reinstated. In fact, no new coverages" had been obtained. Up until the date Canavan received the bill and letter from the Respondent, Canavan was unaware that the Respondent intended to charge him for his services and expenses. At the time Canavan received the bill and letter from the Respondent, he knew that he would need insurance again in four months and was counting on the Respondent to obtain coverage for him. Canavan was extremely concerned about maintaining insurance coverage on the NBCS properties because of the previous losses due to arson. Canavan was relying on the Respondent to obtain insurance coverage for him effective on the date the reinstated policy would expire. Canavan did not know anything about insurance or how it works as far as securing a policy or obtaining reinstatement of a policy. He considered that to be the Respondent's job. As of the expiration of the reinstated policy, the Respondent had not secured any new insurance coverages for the NBCS properties. Other than the bill itself, and accompanying letter, and statements in Jaar's September 15, 1987, letter to Adamo, no evidence was presented that the Respondent incurred the expenses referred to in the bill or devoted the time referred to in the bill. Upon receipt of the bill and the letter from the Respondent, Canavan executed a check payable to CIAI for the total amount of the bill--$1867. For accounting purposes Canavan noted in the memo portion of the check "insurance charge" because the charge was related to insurance. Canavan delivered the check to the Respondent, and the check was negotiated by CIAI. Even though he was not expecting it, Canavan did not complain about the $1867 charge. He was afraid that complaining would jeopardize his chances of securing new coverages beginning in September, 1985--his primary concern at the time. Later in the summer, Canavan became disgruntled with CIAI for various reasons, including the $1867 charge, and, by August 28, 1985, complained to the Department at its Tampa office. By then, Jaar was no longer at CIAI, but Shirley Cramer still was. Some of Canavan's complaints concerned dealings with Cramer, and he mentioned her and Jaar by name.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Insurance Commissioner enter a final order finding the Respondent, Jacob Jack Jaar, guilty of violating Sections 626.9541(1)(o)1. and 626.621(6), Florida Statutes (1987), and fining him $500. RECOMMENDED this 6th day of December, 1988. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of December, 1988.
Findings Of Fact Petitioner is the state agency charged with licensing insurance agents of all types, regulating licensure status, and enforcing the practice standards of licensed agents within the powers granted by the Legislature in Chapter 626, Florida Statutes. At all times material to the disciplinary action, Respondent Mahle was licensed as an insurance agent in the following areas: Life and Health Insurance and Health Insurance. During the last quarter of the year 1988, New Concept Insurance, Inc. mailed brochures to residents of Naples, Florida, which stated that representatives of the company were willing to provide information about long- term care insurance, including nursing facility benefits, to interested parties. Those who wanted to learn more about the insurance were asked to return their name, address and telephone number to the company on an enclosed card. Eleanor Drown responded to the advertisement, and an appointment was arranged for Thomas DiBello and Respondent Mahle to meet with her regarding the insurance program. On November 10, 1988, Thomas DiBello and Respondent Mahle met with Ms. Drown and discussed the benefits of a long-term care policy with a nursing facility daily benefit of one hundred dollars ($100.00). After the discussion, Ms. Drown completed an application for the insurance and gave it to Respondent Mahle, along with a check for five thousand one hundred and eighty-three dollars and forty-nine cents ($5,183.49). During the insurance transaction on November 10, 1988, Ms. Drown was given a receipt which states: This receipt is given and accepted with the express understanding that the insurance you applied for will not be in force until the policy is issued and the first premium is paid in full. If your application cannot be approved, we will promptly refund your money. Application is made to the company checked (/) on this receipt. On another area of the receipt, it is clearly written, as follows: If Acknowledgement of Application does not reach you within 20 days, write to: Mutual Protective Insurance Company, 151 South 75th Street, Omaha, Nebraska 68124. The Respondent Mahle did not forward the application and the check completed by Ms. Drown to Mutual Protective Insurance Company. The check issued by Ms. Drown to Mutual Protective Insurance Company was deposited into the account of New Concept Insurance, Inc. A cashier's check for the same amount of money was issued by New Concept Insurance, Inc. to Ms. Drown on March 7, 1989. The letter from New Concept that was mailed with the check represented that the check was the refund of the money paid to Mutual Protective Insurance Company by Ms. Drown. Mitigation An application for long-term care insurance from a different insurance company was sent to Ms. Drown by Respondent Mahle on March 2, 1989. Although this course of conduct was not directly responsive to the duties owed by the Respondent to Mutual Protective Insurance Company or his customer, Ms. Drown, it does demonstrate a concern about the insurance needs requested by the customer. This conduct also reveals that there was no intention to convert the funds received to the Respondent's own use, and it explains some of the delay in the return of the premium funds to the customer. The Respondent has been an insurance agent for twenty years. This was the only complaint against the Respondent the Hearing Officer was made aware of during the proceedings. The allegations in the Complaint involve a single insurance transaction.
Recommendation Accordingly, it is RECOMMENDED: That the Respondent be found guilty of one violation of Section 626.561(1), Florida Statutes, and one violation of Section 626.611(7), Florida Statutes, during a single insurance transaction. That the Respondent pay an administrative penalty of $500.00 for the two violations of the Insurance Code within thirty days of the imposition of the penalty. That the Respondent be placed upon six month's probation. During this probation period, he should file a report with the Department demonstrating the manner in which he intends to keep accurate business records which assure him, the insurance company, and the customer that he is continuously accounting for premium funds and promptly carrying out his fiduciary responsibilities. That the Respondent's requests for licensure dated October 10, 1989 and May 18, 1990, be granted. DONE and ENTERED this 12th day of September, 1990, in Tallahassee, Leon County, Florida. VERONICA E. DONNELLY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE No. 89-6040 The Petitioner's proposed findings of fact are addressed as follows: Accepted. See HO #2. Accepted. See HO #2. Accepted. Accepted. See HO #5. Accepted. See HO #5. Accepted. See HO #5. Accepted. See HO #5. Rejected. Conclusion of Law. Rejected. See HO #6. Accepted. See HO #7. Accepted. See HO #7. Accepted. See HO #7. Accept that Ms. Drown's funds remained in the insurance agency's financial accounts for four months. Reject that the interest bearing ability of these funds is relevant in any manner to this case. Respondent's proposed findings of fact are addressed as follows: Accepted. See HO #3 and #4. Accepted. See HO #5. Accepted. See HO #5. Accepted. See HO #5. Accepted. Rejected. This testimony was rejected by the hearing officer as self serving. It was not found to be credible. Rejected for the same reasons given immediately above. Accepted, but not particularly probative. Rejected. Contrary to the testimony of Ms. Drown which was believed by the hearing officer. Accepted. Rejected. Contrary to the testimony of Ms. Drown which was believed by the hearing officer. Accept that an application for Penn Treaty Insurance was sent to Ms. Drown on this date. Accepted. Rejected. Contrary to the testimony of Ms. Drown which was believed by the hearing officer. Rejected. Self serving. Not believed or found to be credible by the hearing officer. Accepted. See HO #9. COPIES FURNISHED: C. Christopher Anderson III, Esquire Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Mark P. Smith, Esquire GOLDBERG, GOLDSTEIN & BUCKLEY, P.A. 1515 Broadway Post Office Box 2366 Fort Myers, Florida 33902-2366 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
Findings Of Fact Introduction At all times relevant hereto, respondent, Florence Mounts Williams (Williams or respondent), was licensed as an insurance agent by petitioner, Department of Insurance and Treasurer (Department or petitioner). When the events herein occurred, Williams was an officer and director of Mr. Auto Insurance of Okeechobee, Inc. (Mr. Auto), an incorporated general lines insurance agency located in Okeechobee, Florida. She was also an officer and director of Florida Insurance Agency, Inc. (FIA), an insurance agency doing business in the same city. Respondent sold insurance to the public through both businesses. Williams is charged with violating the Florida Insurance Code while dealing with nine customers during the period between 1984 and 1986. These business transactions were made either through Mr. Auto or FIA, and, with certain exceptions, generally relate to Williams accepting a premium for a policy and then failing to procure a policy for the customer, or falling to refund the premium after the customer cancelled the policy. Some of these customers eventually filed complaints with the Department, and after an investigation was conducted, the administrative complaint, as amended, was issued. That prompted this proceeding. The State of the Industry and Williams in 1984-86 Before discussing the specific charges, it is appropriate to describe the industry conditions and practices as they existed in 1984-86. These were established without contradiction by expert witness Beverly. It is within this broad framework that Williams operated when the transactions in question occurred. The expert's bottom line conclusion, after reviewing the nine customers' files, was that no impropriety had occurred. The agent-customer interface normally begins when a customer visits an insurance agent to purchase a policy. The agent will generally get a rate quotation by telephone from a managing general agent (MGA) who brokers policies on behalf of various insurance companies. An MGA may more accurately be described as a branch office of the insurance company under contract. If the rate quoted by the MGA to the agent is acceptable to a customer, the agent has the applicant complete an application and pay the quoted premium, or at least make a down payment on the same. The application and premium are then forwarded by the agent to the MGA for risk review to determine if the applicant meets underwriting requirements. At the same time, the agent will issue a binder to the customer which evidences temporary coverage until the application is accepted or rejected by the insurance company. In the event coverage is later declined, industry practice dictates that the agent obtain coverage with another company as soon as possible since the agent has the responsibility to maintain coverage on a customer. However, what constitutes a reasonable period of time to do so was not disclosed. In obtaining new coverage, the agent need not have the customer execute a new application since the validity of the original application is not affected. The customer should, however, be notified at the earliest convenient time that coverage is with a different company. In some cases, a customer may choose to finance his premium through a premium finance company. If he does, the finance company pays the entire premium to the MGA or insurer when application is made, and the customer pays the amount owed (plus a finance charge) to the finance company through installment payments over an agreed period of time. If for some reason an application is not accepted by the insurer, it is the responsibility of the MGA or insurer to so notify the premium finance company and return the money. The finance company must then refund any money paid by the insured. When the events herein occurred, it was established through expert testimony that the Florida insurance marketplace was in a "chaotic" condition and could be described as a "zoo." During this time, a small agent such as Williams might find herself doing business with as many as fifteen different MGAs, each with a different set of rules. Thus, it was common for an agent to be confused as to her binding authority with a particular MGA and whether the proper amount of coverage was obtained. Moreover, because of the chaotic marketplace, it became increasingly difficult to find companies who would write coverage on certain types of policies. It was further established that in 1984-1986 the MGAs were "overflowed with work" thereby causing delays of up to "months" for an agent to learn from an MGA if the risk had been accepted and a policy