The Issue Whether proposed amendments to Rule 4-7.009, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority. Specifically at issue in this proceeding are the proposed amendments to Rule 4-7.009 which restrict, under certain circumstances, compensation paid to sellers of credit insurance products and which require premium refunds to some purchasers of credit insurance.
Findings Of Fact Credit insurance is a form of group insurance marketed and sold to consumers by creditors or, in the case of motor vehicle financing, by vehicle dealers. The insurance can be purchased by a debtor at the time the debtor enters into a loan agreement. Credit insurance is purchased by debtors as protection against risk of loss caused by unexpected events occurring during the term of the insurance contract. Credit insurance provides for the payment of the balance of the debt upon the death or disability of the insured debtor. Otherwise stated, the benefit of such insurance to the debtor is the assurance that, if the debtor becomes unable, due to death or disability, to make the required periodic payments, the insurer will pay off the balance of a loan or other debt obligation. Sellers of credit insurance products are compensated in the form of commissions paid to sellers by insurers. Additional compensation is periodically paid by some insurers to sellers based upon the profitability of each seller's line of business. Beginning in late 1990, the Department of Insurance ("Department") proposed amendments to administrative rules relating to credit life and credit health and accident insurance products. The Petitioners have challenged the provisions of the proposed rule restricting the level of compensation paid to the sellers of credit insurance products and requiring insurers to make "experience refunds". As set forth in the Department's Notice of Change, published in the November 27, 1991 edition of the Florida Administrative Weekly (Vol. 17, No. 48), the proposed rule amendment provides in relevant part as follows: 4-7.009 Determination of Reasonableness of Benefits in Relation to Premium Charge General Standard. Under the Credit Insurance Law, benefits provided by credit insurance policies must be reasonable in relation to the premium charged. In determining whether benefits are reasonable in relation to premium, the Department shall consider loss experience, allocation of expenses, risk and contingency margins, and policy acquisition costs. This requirement is satisfied if the premium rate charged develops or may be reasonably expected to develop a loss ratio of not less than 1. (a) 55% for credit life insurance and 2. (b) 50% for credit accident and health insurance, and either the insurer does not pay compensation in excess of 30% of the net direct written premium based upon the applicable prima facie rates set forth in Rules 4-7.010 and 4-7.011, or the insurer demonstrates to the satisfaction of the Department that payment of compensation in excess of said 30% is actuarially sound. "Compensation" means money or anything else of value paid by the insurer and/or by any reinsurer to any agent, producer, creditor, or affiliated body. On the basis of relevant experience, uUse of rates not greater than those contained in Rules 4-7.010 and 4-7.011 ("prima facie rates") shall be deemed currently reasonable premium rates reasonably expected to develope the required loss ratio, subject to a later determination of experience refunds, if any, as described herein. An insurer may only file and use rates with such forms which are greater than the prima facie rates set forth in Rules 4-7.010 and 4-7.011 upon a satisfactory showing to the Department Commissioner that the use of such rates will not result on a statewide basis for that insurer of a ratio of claims incurred to premiums earned of less than the required loss ratio. Furthermore, the extent to which an actual rate is greater than that set forth may not exceed the difference between (a) claims which may be reasonably expected and (b) the product of the required loss ratio and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 for the coverage being provided. (2) The Department Commissioner shall, on a triennial basis, review the loss ratio standards set forth in subsection (1), above, and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 and determine therefrom the rate of expected claims on a statewide basis, compare such rate of expected claims with the rate of claims for the preceding triennium, determined from the incurred claims and earned premiums at prima facie rates reported in the annual statement supplement, and adopt the adjusted actual new statewide prima facie rates for Rules 4-7.010 and 4-7.011 to be used by insurers during the next triennium. The new rates will be set at levels that would have produced the loss ratios set forth in subsection (1), above. To make this comparison and redetermination, insurers shall report in the annual statement supplement format, each year, claims and earned premiums, separately, for business written with premiums based on Rules 4-7.010 and 4-7.011. * * * Insurers will calculate a dollar amount of loading each year based upon the insurer's earned credit life and credit accident and health premium in this state for the same year. Loading will be calculated as 45% of earned premium for life insurance and 50% of earned premium for credit accident and health insurance. For this calculation, earned premium shall be based on the rates set forth in Rules 4-7.010 and 4-7.011. Insurers shall calculate an Experience Refund Amount each year for credit life and credit accident and health insurance written in this state after the effective date of this rule. Experience Refunds can be positive or negative. Positive Experience Refunds are to be refunded in the following manner: Experience refunds are to be allocated to accounts which have positive Experience Refund Amounts in proportion to the ratio of each account's refund amount to the total of all positive refund amounts. For the purpose of this allocation, all individual policies are to be treated as one account. The Experience Refund Amount allocated to a particular account is to be refunded to all certificate holders or individual policyholders of such account in proportion to the premiums earned for each certificate holder or individual policyholder to the total of all premiums earned for such account. Earned premiums for Experience Refund purposes are to be equal to paid premiums for the calendar year less unearned premium reserves at the end of the calendar year plus unearned premiums at the beginning of the calendar year. Unearned premium reserves are to be calculated pro rata. Credit policies issued on a non-contributory basis are excluded. Non-contributory means that individual insureds pay no part of the insurance premium. Premiums are paid by the policyholder out of policyholder funds. Individual credit policies issued on a participating basis are to be excluded. All new loans insured after the effective date of this rule are subject to the Experience Refund calculation and distribution, if any. Individual refunds of less than $10 do not have to be made. Experience Refunds are to be determined for each calendar year as follows: Earned Premium, less Loading as determined above, less Incurred claims, less The sum of any carry forwards for the three previous years. An insurer that uses rates which are 10% or more below the rates set forth in Rules 4-7.010 and 4-7.011 shall not be required to calculate or make an Experience Refund. The Florida Bankers Association ("FBA") is the trade association of the Florida banking industry, many of whom sell credit insurance to their customers. The Florida Automobile Dealers Association ("FADA") is a trade association of franchised new car and truck dealers, approximately 65% of whom sell credit insurance. The Florida Recreational Vehicle Dealers Trade Association ("FRVDTA") is a trade association of recreational vehicle dealers, approximately 35% of whom sell credit insurance. The FBA, the FADA, and the FRVDTA are substantially affected by the proposed rule amendment at issue in this case. Specifically the FBA, the FADA, and the FRVDTA are substantially affected by the proposed regulation of compensation paid to sellers of credit insurance products and by the proposed requirement that, under some circumstances, refunds be made to credit insurance purchasers. The Consumer Credit Insurance Association ("CCIA") is a trade association of credit insurance companies, at least 50 of whom sell credit insurance in Florida. The CCIA is substantially affected by the proposed rule amendment provision related to premium refunds to some insureds. Credit insurance is priced and sold without regard to sex or age of the debtor. There is little underwriting of credit insurance risks. Due primarily to the age of the population and the effect of mandated coverages, Florida's credit insurance claims are higher than in other states. There are currently in excess of eighty million credit insurance policies in force in the United States. Credit insurance is sold under master policies issued by insurers to producers, such as banks and vehicle dealers. Producers sell the insurance product and maintain records of the credit insurance purchasers, who hold certificates issued under each master policy. Credit insurance premiums are based upon the amount financed by the debtor and are calculated according to rates established on a statewide basis by the Department. Credit insurers may not charge more than the prima facie rates for credit insurance, therefore, there is no benefit to consumers to "shop around" for credit insurance. Although credit insurers are not prohibited from charging less than the prima facie rates, there is no evidence that any insurer charges less than the Department's adopted rates. Since 1982, the Department-approved prima facie credit life premium rate was $.60 for every $100 financed. The rate was based on the Department's determination that a $.60 prima facie rate would result in insurers paying out approximately 60% of premium dollars in claims paid to insureds, and that a 60% "loss ratio" was reasonable. The "loss ratio" is the fraction of premium dollars paid out in claims. The $.60 prima facie rate did not yield a 60% loss ratio. The loss ratios for some insurers was substantially less that 60%. On September 1, 1991, the Department reduced the prima facie credit life and credit health and accident rates. In establishing new prima facie rates, the Department established a 55% loss ratio for credit life insurance and a 50% loss ratio for credit disability. The revised prima facie rates are based upon data from calendar years 1986, 1987 and 1988. Such data includes information related to paid claims, earned premium, and insurer administrative overhead expenses. The setting of such rates is an actuarial exercise intended to provide a reasonable projection of premium rates and loss ratios. There is no evidence that the revised prima facie rates result in premiums which are excessive in relationship to the amount of the loans insured. The revised prima facie rates are reasonably expected to yield the revised