issued. Applications and checks were also lost or misplaced by the MGA and carrier during this time period. Consequently, the agent would think that coverage had been obtained, and so advise the customer, but would later learn that the application had been rejected, or the company had no record of one ever being filed. There were also lengthy delays in MGAs and insurance companies returning unearned premiums to the agent for repayment to the customers. According to industry practice, once a refund is received by an agent, checks to customers would typically be issued only once a month. In Williams' case, she made refunds on the twenty-fifth day of each month. A further prohibition on an agent is that a refund can be paid to a customer only after the agent receives the refund check from the insurance company or MGA. In other words, refunds from an agent's own funds are prohibited. As a result of this confusion, the number of occasions when an agent was cited for an error or omission (E&O) went up "astronomically." Indeed, industry statistics tell us that one in six insurance agents has a claim filed against his E&O policy for failure to provide coverage as promised. For this reason, no reasonable agent, including Williams, would do business without an E&O policy. When the policies in question were sold, Williams had approximately 4,000 active and inactive files in her office. Her office help was mainly persons with no prior training in insurance, and who only stayed on the job for a matter of weeks or months. Consequently, there was some confusion and disarray in her two offices. Even so, Williams was responsible for the conduct of her employees. At the same time, however, it was not unreasonable for Williams to assume that, due to the overload of work on the MOAs, an agent could expect no action on an application to be taken by an MGA or carrier for many months, and that applications and checks might be misplaced or lost. Count I This count involves an allegation that Williams violated nine sections of the Insurance Code in conjunction with the sale of a boat insurance policy to David and Margaret Copeland on September 19, 1984. The evidence reflects that Margaret Copeland applied for insurance on her boat with Mr. Auto on or about September 19, 1984. Copeland had previously been turned down for insurance by several other local agents. After Williams received a telephonic quote of $168 per year from an MGA, and relayed this advice to Copeland, Copeland gave a $30 check as a down payment on her policy. The remaining premium was paid by two partial payments made on October 6 and November 7, 1984, respectively. Copeland was issued a binder to evidence her insurance coverage, and a receipt for the $30 down payment. The binder indicated that Barnett Bank was the loss payee and that coverage was with "Professional." In actuality, "Professional" was Professional Underwriters Insurance Agency, Inc. (Professional), an MOA in Altamonte Springs for various insurance companies doing business in the state. According to Williams, the application and check were forwarded to Professional shortly after the application was executed. Because the boat was being financed with Barnett Bank, and the lender required evidence of insurance, Copeland instructed Mr. Auto to furnish a copy of the policy to the bank. A copy of the binder was furnished by Williams to the bank on November 19, 1984, and again on December 7, 1984. However, after Margaret Copeland did not receive a copy of a policy, she contacted Mr. Auto on several occasions to obtain a copy but was given "excuses" why one had not been issued. At this point Williams simply believed Professional was "dragging its feet" since past experience had taught her Professional typically took three to four months to forward a copy of the policy. Nonetheless, in response to Copeland's requests, Williams wrote Professional on December 3, 1984, asking that it "please check on the (Copelands') boat policy which was written 9-19-84" because the lienholder needed a copy. Professional did not respond to Williams' request. After no policy was received, Margaret Copeland contacted Professional's office in Altamonte Springs by telephone and learned no policy had been issued by that firm. The Copelands then requested Mr. Auto to cancel their policy on March 12, 1985, and demanded a full refund of their premium. After having the Copelands execute a notice of cancellation, the same was forwarded by Williams to Professional with a note reading "Karen, check this out and see what is happening," together with a copy of her previous request that Professional check on the whereabouts of the policy. Again, Professional did not respond to this inquiry. Williams then telephoned Professional and spoke to its office manager seeking advice on the amount of refund due the Copelands. She was told to make a proration. On May 19, 1985, Williams offered David Copeland a partial refund ($89) of his premium but he declined. This amount of refund was based on Williams' belief that coverage existed from September 18, 1984, when she received a quotation, until March 12, 1985, or for approximately six months, and $59 represented the remaining unearned premium. Given the climate of the industry at that time, it was reasonable for Williams to make such an assumption. After Copeland declined her offer, Williams wrote Professional seeking further assistance and stating that "Insured was in here today, wanted his refund. I tried to prorate it and give it to him." Again, Williams received no formal reply from the MGA. To date, a policy has not been produced. Williams eventually refunded the entire premium to the Copelands in February 1987. Through testimony from a Professional representative, it was established that Williams had no binding authority with Professional except on homeowners and dwelling fire policies. On all others, including the type the Copelands desired, it was necessary for the agent to first telephone Professional and receive a "telephone bind" from a Professional representative. In a letter to petitioner dated August 7, 1985, Professional acknowledged that there was "a possibility this risk may have been quoted," but it could find no record of an application having been filed or verification of coverage bound through a binder number or cashed check. It did acknowledge receiving the Copelands' request to cancel their policy in March 1985. If a binder had been authorized, it would have been recorded in a binder book with a number assigned to that binder unless the company lost the policy or otherwise inadvertently failed to record this information. The representative also confirmed that Professional routinely brokered this type of policy in 1984, and that it binds several thousand policies per year. Given this volume of work, the representative acknowledged it was possible that Williams or an employee of her firm may have been given a telephone quote for the Copeland policy, or that the application could have been misplaced. C. Count III On June 19, 1985, William C. Norton, a retired railroad conductor, went to Mr. Auto to purchase an insurance policy for two automobiles. After being quoted an annual premium of $315 by an MGA (Jergen & Roberts), Williams gave this advice to Norton who then gave her a check in that amount. Norton was given a receipt and a binder to evidence his coverage. The binder reflected Norton's application had been placed with "Foremost," which is Foremost Insurance Company (Foremost) in Grand Rapids, Michigan. Williams forwarded the application to the MGA but it was later returned unbound because of several traffic violations by Norton. She then "shopped" the application around and was able to procure a policy from Orion Insurance Company (Orion) through Standard Underwriters, an MGA, at an estimated cost of $528.70 instead of the previously quoted rate of $315 per year. It should be noted that during this period of time, Norton was covered through binders executed by Williams. After Williams paid the amount ($528.70) due the MGA, a policy number (PA-102390) was issued. However, through "neglect" Williams never billed Norton for the difference between the originally quoted premium and the $528. After Orion reviewed Norton's driving record, it increased the annual premium to $622. When Williams received a bill for $622 per year, she sent Norton a notice on October 24, 1985, requesting an additional $144. 2/ When he refused, the policy was cancelled by the company for nonpayment in February 1986. By this time, Norton had gone to another company to obtain coverage. He had also requested from Williams a copy of his policy on four or five occasions but one was never produced. Norton also demanded a full refund of his money even though he had been covered by binders and a policy from June 1985 until February 1986, and was not entitled to a refund. When Williams refused, Norton filed an action in small claims court in February 1986, and won an uncontested judgment for $315. Williams stated she did not contest the matter because of several stressful events then occurring (e.g., a divorce and an employee theft) and the expense of hiring legal counsel. Mobile Home Division of Florida (MHD) is an MGA in Fort Lauderdale that reviews applications for automobile insurance with Foremost (and others), and determines if the applicant meets Foremost's underwriting requirements. It is one of five MGAs in the State representing Foremost. A representative of MHD reviewed his firm's records, and found no evidence of having received the Norton application. However, this was not surprising since Williams had not used MHD to obtain Norton's policy. Count VI Terryl J. Wisener is a college student with numerous traffic violations on his record. Because of this, he was forced to obtain automobile insurance through the Florida Joint Underwriters Association (FJUA), a small group of companies who write policies for high risk drivers such as Wisener. Insurance agents are "assigned" to one of the companies writing policies, even though they are not a regular agent of that company. Allstate Insurance Company (Allstate) happened to be a servicing carrier for FJUA in 1986, and Williams accordingly filed FJUA applications with that carrier when seeking insurance for high-risk customers. Under then existing rules, Williams could temporarily "bind" Allstate by writing a binder on a policy, but approval of the application and issuance of permanent coverage rested with Allstate. Until the application was rejected by Allstate, the driver was insured through the binder. During this same time period, it was "commonplace" for an FJUA carrier to return an application because of an "insignificant error" to avoid having to write a policy on a high-risk customer. On December 30, 1985, Wisener purchased a six-month automobile insurance policy through Williams. When the policy was due to expire on June 30, 1986, he returned seeking a renewal. Williams attempted to place the liability coverage with Allstate and the physical damage coverage through "Coastal," an MGA for Adriatic Insurance Company. She was quoted premiums of $996.70 and $814.70, respectively, for the two policies. After accepting a down payment of $552 from Wisener, she issued a binder and mailed the application to Allstate and Coastal with drafts for the entire premiums due. Because Wisener's Chevrolet Camaro was an eight-cylinder automobile, Coastal rejected the application in October 1986. Williams then attempted to replace the physical damage coverage with Allstate in November 1986. By virtue of Williams' binding authority, Wisener had coverage with Allstate until it rejected his application. The application, along with about fifty or sixty others, was eventually rejected by Allstate on February 27, 1987, because of a lack of "information." Until this occurred, Williams properly assumed that Wisener was covered and that Allstate was reviewing his application. In the meantime, and apparently without advising Williams, Wisener decided in October 1986 to purchase a policy through his parents' Allstate insurance agent in Port St. Lucie. He did so because he "believed" he had no insurance. However, he never made inquiry with Williams to confirm or deny this, or asked for a refund of his money. A representative of Allstate searched his firm's records and could find no evidence that a policy was ever written for Wisener through Williams. The company does acknowledge that it received Wisener's application and that it eventually returned the same "unbound" almost four months later. It gave no explanation for the delay. Although Wisener had not received a refund as of the time of hearing, this responsibility rests with Allstate (and not Williams) since it has never refunded to Williams the money paid by her for Wisener's policy. Count VII This count concerns a mobile home insurance policy purchased by Samuel and Mary Jo Moore in June 1985 from FIA. On June 25, 1985, Mary Jo Moore made application to renew her insurance policy on the mobile home. The policy had been in force for some ten years. Moore paid Williams $118 by check which was deposited and cashed by Williams. A check for $23 was also paid at a later date due to a premium increase. Williams issued Moore a binder evidencing coverage with Mobile Home Insurance Association (MHIA), an MGA in Gainesville, Florida. Shortly afterward, Williams learned from the MGA that the Moores' previous carrier, American Pioneer, had gone bankrupt and that there was a limited market for the Moores' application. Williams thereafter forwarded the application to another MGA, Jerger & Sons, Inc. (Jerger), in early August 1985. Temporary coverage was eventually issued by Jerger on August 23, 1985. However, the application was deemed to be incomplete because information regarding the number of spaces in the Moores' trailer park was lacking. This was not surprising since the Moores lived on private property and not in a trailer park. The application was returned to Williams with a reminder that unless the missing information was submitted to Jerger by September 6, 1985, coverage would be terminated. When no information was filed by that date, Jerger cancelled its coverage and returned the unbound policy on September 12, 1985. The Moores were not notified of this lapse in coverage. By allowing the coverage to lapse, and not notifying the Moores, Williams was negligent in her duties as an agent. After Jerger returned the application to Williams in late August 1985, Williams attempted to get the Moores to furnish photographs of the trailer site, and to sign the new application. Because both worked at jobs during business hours, Williams claimed she was unable to reach them prior to September 6, 1985. Williams continued her efforts to place the insurance and eventually filed the application with Foremost in March 1986. Although Williams concedes a lapse in coverage did occur, there is no evidence that this was an intentional or debilitate act on her part. After having the application returned twice, coverage was finally obtained for $201 in July 1986, or almost a year after the Moores first approached her concerning a renewal of their policy. This policy is effective through July 1987. Williams paid out of her own funds the difference between the original premium ($141) and the $201. In view of the original premium being applied to the 1986-87 premium, the Moores are not due a refund. On October 31, 1985, a tornado struck in the Okeechobee area causing damage to the Moores' trailer. The Moores contacted respondent who, at her own expense, had an adjuster from Vero Beach survey the damage in November. The adjuster learned no coverage was in force. The Moores then contacted respondent who, for some reason, had Jerger search for a policy. As might be expected, none was found, and Jerger would not agree to cover the loss. Williams instructed the Copelands to proceed against her E&O carrier for payment of their claim. At the time of final hearing, the claim had not yet been resolved. Count VIII On or about February 19, 1986, William A. McClellan, a retiree, purchased an automobile insurance policy from FIA. He paid $201 by check to Williams and received from her a receipt and binder evidencing coverage with "AIB" (Associated Insurance Brokers), the MGA for Balboa Insurance Company in Newport Beach, California. After the application was forwarded to AIB, it was initially returned because the agency check was drawn on insufficient funds. Thereafter, the check was made good (with no lapse in coverage) and Williams subsequently received a bill from Balboa for $247, or $46 more than she had previously quoted McClellan. When McClellan was presented the bill for an additional premium on May 1, 1986, McClellan told Williams to cancel his policy and to refund the unearned premium. She relayed this request to AIB and coverage was cancelled effective June 13, 1986. Thereafter, McClellan visited Williams' office at least seven or eight times seeking his refund, but was always told it was still being processed. This was a correct representation by Williams since AIB was less than diligent in processing a refund check. McClellan also filed a complaint with petitioner. Upon inquiry by petitioner, Williams advised the Department that McClellan would be paid as soon as AIB issued her a check. On or about July 29, 1986, AIB finally cut a check in the amount of $91.22 payable to Williams, and eventually issued a second check in the amount of $25.38 on October 1, 1986. The delay in issuing the checks was attributable to AIB and not Williams. After Williams received the first check, she offered McClellan a partial refund of $91.22 but he declined the offer. On October 10, 1986, or the day after Williams received the second check by mail, a representative of AIB flew by private plane to Okeechobee and obtained $133 in cash from Williams, who by then had received the second check from AIB. 3/ The representative paid McClellan the same day. Count IX On or about March 16, 1985, Luther B. Starnes purchased an insurance policy for his two automobiles from Mr. Auto for which he paid $473 by four installments over the next few months. After Williams received a telephone bind, Starnes was issued a binder evidencing insurance with a company called "Integrity." He also received a "Florida Vehicle Identification Card" evidencing PIP and liability coverage on his vehicles. In this case, Williams placed the coverage by telephone with AIB, the MGA for Integrity, which authorized her to temporarily bind the coverage. The application and check were thereafter sent by Williams to the MGA. After not receiving a policy by the fall of 1985, Starnes telephoned a district office of Integrity and learned his name was not on its computer. However, he did not contact Williams after that, or ask for a refund of his premium. Despite the accusation that Williams had no basis to believe that a policy had ever been issued by Integrity, an AIB representative confirmed at hearing that Starnes' application and premium had been received by AIB, and that AIB had issued a policy number covering Starnes. Indeed, respondent's exhibit 10 reflects that Integrity cashed the check, and simultaneously placed a sticker on the check which read "Integrity Insurance Co. Private Passenger Auto 100-FAB- 0206809." This indicated that AIB had assigned a policy number on behalf of Integrity and that Starnes' coverage was in effect. Indeed, Williams properly relied upon her cancelled check in believing that Starnes was insured. Moreover, it was appropriate for Starnes to pay for this coverage until Integrity formally rejected his application. Although Starnes never received a copy of a policy, the responsibility to issue one rested upon MGA or Integrity, but not Williams. Count X On or about July 11, 1986, David and Carolyn Douglas purchased an insurance policy for two trucks owned by David. The policy cost $1300 per year and Carolyn paid Williams this amount by check. A binder was given to Carolyn reflecting coverage through Dana Roerig and Associates (Roerig), an MGA in St. Petersburg for Canal Insurance Company (Canal). Under the MGA's then existing policy, it was necessary for Williams to forward the application to Roerig and request a rate quotation. After receipt of the application Roerig would normally telephone the agent, quote a rate, and then bind if the rate was acceptable. In this case, the quoted rate was unsatisfactory, and Roerig returned the application unbound on August 10, 1986. Williams then attempted to place the coverage through an MGA in Lakeland (E&S Agency). However, Williams was quoted a rate on September 25 which she knew was too expensive. After obtaining the second excessive quote, Williams immediately bound coverage with Allstate and forwarded the Douglas application to that carrier with an agency check on September 25, 1986. Because Allstate accepted only money orders or cashiers checks, and the application was undated, the application and check were returned by Allstate to Williams on October 7. Williams then sent Allstate a dated application and a money order in the amount of $1500, or $200 more than the original Douglas policy required. Although Allstate did not formally issue a policy, it assigned the Douglas application a policy number on December 15, 1986, and simultaneously issued a refund check for $121 to Douglas, since the policy cost $1,179 and not $1,300 as had been originally quoted to Carolyn Douglas. Therefore, at that point the coverage remained in effect. On December 23 Allstate issued another refund check to Douglas in the amount of $776 and advised it was cancelling coverage effective February 6, 1987. Allstate later returned the remainder of the $1,300 owed David and Carolyn Douglas. Therefore, even though they had coverage for some six months through various binders and the policy itself, the Douglases paid no premium. Although Carolyn Douglas made several attempts to obtain a copy of the policy, Williams could not produce one since the two MGAs and Allstate had held the application almost continuously for six months. It is noted that Allstate has never repaid Williams the $1500 sent by her with the Douglas application in October, 1986. Count XI Francis Carr is a locktender on Lake Okeechobee whose duties require him to open and close the locks. The job is subject to bids, and all bidders must have evidence of general liability insurance. Desiring to submit a bid, Carr purchased a one-year general liability policy from Mr. Auto on September 20, 1985, and paid Williams $540.75 for the coverage. Carr received a copy of a policy from Scottsdale Insurance Company (Scottsdale) on a later date. On April 15, 1986, Carr asked that his policy be cancelled. This was done the next day. Carr was due a $181 refund as unearned premium. Through no fault of Williams, the refund check was not issued by Scottsdale until October 21, 1986, or some six months later. Williams later endorsed the check without recourse to a local dress shop. In July 1986, Carr again bid on the locktender job, and, through his wife, made application on July 7 for a new policy so that he could submit a bid. Although the annual premium had now increased to approximately $1,500 per year, Mrs. Carr paid only a $215 down payment. Under this type of policy, Carr was responsible for thirty-five percent of the entire year's premium even if he cancelled the policy after one day. Therefore, the policy had a minimum cost of $525 regardless of its term. Because he had not paid this minimum amount, Williams applied Carr's $181 refund check from the prior year to the minimum amount owed. This was consistent with the industry practice of agents applying credit refunds to new policies of this nature. She also paid $85 from her own funds in early October 1986 to meet the thirty-five percent threshold amount. By then, however, Carr had instructed another employee to cancel his policy since his bid had not been accepted. When he didn't get a refund from the prior year, Carr filed a complaint with petitioner. However, Carr is not entitled to a refund from either year since he still owes Williams $85 for the 1986-87 policy, even after the 1985-86 refund is applied to the second policy. I. Count XII Frank I. Henry and Margaret J. Henry (no relation) lived together in a rented mobile home in 1984. Margaret purchased a policy on the mobile home contents from Mr. Auto in July 1984. She paid Williams a $40 premium, and then made three payments of $47.28 each to Envoy Finance Corporation (Envoy), a Deerfield Beach finance company which financed the balance of the amount owed. Margaret received a binder from Williams reflecting coverage with Mobile Homes Division (MHD), an MGA in Fort Lauderdale Envoy submitted a check for $118.50 to MHD on July 16, 1984, reflecting full payment for the policy. After forwarding the application to MHD, Williams assumed Henry had coverage through American Fidelity Company (AFC), a company which later went out of business that fall. According to MHD, however, the application should have been returned to Williams a few days after it was received because it had no insurance company writing those types of policies. Williams denied receiving the application, and MHD had no record of the application being returned. Williams' version is corroborated by the fact that MHD never advised Envoy that the policy had been returned, something MHD should have done if coverage was rejected. Moreover, MHD has never refunded the $118.50 paid by Envoy in July 1984. According to uncontradicted expert testimony, it is the responsibility of the MGA or carrier to advise the finance company of a coverage denial, and to make a refund to the finance company, which then makes a refund to the customer. Therefore, MHD or AFC, but not Williams, is at fault for not refunding Henry's money. Around April 20, 1985, Frank's mobile home was damaged by a fire. His claim was rejected by MHD since it had no record of coverage. Prior to this time, no request for a copy of the policy had been made by Henry, and Williams properly assumed that Henry's coverage was in effect. Williams has since notified her E&O carrier of a possible liability. As of the time of hearing, Henry's claim was still unpaid and he has not received a refund of his premium from MHD, AFC or Envoy.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of a single violation of Subsection 626.621(6), Florida Statutes (1985), and that all other charges be dismissed. Respondent should be given a reprimand for this violation. DONE AND ORDERED this 29th day of May 1987, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of May 1987.