loss ratios. The rule provides a triennial review mechanism to ascertain whether the expected loss ratios are being met and to adjust prima facie rates if such is indicated. The review is a reasonable method of assuring that such loss ratios are met. Currently, commissions are paid by insurers to producers (i.e. banks and dealers) as compensation for selling the product. The amount of commission is determined by agreement between the insurer and producer. Commissions for the sale of credit insurance vary widely and, in some cases (generally involving the sale of credit insurance related to automobile purchases) may be as high as 60% of the premium paid by the consumer. In addition to payment of commissions, some insurers retrospectively compensate producers by periodically paying an amount based upon the profitability of each producer's business. Compensation levels largely determine which credit insurer's product a producer chooses to sell. The proposed rule limits total compensation levels, absent specific authorization by the Department, to 30% of the net direct written premium based upon the applicable prima facie rates. Compensation levels have no impact on the premiums charged to consumers purchasing credit insurance. Premiums charged are based on the Department's prima facie rates. The proposed rule permits a credit insurance company to exceed the 30% compensation restriction where the insurer can establish that the payment of compensation in excess of the 30% is "actuarially sound". The determination of whether payment of commission in excess of 30% is "actuarially sound" is left to the discretion of the Department. There is no statutory, rule, or commonly accepted definition of the term, although the Department's actuary stated that a product determined to be "actuarially sound" would be a "self-supporting" product, either profitable or "breaking even". He further opined that he would consider investment income in a determination of actuarial soundness, although the proposed rule does not require such consideration. The Department's purpose in enacting the proposed compensation restriction was to protect insurers from insolvency and financial instability. The commission restriction was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The commission restriction was not intended to, and will not, ensure that the loss ratios deemed reasonable by the Department will be met. In adopting a 30% compensation restriction, the Department calculated that, assuming the 55% loss ratio was met, $.55 of each premium dollar would be paid in claims. The Department assumed that $.15 of each premium dollar would cover overhead expenses and profit. According to the Department, the remaining $.30 is the most an insurer could pay as compensation to the producers without affecting the solvency of the insurer. In calculating the commission restriction, the Department did not consider the effect of an insurer's investment income on the ability to pay commission. There is no evidence that payment of commissions in excess of 30% of net direct written premiums has adversely affected the solvency of any credit insurer doing business in Florida. There is, in fact, no history of credit insurer insolvency in Florida. Nationwide, there has been little problem of insolvency in the credit insurer business, with no more than four insurers having become insolvent. In each of those cases, the insolvency resulted from poor management of assets, and was not related to payment of excess commissions to producers. The Department asserts that, absent such restrictions, insurers will pay excessive compensation in order to compete for producers, and that such excess compensation, coupled with administrative expenses and a 55% loss ratio, will threaten the solvency of the companies. The assertion is not supported by the greater weight of credible evidence. The proposed rule also requires insurers, under some circumstances, to make experience-based refunds to credit insurance purchasers. In determining whether a refund is required, an insurer first calculates whether the insurer has met or exceeded the 55% loss ratio for the prior year. If the loss ratio is met or exceeded, no refunds are required. If an insurer determines that the 55% loss ratio was not met, the insurer calculates the difference between targeted 55% loss ratio and the actual percentage of premium dollars paid out in claims. The insurer then identifies each producer account which had a loss ratio of less than 55%, determines the identity and location of each certificate holder (insured) in each producer's account, and makes a refund to each identified certificate holder. Individual refunds of less than $10 to an individual consumer are not required. The proposed rule permits insurers to carry excess losses forward for a period of three year, to offset years when the targeted loss ratio is not met. However, such excess losses may not be carried forward beyond the three year period. Whether a consumer receives a refund is unrelated to the premium paid by the consumer. An individual consumer ("A") purchasing a car and credit insurance at Dealer "A" may receive a refund, while a Consumer "B" purchasing the same car and credit insurance from Dealer "B" may not receive a refund, if Dealer A's line of business with the insurer meets the target loss ratio and Dealer B's line of business with the same insurer fails to meet the loss ratio. The benefit of the credit insurance is the assurance that, under certain conditions, the insurer will pay off the balance of a loan or other debt obligation. If Consumer A receives