The Issue Whether or not Petitioner's application for examination as a general lines agent should be approved.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received, and the entire record compiled herein, I hereby make the following relevant factual findings: On or about September 2, 1989, Petitioner, Kimberly L. Strayer, formerly known as Kimberly Lindsay, filed an application for examination as a general lines agent with Respondent, Department of Insurance. Since January 1988, Petitioner has been the sole owner and president of Central Florida Insurance Agency (Central). On or about December 28, 1989, Respondent informed Petitioner, by letter, that her application for examination as a general lines agent was denied for the following reasons: Petitioner operated Central Florida Insurance Agency without a licensed general lines agent in the full-time active charge of that agency from January 1, 1988 through August 31, 1988. During January 1988 Petitioner accepted applications and down payments from the following insureds: Robert Smallwood, Annelle Jones, Mickey Lawson, Donald Johnson, Thomas Jones, Manning O'Callahan and Christopher Stevens. Petitioner issued a binder and an automobile identification card for each insured indicating that coverage was bound with State Farm Mutual Insurance Company, as servicing carrier for the Florida Joint Underwriting Association (FJUA). At the time Petitioner had no authority to accept either applications or premiums on behalf of State Farm. Petitioner failed to forward such applications and premiums to the insurer until April 12, 1988. During January 1988, Petitioner accepted an application and premium payment of $274.00 from Tammy Clay. Petitioner issued a binder indicating that coverage was bound with State Farm and Union American Insurance Companies. Petitioner failed to forward either the application or the premium payment to any insurer. Petitioner issued a fictitious policy number to Ms. Clay and after nearly four months, submitted a money order to State Farm payable to Tammy Clay, on or about May 1989. At the hearing, Petitioner admitted that she did not have a licensed general lines agent in full-time active charge of her agency; that she accepted applications and premium payments from the above-named insureds for auto insurance to be bound with State Farm Mutual Insurance Company and that she accepted an application for premium payment for automobile insurance from Tammy Clay in the amount of $274.00 for coverage to be bound by State Farm Mutual Insurance Company. Petitioner was first employed in the insurance sales industry during the summer of 1987. At the time, she was only seventeen years old and had completed the eleventh grade. Petitioner's first employment in the insurance industry was with Friendly Auto Insurance (Friendly) which had several offices throughout Polk County, Florida. Friendly was owned by Petitioner's now husband, Larry Lindsay when she was hired. Petitioner formed Central during late 1987 and began operating Central on or about January 1, 1988. Petitioner received her supervision and training while employed with Friendly, primarily through on the job experiences. During late 1987, Petitioner's husband encountered problems with one of his business partners which resulted in strained relations. The resultant strained relations prompted Petitioner to organize Central. Central purchased several of Friendly's agencies of which her now husband had an interest, with Petitioner paying a nominal amount for the "book of business" that Friendly had generated. When Central commenced operations during January of 1988, Bob Seese was the licensed insurance agent who was authorized under the rules of the FJUA to accept applications and bind coverage through one of the FJUA servicing carriers, State Farm. Friendly and its successor, Central, generated a substantial volume of so-called high risk auto insurance business for drivers who could not obtain insurance through the regular market. Bob Seese had been associated with and served as the licensed agent for the Friendly agency in Lakes Wales which Central purchased in January 1988. At the time Petitioner commenced operating Central, she hired Bob Seese as the licensed general lines agent. She considered that Central was authorized to accept applications and continue to bind FJUA insurance coverage through State Farm. Petitioner forwarded all of the FJUA insurance applications which were bound by Bob Seese to State Farm within a period ranging from one week to approximately one month. State Farm refused to accept the applications submitted by Petitioner based on its contention that initially, Bob Seese was not authorized to bind coverage through Central, as he had not transferred his license to Central and Seese could only operate out of the Friendly agency of Lake Wales. 1/ Bob Seese was formally authorized by State Farm to conduct business through Central during February 1988. As a result of that authorization, all of the above-named insureds obtained insurance and none of the insureds suffered any monetary loss as a result of Seese's belated authorization. All of the premium payments that Petitioner received were, in time, forwarded to the respective carriers. Petitioner properly gave new insureds binder numbers which were serially dispensed in the order that premium payments were received. During January 1988, Petitioner accepted an application and premium payment for auto insurance from Tammy Clay for coverage to be bound by State Farm. Petitioner submitted Clay's application and premium payment to State Farm and it was returned on one occasion based on the fact that a facsimile stamp was used by the purported licensed agent (Seese). Petitioner resubmitted it and State Farm again returned it based on State Farm's contention that Seese was not authorized to conduct business through Central. Petitioner has now completed the required formal educational courses to demonstrate her eligibility to sit for the general lines agent's examination. Petitioner is now knowledgeable about insurance matters and is aware of the proper procedures for operating as a general lines agent. When Petitioner formed Central, she had less than one year's experience in the insurance business and was ineligible to sit for the general lines agent exam as she was not of majority age.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Respondent enter a Final Order granting Petitioner's application for examination as a general lines insurance agent. DONE and ENTERED this 31st day of October, 1990, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL 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 31st day of October, 1990.
The Issue Whether Highlands has standing to challenge the Department's Emergency Rule 4ER93-20, Florida Administrative Code, and if so, whether Sections 2(d) and 6(a) should be invalidated because they constitute invalid exercise of delegated legislative authority?
Findings Of Fact The Moratorium Statute During Special Session B of 1993 the Florida Legislature passed HB 89- B. The Governor signed the bill into law on June 8, 1993. Now codified as Section 1 of Chapter 93-401, Laws of Florida, the law, in pertinent part, provides as follows: Section 1. Moratorium on cancellation and nonrenewal of residential property coverages.-- * * * (3) MORATORIUM IMPOSED.--Effective May 19, 1993, no insurer authorized to transact insurance in this state shall, until the expiration of this section pursuant to subsection (6), cancel or nonrenew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrenewals must be substantiated by underwriting rules filed with and accepted for use by the Depart- ment of Insurance, unless inconsistent with the provisions of this section. The Department of Insurance is hereby granted all necessary power to carry out the provisions of this section. Pursuant to the Moratorium Statute, on an emergency basis, the Department promulgated Emergency Rule 20. The Challenged Sections The sections of Emergency Rule 20 Highlands seeks to have invalidated are 2(d) and 6(a): 4ER93-20 Procedures For Applying for Moratorium Exemption and Required Insurer Corrective Action on Previous Notices of Cancellation or Nonrenewal. * * * (2) General Provisions. * * * (d) House Bill 89-B, as enacted at the May 1993 Special Legaislative (sic) Session, revoked all prior approvals issued by the Department, of insurer plans for programs of onrenewals and cancellations, where the non- renewal or cancellation was not effective as of May 19, 1993, notwithstanding that the notice of nonrenewl or cancellation was issued before May 19, 1993. * * * (6) Required Action On Prior Notices of Cancellation. (a) Any insurer which, prior to May 19, 1993, shall have issued any notice of cancellation or nonrenewal, whether approved by the Department or not, upon the basis of risk of hurricane claims, which cancellation or non- renewal was not yet effective as of May 19, 1993, shall revoke said notice and shall not cancel or nonrenew such policy, or if same has been cancelled or non-renewed subsequent to May 19, 1993, shall immediately reinstate coverage without lapse as if there had been no cancellation or nonrenewal. The insurer shall also, by no later than June 10, 1993, mail by first class mail to every policy holder and agent who was sent such notice or whose policy was so cancelled or non-renewed, written advice that the previous notice is withdrawn, and that the coverage will not be cancelled or nonrenewed, or that the coverage is rein- stated, as the case may be. In the event that the renewal premium has not been received because the insured was operating under the impression that the coverage was not renewable, or a premium is due because the insurer has already refunded the unearned premium, the insurer shall allow the insured a reasonable period after receipt of an invoice from the insurer, in which to forward the required premium, and the insurer shall provide coverage during that reasonable period. Insurance and the parties Insurance is defined in Florida as "a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies." Section 624.02, Florida Statutes. A highly regulated business activity, insurance is regulated primarily at the state level. The Department of Insurance, among other powers and duties, enforces the provisions of the Florida Insurance Code against insurers, including Highlands, defined by the Code as, "those persons engaged as indemnitor, surety or contractor in the business of providing insurance." Section 624.02, Florida Statutes. Highlands Insurance Company, domiciled in Texas, is a stock insurance company admitted to transact insurance in Florida as a foreign insurer. After many years of transacting insurance in Florida, Highlands was issued a "new permanent Certificate of Authority" from the Department by letter dated November 22, 1991. The certificate authorized Highlands to write "Homeowner Multi Peril" and "Commercial Multi Peril" lines of business as well as numerous other lines. Pursuant to its Certificate of Authority the standard homeowner's policy issued in Florida by Highlands allowed for cancellation by the homeowner at any time through notice to the company. It allowed for cancellation by Highlands under limited circumstances. And it allowed for non- renewal by written notice within a certain number of days before the policy's expiration date. Reinsurance From the early 1960s through June 30, 1993, Highlands wrote its Florida property and casualty insurance, through a reinsurance facility ("SU Reinsurance Facility") made available by Southern Underwriters, Inc. ("Southern"). Under the terms of the SU Reinsurance Facility, 93.5 percent of homeowners and commercial risks insured by Highlands are reinsured to a large group of reinsurers. Highlands retains only 6.5 percent of its homeowners and commercial lines risks. The SU Reinsurance Facility consists of two principal reinsurance agreements, which, in the aggregate, reinsure 93.5 percent of the liabilities of the homeowners and commercial lines insurance written in Florida by Highlands and its wholly owned subsidiary, Highlands Underwriters Insurance Company ("HUIC"). One agreement is the Quota Share agreement, the other is the Obligatory Surplus agreement. For each homeowners or commercial policy, the risks are ceded pro-rata under the two agreements, 25 percent to the Quota Share and 75 percent to the Obligatory Surplus. Highlands and HUIC retain 16 percent and 5.5 percent, respectively of the 25 percent of total risk attributable to the Quota Share agreement for a total of 5.375 percent of total risk. Highlands retains 1.5 percent of the 75 percent of total risk attributable to the Obligatory Surplus agreement or 1.125 percent of total risk. Highlands exposure to total risk, therefore, is 6.5 percent. The total risk for each policy attributable to Quota Share is 19.625 percent and to Obligatory Surplus 73.875 percent which equals, together, 93.5 percent of total risk. Hurricane Andrew and Claims against Highlands Hurricane Andrew struck Florida on August 24, 1992. The most costly civil disaster in the history of the United States, it caused over 16 billion dollars ($16,000,000,000) in insured losses, alone. As a result of the hurricane, Highlands incurred claims totalling approximately 337.3 million dollars ($337,300,000) under its homeowner and commercial lines policies. Highlands' 6.5 percent share of the losses on these claims was 21.9 million dollars ($21,900,000). The reinsurers' 93.5 percent share of the losses on the claims was 315.4 million dollars ($315,400,000). Highland's 1992 year-end policyholder surplus was 255.4 million dollars ($255,400,000). Thus, the claims incurred by Highlands as the result of Andrew exceeded its 1992 surplus by more than 80 million dollars ($80,000,000). Quota Share Reinsurance Cancellation By letter dated January 15, 1993, Highlands was formally notified that its reinsurers had terminated the Quota Share Facility for policies to be written or renewed on and after July 1, 1993. Highlands was unable to secure reinsurance to replace the terminated reinsurance. Highlands Response to Reinsurance Loss Based on the loss of the Quota Share reinsurance, Highlands notified the Department by letter dated January 22, 1993 (one week after the date of the letter by which Highlands received formal notice of the termination of the Quota Share reinsurance) that it would cease to write "Dwelling and Homeowner's insurance effective May 1, 1993 and after," Pet.'s Ex. 4., that is, that it would "discontinue" the writing of the "Multi Peril Homeowner's" line of insurance, one of the many lines authorized by the Certificate of Authority as shown on the certificate face. The January 22 "Discontinuance" letter was sent, in the words of Highlands' Vice-President for Reinsurance Jose Ferrer, because, "the magnitude of our involvement in Florida especially with Hurricane Andrew was such that we were losing our reinsurance protection, we had to take immediate action to protect our company." (Tr. 36) On January 22, 1993, discontinuance by an insurer from transacting any line of insurance in Florida was governed by Section 624.430, Florida Statutes and Emergency Rule 4ER92-11. Section 624.430, F.S., bears the catchline "Withdrawal of insurer or discontinuance of writing certain classes of insurance." With regard to the action taken by the January 22 letter, (notice of discontinuance of a line), the statute provides, in pertinent part: Any insurer desiring to ... discontinue the writing of any one or multiple kinds or lines of insurance in this state shall give 90 days' notice in writing to the department setting forth its reasons for such action. Rule 4ER92-11, (the "Withdrawal" Rule) entitled "Withdrawal of Insurers From the State," includes discontinuances of any line of property insurance as well as the complete cessation of writing any insurance business in an expansive definition of withdrawal: ... to cease substantially all writing of new or renewal business in this state, or to cease writing substantially all new or renewal business in any line of property insurance in this state; or in either of the two preceding instances, to cut back on new or renewal writings so substantially as to have the effects of a withdrawal. Section (2)(b), 18 Fla. Admin. Weekly 7318 (Nov. 25, 1992). The Withdrawal Rule goes on to interpret Section 624.430 as "authorizing the Department to evaluate the sufficiency of the reasons" for withdrawal (or as in the case of Highlands for discontinuance of one or more lines) and to "impose reasonable terms and conditions regarding withdrawal [including discontinuance] as are necessary to prevent or reasonably ameliorate such adverse consequences." Id. Section 3(c). At no time after Highlands' Notice was received by the Department and before May 1, 1993 did the Department provide a written response, request a meeting, impose conditions upon discontinuance, or otherwise object to or deny Highlands' Notice. In addition to mailing a notice that it would cease to write Homeowner's and Dwelling lines effective May 1, 1993, Highlands began sending out non-renewal notices. Some were sent after May 19, 1993, the effective date of the Moratorium Statute. Highlands began sending non-renewal notices because of the loss of reinsurance and because of its position that the moratorium did not apply to Highlands. It did not matter to Highlands whether Andrew had occurred or not. If the reinsurance had been cancelled without a hurricane, Highlands would have taken exactly the same steps. On the other hand, if the reinsurance had remained in place in the wake of Andrew, Highlands would be writing the same lines and policies it did before Andrew. Mr. Ferrer believed the reinsurance was cancelled, not because of the risk of future hurricane loss, but "as the result of the massive loss from Hurricane Andrew." (Tr. 51) While the obvious inference to be drawn from his belief is that the reinsurer fears the risk of future hurricane loss, that is not the only inference that could be drawn. Massive losses could render a reinsurer incapable of providing any reinsurance to any party under any circumstances, regardless of the risk of future hurricane claims. Nonetheless, Mr. Ferrer testified that if there were no risk of future hurricane loss to homeowners, Highland would continue to write policies it is now refusing to renew: Q ... If there were no risk of hurricane loss, would you write the business? A Yes, if we can include wind on all policies. HEARING OFFICER MALONEY: Could you repeat that answer ... ? A The answer is, if there is no windstorm ability, hurricane ability, we will have no problem writing the policies. (Tr. 54) Thus, Highlands began sending 45-day notices of nonrenewals to its homeowners policy holders, on the basis of its position that it had withdrawn the line in Florida and because it had lost its reinsurance. But Highlands is also not renewing policies which expire during the moratorium because of risk of future hurricane loss. Insurance Crisis in the Aftermath of Andrew The immensity of Andrew's impact to insurers doing business in Florida created an extremely serious situation for the Florida property insurance market. The Legislature described the situation this way: Hurricane Andrew ... has reinforced the need of consumers to have reliable homeowner's insurance coverage; however, the enormous monetary impact to insurers of Hurricane Andrew claims has prompted insurers to propose substantial cancellation or non- renewal of their homeowner's policyholders. ... [T]he massive cancellations and non- renewals announced, proposed, or contemplated by certain insurers constitute a significant danger to the public health, safety and welfare, especially in the context of a new hurricane season, and destabilize the insurance market. (Ch. 93-401, Laws of Florida, Section 1., Pet.'s Ex. 15). Between Hurricane Andrew and May 1993, the Department received notices from 38 insurers seeking to withdraw from homeowners insurance or reduce their exposure for homeowners insurance in the state. Twenty of these insurers filed notices of total withdrawal from the homeowners line. Eighteen sought to impose restrictions on new or renewal homeowners' business. Together the 38 insurers comprise approximately 40 percent of the Florida homeowners market. Of the 18 insurers seeking to impose restrictions, the greatest single source of impact on the Florida market came from the changes proposed by Allstate Insurance Company. Allstate proposed to nonrenew 300,000 homeowners policies in certain coastal counties. The Department scheduled two days of public hearing on Allstate's notice of intent to restrict writings. The first was scheduled to take place in Clearwater on May 17. The second, held in Plantation on May 18, was attended by "[p]robably close to a thousand [people] -- in excess of 500 hundred anyway. There was a lot of people." (Testimony of Witness Kummer, Tr. 148). Complaints from citizens were received expressing that "it was inappropriate for Allstate to be able to cancel their policies and that something should be done to assist in that." Id. at 150. The Department's Response On May 19, 1993, the Department promulgated Emergency Rule 4ER93-18, imposing a moratorium on the cancellation and nonrenewal of personal lines policies including homeowners, as follows: (3)90 Day Moratorium Imposed. As of the effective date of this rule, no insurer authorized to transact insurance in this state shall, for a period of 90 days, cancel or non- renew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrewals (sic) must be substantiated by underwriting rules established and in effect on August 23, 1992. The State's Response to the Insurance Crisis a. The Governor's Proclamation and Call for a Special Session. On May 25, 1993, Governor Chiles issued a Proclamation. Addressed "To the Honorable Members of the Florida Senate and Florida House of Representatives," it contains the following pertinent "Whereas" clauses: WHEREAS, the damage resulting from Hurricane Andrew has prompted the insurance industry in Florida to propose substantial cancellation or nonrenewals of homeowner insurance policies, and WHEREAS, it is appropriate to provide a moratorium period to protect Florida's home- owners while a study is conducted to assess the effect of these extraordinary events on the insurance industry which occurred as a result of Hurricane Andrew, and WHEREAS, a study of the commercial viability and competitiveness of the property insurance and re-insurance industry in Florida would provide the Governor and the Legislature with the information needed to assess whether current regulatory statutes should be amended, and WHEREAS, certain additional statutory amend- ments are required to make necessary insurance coverage available to provide fundamental protection to the citizens of this state, and WHEREAS, it is appropriate to amend the pro- clamation of May 13, 1993, to add to the matters considered by the Florida Legislature convened in special session, the implementa- tion of a moratorium on personal lines property insurance cancellations or non- renewals, ... (Pet.'s Ex. 24). The Proclamation convenes the Legislature for the purpose of considering: (a) Legislation to implement and, if necessary extend for [a] period not to exceed 90 additional days, the emergency rule promulgated by the Insurance Commissioner, 4ER93-18. 1993 Special Session B Pursuant to the Governor's May 25, 1993 Proclamation and a May 13, 1993 Proclamation, the 1993 Florida Legislature was called into special session, Special Session B. Finding the public necessity for an orderly property insurance market to be overwhelming, the 1993 Legislature imposed, "for a limited time," a moratorium on cancellation or nonrenewal of personal lines residential property insurance policies, beginning May 19, 1993. Id. The moratorium applies to personal lines residential property insurance. It does not apply to commercial coverages or passenger auto coverages, whether commercial or private. The Legislature allowed an exception from the moratorium for those insurers which "affirmatively demonstrate to the department that the proposed cancellation or nonrenewal is necessary for the insurer to avoid an unreasonable risk of insolvency." Section 1(4), Ch. 93-401, Laws of Florida. If the department determines that the exception affects more than 1 percent of any class of business within the personal lines residential property market, then the department may set a schedule for nonrenewals, cancellation or withdrawal that avoids market disruption. Presumably, the moratorium will cover the 1993 hurricane season. The section of Ch. 93-401, Laws of Florida, that imposes the moratorium is repealed on November 14, 1993. Promulgation of Emergency Rule 20 On June 4, 1993, the Department promulgated Emergency Rule 20, effective the same date. According to the testimony of Hugo John Kummer, Deputy Insurance Commissioner, Emergency Rule 20 embodies three aims: first, to set a procedure for applying for a moratorium exemption allowed by the Moratorium Statute, [set forth in the rule outside Sections 2(d) and 6(a)]; second, to require a notice to update consumers who had received notices of cancellation or nonrenewal with the information that the earlier notices had been rendered temporarily ineffective under the moratorium, [Section 6(a)], and; third, to inform insurers who had entered consent orders with the Department governing the method with which the insurers were with- drawing from the State or restricting coverage, that the approvals by the Department found in the consent orders were overridden by the Moratorium Statute, [Section 2(d)]. (Tr. 136) On this last point, Mr. Kummer's testimony is consistent with the testimony of Douglas Shropshire, Director of the Department's Division of Insurer Regulation, one of two drafters of Emergency Rule 20 and the drafter of Section 2(d). Mr. Shropshire testified that the rule "simply reiterates the statute and provides the procedures for implementing [the Moratorium Statute]." Resp.'s Ex. 11, p. 25. With regard to Section 2(d), Mr. Shropshire testified as follows: Q Now, could you please direct your attention specifically to just the words, "Revoked all prior approvals issued by the Department," and explain how this implements the statute. A It simply repeats what the statute provides. It, basically, reiterates the statute. That moratorium statute, 89-B, essentially freezes all cancellation or nonrenewal action during the pendency of the 89-B moratorium. Q What would be the status of the moratorium, subsequent to November 14th, 1993, as you understand it? A Assuming that no other legislation is enacted that affects the subject at the special session, then prior approvals would be, again, effective, and companies could again being (sic) acting -- they could, basically, pick up where they had left off when the moratorium began. Q All right. What, if any, additional restrictions does the language place upon insurers above the requirements of the statute? A Absolutely, none. It is apparent, therefore, that if the Department's silence in response to Highlands' January 22, 1993 "Discontinuance" Letter constituted an "Approval," it was not the intent of the Department through the promulgation of Section 2(d) of Emergency Rule 20 to revoke that approval. The goal of the Department in promulgating the section was simply to inform parties to Consent Orders that any Department approval contained in the Consent Order had been revoked. Moreover, the Department's intent in using the term "revoke" was not "revoke" in the legal sense of rendered null and void and forever ineffective but more akin to "suspend" in a temporal sense. It was the Department's intent that any prior approval by the Department of a withdrawal or imposition of restrictions by an insurer was simply suspended by the Moratorium Statute temporarily, that is, for the life of moratorium - until November 14, 1993. Likewise, if the Department's silence following the January 22 Discontinuance Letter constituted an "approval," it would be the Department's intent that Section 2(d) would have no effect other than suspending the approval until the repeal of the Moratorium Statute on November 14, 1993. The import of the Department's intent in promulgating Emergency Rule 20 is dependent on whether the rule is ambiguous or plain on its face as concluded below in this order's Conclusions of Law.
The Issue The issue for determination in this case is whether Respondent's license as an insurance agent, and his eligibility for licensure as an insurance agent in Florida should be disciplined for violation of certain provisions of Chapter 626, Florida Statutes, and Rule 4-215.210, Florida Administrative Code, as set forth in the Administrative Complaint.
Findings Of Fact Petitioner, DEPARTMENT OF INSURANCE AND TREASURER, is the agency of the State of Florida vested with the statutory authority to administer the disciplinary provisions of Chapter 626, Florida Statutes. Respondent, ROBERT DARREN CARLSON, at all times material hereto, was eligible for licensure and was licensed in Florida as a life insurance agent, life and health insurance agent, and variable annuity contracts salesman. Respondent was initially licensed in 1992. Respondent's license is currently under emergency suspension as a result of the actions alleged in the Administrative Complaint filed in this case. Respondent is thirty years old, married with one son, and resides in St. Petersburg, Florida. In 1993 Respondent became a shareholder and vice-president of National Consultants International, Inc. (National), a Florida corporation operating as an insurance agency in Pinellas County, Florida. National was incorporated on November 29, 1993, and dissolved on August 24, 1994. The principal shareholder and president of National was Coreen McKeever. At National Coreen McKeever was also responsible for the administrative functions of the agency. Respondent became an agent for National in March 1994. Respondent's duties were to contact potential customers, discuss the customer's insurance needs, explain products that might address the customer's needs, and write policies if purchased by the customer. Respondent collected the premiums, but as a usual practice at National, would turn the premium checks over to Coreen McKeever for administrative processing. Respondent was also authorized to make deposits and withdrawals on National's premium trust account at Republic Bank in Seminole, Florida. Findings as to Count III - Ralph Cody Ralph Cody is an eighty-nine year old retired school maintenance worker from Kentucky. Mr. Cody retired to Florida in 1980, and currently lives with his wife, Edna, in Pinellas County. Mr. Cody is in good health, but has difficulty with his eyesight and hearing. Mr. Cody no longer drives. Mr. Cody first met the Respondent approximately two years ago. At that time Respondent sold Mr. Cody an insurance policy with a company called United American. Mr. Cody was satisfied with this insurance policy. Subsequent to his initial contact with Respondent, Mr. Cody became interested in obtaining an insurance policy which would provide for in-home health care. Mr. Cody was particularly interested in such an insurance policy because of his concern for his wife's deteriorating health, and his desire that health care be provided at home for him and his wife, and not in a nursing home. Because of his interest in obtaining an in-home health care insurance policy, Mr. Cody met with Respondent. Respondent suggested, and Mr. Cody agreed, to the purchase of a policy called Fortis Long Term Security Home Health Care (Fortis), which was underwritten by Time Insurance Company (Time) of Milwaukee, Wisconsin. Respondent was an agent with Time. Mr. Cody believed the Time policy would meet his insurance needs. On or about March 31, 1994, Respondent received from Mr. Cody a check for $3,164.40. This sum was intended by Mr. Cody to be the premium payment for the Fortis home health care insurance policy underwritten by Time. Pursuant to Respondent's directions, the check from Mr. Cody was made payable to Respondent's agency, National, not to Time Insurance Company. Respondent directed this procedure because at this time, National had limited experience with Time, and National did not have "netting" privileges. "Netting" privileges allow an insurance agency to deduct its commission prior to forwarding a premium check to the underwriting company. Because of National's limited experience with Time, and the lack of netting privileges, Respondent did not believe it was unusual to make the Cody check payable to National, or to deposit the Cody check into National's account. Time has a general policy requiring that premium checks be made payable directly to Time; however, Time, on occasion, will accept premium checks from agencies. Time also requires that an application and premium check be immediately sent to the company for processing. Respondent deposited the Cody check into National's account at Republic Bank. Respondent took the Cody application back to National, entered the information into the computer and delivered the Cody application for the issuance of the Fortis policy to Coreen McKeever. Neither the Cody check, nor the Cody application for issuance of the Fortis policy was received by Time. Within three weeks of depositing the check and delivering the application, Respondent inquired of Coreen McKeever as to the status of the Cody application. Respondent was informed by Coreen McKeever that the application had been denied by Time because of Mrs. Cody's health problems. Contrary to Ms. McKeever's report, Time did not consider nor decline the application for issuance of the Fortis policy to the Codys because of Mrs. Cody's health or any other reason. Respondent did not personally check on the Cody application, and did not contact Time regarding the issuance of the policy to the Codys. Respondent had no personal knowledge whether the Cody application had been declined and received no written notification regarding the Cody application. Respondent did not question the representations made by Coreen McKeever in this regard. Shortly thereafter, Respondent informed Mr. Cody that the application to Time had been declined. Respondent met with Mr. Cody and suggested that Mr. Cody consider purchasing a product offered by a company called Secure Care Home Services, Inc. (Secure Care), which also provided home health care and was approximately the same purchase price as the Fortis policy underwritten by Time. Respondent at that time represented to Mr. Cody, and Mr. Cody was under the belief, that the Secure Care product was substantially equivalent to the Fortis policy underwritten by Time. Mr. Cody was aware that the Secure Care product was not insurance. Secure Care is a corporation located in Seminole, Florida. Secure Care is not an insurance company, but offers "membership agreements" marketed primarily to elderly persons to contractually provide in-home health care services to its members. Coreen McKeever (a/k/a Coreen J. Morgan) is a director of Secure Care, and has an interest in Secure Care. Secure Care is currently under a Cease and Desist Order suspending its business operations. The Cease and Desist order was entered by the Petitioner on March 13, 1995. On or about May 18, 1994, Mr. and Mrs. Cody entered into a membership agreement with Secure Care. The initial cost of the membership for both of the Codys as reflected in the agreement was $3,027.00; however, the record reflects that the ultimate cost to the Codys for the Secure Care membership actually totalled $3098.40. Respondent signed the agreement as an authorized agent for Secure Care. On May 26, 1994, Respondent met with the Codys at their home. At this time Respondent offered to refund to Mr. Cody the purchase price of the Time policy. To this end, Respondent tendered check number 1191 drawn on National's account in the amount of $3,164.40 to Mr. Cody; however, because the purchase price of the Codys' membership in Secure Care which Mr. Cody had already agreed to purchase was almost as much as the Time policy, Mr. Cody requested that Respondent apply the check for the Time policy to the Secure Care membership, and refund Mr. Cody the difference. Respondent accordingly on May 27, 1994, issued a check number 1189 drawn on National's account to Mr. Cody the amount of $65.70, which represented the difference in the cost of the two products. Several months after his purchase of the Secure Care membership, Mr. Cody became aware that some of his neighbors were dissatisfied with the home health care provided by the company. Thereafter, Mr. Cody became concerned that the Secure Care membership would not meet his or his wife's needs. At this time Mr. Cody had no personal experience with Secure Care. Neither Mr. Cody nor his wife ever used, or sought to use their Secure Care membership. Mr. Cody complained to Petitioner regarding Secure Care. Mr. Cody also contacted Time and discovered that his application and check had not been received. Respondent learned of Mr. Cody's concerns with Secure Care after Mr. Cody complained to Petitioner and a departmental investigation of this matter had been undertaken. Respondent then contacted Mr. Cody who told Respondent he wanted a refund of the purchase price of the Secure Care membership. Respondent contacted Secure Care, but learned that the company was not giving refunds at that time. Respondent suggested that Mr. Cody then attempt to deal with Secure Care directly. Mr. Cody was unable to obtain a refund of the cost of the Secure Care membership. The Codys obtained no benefit from their Secure Care membership. The Secure Care membership was not substantially equivalent to the Fortis policy underwritten by Time. Secure Care was not an established company and did not have the resources or capability to provide the services offered by Time. Count II - Leila G. Smith Leila G. Smith is a widowed ninety-one year old retired first grade school teacher, originally from Georgia. Mrs. Smith currently resides with her niece, Miriam Enright, in Seminole, Florida. Brenda Blager is Miriam Enright's daughter, and Mrs. Smith's great-niece. Ms. Blager currently resides in Champagne, Illinois. Mrs. Smith receives a monthly income from her teacher's pension and Social Security benefits. Mrs. Smith is in generally good health for a person of her age, but has experienced a significant loss of vision, is totally blind in her left eye, and cannot read without the aid of a magnifying glass. Mrs. Smith moved to Florida approximately three years ago. Respondent was first introduced to Mrs. Smith by Mrs. Enright to whom Respondent had previously sold annuities. Respondent visited the Enright home and met with Mrs. Smith, Mrs. Enright, Ms. Blager, and also Mrs. Smith's nephew, Robert Smith, to discuss Mrs. Smith's insurance and investment needs. At that time Mrs. Smith purchased an annuity in the amount of $100,000 from Respondent. Approximately one month later Mrs. Smith purchased a second annuity in the amount of $100,000 from Respondent, and gave Robert Smith $60,000 for the purchase of an annuity. The interest payments from the second annuity purchased by Mrs. Smith were sent to Robert Smith. Brenda Blager usually reviewed and consulted Mrs. Smith regarding Mrs. Smith's personal finances; however, after moving to Florida and meeting Respondent, Mrs. Smith also began to rely on and trust Respondent with regard to advising her in her personal financial matters. Prior to moving to Florida, Mrs. Smith's investments consisted primarily of her home and certificates of deposit in banks and savings institutions in Georgia. Mrs. Smith was conservative in her investments, had never purchased stocks or bonds, and only wanted to place her savings in "safe" investments. Subsequent to her purchase of annuities, Mrs. Smith and Mrs. Enright contacted Respondent to discuss other financial concerns. Specifically, Mrs. Smith had sold her home in Georgia and was interested in moving her certificates of deposit to Florida, achieving a higher rate of return, addressing tax problems associated with the payment of the annuity interest to her nephew, and purchasing a new Cadillac automobile. Whenever Respondent met with Mrs. Smith to discuss her finances and investments, Mrs. Enright, or another member of Mrs. Smith's family was also present. Respondent reviewed several financial documents relating to Mrs. Smith's Georgia certificates of deposit. Mrs. Smith's financial records were disorganized. Respondent advised Mrs. Smith that there would be substantial penalties if she prematurely removed her funds and invested in certificates of deposit. Despite the penalties and Respondent's advice to the contrary, Mrs. Smith decided to cash in her Georgia certificates of deposit and relocate her funds to Florida. Respondent assisted Mrs. Smith in cashing in the Georgia certificates of deposit. Respondent also assisted Mrs. Smith in using some of these funds to purchase a Cadillac automobile. Mrs. Smith had initially been interested in leasing the automobile; however, Respondent reviewed the lease arrangement, and advised Mrs. Smith that a purchase was in her best interest. Mrs. Smith followed Respondent's advice in this regard. Mrs. Smith trusted Respondent. To assist Mrs. Smith in relocating her funds to Florida, and also achieve a higher rate of return, Respondent presented Mrs. Smith with proposals to invest in promissory notes with two local firms, Zuma Engineering and Allstate Finance. (Allstate Finance is not associated with Allstate Insurance Company). Zuma Engineering (Zuma), is a start-up company located in Largo, Florida, engaged in the business of recycling tires. The rubber in the tires is converted to crumb rubber to be resold and used in asphalt roads, playground resurfacing and other products. Respondent first became aware of Zuma at a seminar in July of 1994 through another agent, Michael Mann, who was then raising funds for Zuma. Mr. Mann took Respondent to the Zuma facility and introduced Respondent to the president of the company. Thereafter, Respondent regularly toured the facility, inspected Zuma's existing and revised business plans, attended business meetings, and reviewed the company's monthly financial reports. The Zuma physical facility consisting of a warehouse and processing plant appeared to be consistent with the business plan. Respondent also obtained documents from Zuma reflecting that the company had initiated a research and development program associated with the University of South Florida. Respondent observed independent auditors at the Zuma facility, and reviewed financial documents that indicated Zuma had made progress toward a private stock offering. Respondent took reasonable actions to examine the operational and fiscal soundness of Zuma. When Respondent met with Mrs. Smith he presented her with documents including the Zuma business plan, and explained the investment opportunity in Zuma. Mrs. Smith does not recall Respondent explaining the Zuma investment proposal, nor does Mrs. Smith recall reading any documents or other material relating to Zuma. Given Mrs. Smith's extremely poor vision and the technical nature of the Zuma business plan, it is highly unlikely that Mrs. Smith read the business plan or any other documents pertaining to Zuma. Mrs. Smith did not comprehend the nature of the investment opportunity in Zuma. Although Mrs. Smith did not comprehend the nature of the Zuma investment, between September 26, 1994 and May 31, 1995 she nonetheless made several purchases of promissory notes payable by Zuma. Specifically, Mrs. Smith signed checks payable to Zuma as follows: September 26, 1994, two checks, one in the amount of $10,000, and another in the amount of $20,000; December 6, 1994, in the amount of $70,000; March 10, 1995 in the amount of $10,000; March 29, 1995 in the amount of $10,000; and, May 31, 1995 in the amount of $90,000. Mrs. Smith did not actually write the checks. Because of her poor eyesight, Mrs. Smith signed the checks in blank, and Respondent filled in the date, payee, and amount. Respondent remitted Mrs. Smith's checks to Zuma. In exchange, Zuma issued promissory notes to Mrs. Smith. The Zuma promissory notes were not insurance products. No interest has been paid on the Zuma promissory notes, and several of the notes are now in default. Mrs. Smith has not received any of the principal of the promissory notes back from Zuma. The prospectus of Zuma states that securities in Zuma are speculative, carry a high degree of risk, and "...should not be purchased by anyone who cannot afford the loss of his or her entire investment." Mrs. Smith did not understand the high risk involved in purchasing securities in Zuma. In addition to Mrs. Smith, Respondent sold promissory notes issued by Zuma to approximately thirty other investors. Subsequent to selling the Zuma notes to Mrs. Smith, Respondent met with an investigator from the Florida Comptroller's Office, and was informed that due to fiscal irregularities at Zuma, Respondent should refrain from selling Zuma securities. Respondent was not aware of the problems with Zuma prior to his meeting with the Comptroller's investigator. At the same time that Respondent presented Mrs. Smith with the Zuma proposal, Respondent also presented Mrs. Smith with information from Allstate Finance. Allstate, which is not related to the Allstate Insurance Company, is a company located in Tampa, Florida, in the business of automobile financing. Mrs. Smith purchased at least one promissory note in the amount of $40,000 from Allstate. The Allstate promissory note purchased by Mrs. Smith was not an insurance product. Mrs. Smith has received, and continues to receive, monthly interest payments from Allstate. In June of 1995, Mrs. Smith allowed the Allstate promissory note to renew for another year. In July of 1995, Brenda Blager received a telephone call from her mother, Miriam Enright, requesting assistance in reviewing Mrs. Smith's investments. Ms. Blager has worked in a financial planning office, but is not a certified financial planner. Prior to that time Ms. Blager had no knowledge of Zuma. Ms. Blager obtained a Dunn & Bradstreet report on Zuma and became very concerned regarding Mrs. Smith's investment in Zuma. Ms. Blager then came to Florida from Illinois for the purpose of reviewing Mrs. Smith's investments. After reviewing the Zuma and Allstate promissory notes, Ms. Blager met with an attorney and attempted to recover Mrs. Smith's funds; however, Ms. Blager was unable to do so. As a result of Respondent's actions, Mrs. Smith has cashed in all of her certificates of deposit to purchase the Zuma and Allstate promissory notes, and her Cadillac automobile. Mrs. Smith has no other savings or investments. While Mrs. Smith did want to relocate her funds from Georgia, Respondent was aware that Mrs. Smith desired and intended to place her funds in safe, low risk, investments. Respondent's advice and assistance, which resulted in placing Mrs. Smith's funds in a high risk security such as a Zuma promissory note, was not appropriate for an elderly woman in Mrs. Smith's circumstances.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Petitioner DEPARTMENT OF INSURANCE AND TREASURER enter a final order finding Respondent, ROBERT DARREN CARLSON, in violation of the provisions of Chapter 626, Florida Statutes, as set forth above, and that Respondent's licenses and eligibility for licensure be SUSPENDED for a period of fifteen (15) months. DONE and ENTERED this 21st day of March, 1996, in Tallahassee, Florida. RICHARD HIXSON, 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 21st day of March, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-4947 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-4. Accepted and incorporated. Accepted as to Zuma was a start-up company, recycling tires. Rejected as to Mrs. Smith's knowledge and consent. Accepted as to Mrs. Smith wanting safe investments. Rejected as to Respondent being employed by Zuma. 7.-10. Accepted and incorporated. 11.-12. Accepted to the extent that Mrs. Smith desired safe investments. 13.-21. Accepted and incorporated. Respondent's Proposed Findings of Fact. 1.-6. Accepted and incorporated. 7.-13. Accepted and incorporated. 14.-16. Rejected as to Respondent's reasonable basis for believing the representations of Coreen McKeever. 17. Accepted, except to the extent that Mr. Cody was led to believe Secure Care was equivalent to Time. 18.-25. Accepted and incorporated. Rejected as not necessary. Accepted and incorporated. Rejected as not an accurate assessment of Mr. Cody's testimony. 29.-30. Accepted and incorporated. 31.-32. Accepted; Time's general policy allowed checks from agencies. 33.-35. Rejected as not supported by the weight of the evidence. 36.-43. Accepted and incorporated. 44. Accepted except to the extent that Zuma and Allstate promissory notes were not appropriate investments for Mrs. Smith. 45.-54. Accepted to the extent that Respondent investigated Zuma, reviewed fiscal reports, and believed Zuma to be a viable start-up company. 55.-57. Accepted and incorporated. 58. Accepted to the extent that Mrs. Smith had document relating to Zuma; rejected to the extent that Mrs. Smith understood the nature of the Zuma investment. 59.-63. Accepted and incorporated. Accepted to the extent that Mrs. Smith allowed the Allstate not to renew. Accepted to the extent that Mrs. Smith wanted her certificates of deposit moved from Georgia. Rejected to the extent that Respondent knew, or should have known, the investments were high risk. Accepted to the extent that Ms. Blager is not a certified financial planner. Rejected to the extent that Zuma has defaulted on several of Mrs. Smith's notes, and not returned any interest or principal. Rejected as not supported by the weight of the evidence. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 200 East Gaines Street Tallahassee, Florida 32399-0333 Robert D. Newell, Jr., Esquire NEWELL & STAHL 817 North Gadsden Street Tallahassee, Florida 32303 Dan Sumner, Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issues to be resolved in this consolidated proceeding concern whether the Petitioner, Abraham Maida's applications to represent certain life insurance companies should be denied based upon his alleged unlawful failure to forward premium funds from insureds to the insurers during the applicable regular course of business. Also at issue are the charges in the Administrative Complaint in the related penal proceeding which concerns the same factual conduct involving the Respondent's alleged failure to forward premiums to the insurers involved in the policy contracts at issue.
Findings Of Fact The Petitioner, Abraham George Maida, is licensed in Florida as a life insurance agent, a life and health insurance agent and a dental health care contract salesman. The Department is an agency of the State of Florida charged with licensing life, health and other types of insurance agents, with regulating their licensure and practice and with enforcing the licensure and practice standards embodied in the statutes cited hereinbelow. Abraham Maida engaged in the business of selling insurance coverage to various employees of the City of Jacksonville. The premium payments for this coverage were collected by payroll deduction from the employees, and lump sum premium checks were remitted over to the Petitioner/Respondent, Mr. Maida, by the appropriate personnel of the City of Jacksonville. Mr. Maida, in turn, was required by his contractual arrangements with the underwriting insurance companies involved and by the Florida Insurance Code, Chapter 626, Florida Statutes, with timely remitting those premium funds over to the insurers who underwrote the risk for the employees in question. Mr. Maida failed to timely remit the premium funds which he collected from the City of Jacksonville to the relevant insurers for the months of February, March and April of 1990, in the case of policy contracts written on behalf of Loyal American Life Insurance Company. Additionally, Mr. Maida failed to timely remit the premium funds received from the City of Jacksonville, after it received them by payroll deduction from its employees, for the months of March, April and May of 1990, with regard to the premium funds due in contracts involving the ITT Life Insurance Company, in accordance with his contract with that company. Mr. Maida failed to timely remit the insurance premiums of James E. Daniels to the ITT Life Insurance Company, as well. The Petitioner/Respondent's contracts with these insurance companies required him to remit premium funds which he received from insureds, within thirty (30) days of receipt, to the insurance company underwriting the risk involved. This the Petitioner/Respondent failed to do for the companies involved in the above Findings of Fact and for those months of 1990 delineated above. In the case of most of the delinquent premium funds due these companies, Mr. Maida authorized them to debit his commission and/or renewal accounts with those companies, which were monies due and owing to him from the companies, in order to make up the premiums which he had not remitted over to the companies involved at that point. That procedure did not defray all of the delinquent premium amounts, however. in the case of ITT Life Insurance Company and the monies owed that company by Mr. Maida, it was established that $10,554.21 of delinquent premium amounts were owing to that company and not timely paid by Mr. Maida. Although he paid the portion of that figure representing the March premium funds due the company for March of 1990, he did not directly pay the premium funds due for April and May of 1990 but, rather, suffered the company to charge those delinquencies, for those months, to his agent's commission account. This procedure still left $4,877.54 unpaid, as of the time of hearing. It was established by witness, Steven Heinicke of that company, that Mr. Maida is their most consistently delinquent agent, in terms of timely remission of premium funds due the company for insurance business which Mr. Maida has written. It has also been established however, that Mr. Maida made a practice of always paying premium funds due the companies for which he wrote insurance in the precise amounts owing, regardless of whether the billing statements to him from those companies had inadvertently understated the amounts which they were due. It was also established that his failure to timely remit the insurance premium funds in question was not due to any intent to defraud those companies of the funds involved or to permanently convert the funds to his own use. Rather, it was established that Mr. Maida's difficulty in timely payment of the premium funds was due to misappropriation of the funds because of financial problems which he was suffering at tee times in question, due at least in part to federal income tax difficulties he was experiencing. There has been no shoring in this record that Mr. Maida is not a competent insurance agent in terms of his abilities and qualifications to fairly and effectively obtain and contract for insurance business with insureds on behalf of the insurance companies he represents. There was no showing that he lacks reasonably adequate knowledge and technical competence to engage in the transactions authorized by the licenses or permits which he presently holds or which he seeks in the licensure application involved in this proceeding.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the candor and demeanor of the witnesses, it is, therefore RECOMMENDED: That the Petitioner be found guilty of the violations found to have been proven in the above Conclusions of Law portion of this Recommended Order and that his licenses and eligibility for licensure with the insurers for which license application was made be suspended for a period of three (3) months. DONE and ENTERED this 5th day of June, 1991, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk the Division of Administrative Hearings this 6th day of June, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-6670 Respondent/Department's Proposed Findings of Fact: 1-7. Accepted. COPIES FURNISHED: Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Norman J. Abood, Esq. Willis F. Melvin, Jr., Esq. 1015 Blackstone Building Alan J. Leifer, Esq. Jacksonville, FL 32202 Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300