a refund and Consumer B does not, Consumer A pays more than Consumer B for the same insurance protection. The Department's purpose in enacting the proposed experience refund was to ensure that the 55% loss ratio would be met. However, the experience refund provision, combined with the three year limit for charging off excess losses, will eventually result in loss ratios which will exceed the 55% ratio which the Department has determined to be reasonable. There is no need for experience refunds when the prima facie rates established by the Department are appropriately set. Such rates are designed to produce an acceptable loss ratio. It is reasonable to believe that the Department's revised prima facie rates will result in acceptable loss ratios. The refund proposal was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The proposed rule provides that an insurer charging a premium based on rates at least 10% below the prima facie rates are not required to calculate the experience refund. There is no credible rationale supporting the use of 10% as the threshold under which an insurer escapes the refund calculation, although the resulting loss ratio likely approaches the 60% loss ratio suggested by the National Association of Insurance Commissioners. Of the actuaries testifying at hearing, one opined that a rate 10% less than the prima facie rate was viable, the other opined that it was not. Because the Department's revised prima facie rates are reasonably calculated to result in a 55% loss ratio, an insurer charging less than the prima facie rate will likely exceed the 55% loss ratio. In connection with the final version of the proposed rule, the Department did not prepare an economic impact statement. The Department did not estimate the costs of insurer compliance with the refund provisions. The expense required of insurers in order to establish experience refund payment systems is significant. Information management systems will require extensive modification to permit such data to be maintained. Substantial amounts of data, which is not currently provided to insurers, must be collected and accurately maintained to permit refunds to be made. Such costs were not included in administrative expenses considered by the Department when the revised prima facie rates were established. Presently, credit insurers maintain limited data related to insureds purchasing credit insurance in connection with installment loans. Although such data may be initially collected by producers, insurers are typically provided only with the name of the debtor and loan number. Data is transmitted to insurers either electronically or through paper files. In either case, data must be converted to usable form by insurers. In approximately seventy percent of credit insurance business, addresses of insureds are not transmitted to insurers. There is no credible evidence that current addresses of insureds are continuously maintained by either insurer or producer in installment debt insurance, since there is little need to question original data as long as periodic payments are being timely made. In a form of credit insurance known as "monthly outstanding balance" insurance, bulk accounts are received by insurers, who generally does not receive either names or addresses of insureds. Consumers whose monthly outstanding balance indebtedness is insured are more likely to provide producer/creditors with current addresses, but such data is not provided to insurers. As to credit insurers, although most insurers currently process refund checks, the additional expense of establishing or modifying systems capable of compliance with the proposed refund requirement could amount to as much as five percent of each premium dollar. One bank official estimated that, as to his bank, the expense of complying with the refund provisions would include an initial cost of $1.1 million and an annual cost of $350,000 to $500,000. A credit insurance information systems and processing executive estimated that the 31 producers writing business for his company would incur costs of $1,860,000 to comply with the rule, and that his own company's costs would be in the range of $4-5 million. The Department suggested that, rather than modify existing mainframe computer systems, such data could be maintained by insurers on personal computers and microcomputer networks. The Department asserted that such systems would be less expensive and require less modification than the process outlined by industry representatives. However, there is credible testimony establishing that significant resources would be involved in determining whether such conversion to microcomputers would be feasible or warranted. In any event, there is no evidence that such conversion could be accomplished in a timely manner permitting the insurers to comply with the proposed rule requirements. The greater weight of the evidence establishes that the expenses estimated by the industry representatives are reasonable based upon the existing management information systems maintained by the industry.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, what action should be taken.
Findings Of Fact At all times material hereto, John Morris Ale, hereinafter Mr. Ale, was licensed as a general lines agent in the State of Florida. On or about December 5, 1994, Mr. Ale telephoned Ms. Kristen Stryker informing her that he had started his own insurance business, Doctors Insurance Agency, and inquiring if she wanted to obtain her automobile insurance coverage from him. Mr. Ale was acquainted with Ms. Stryker due to his having obtained her present coverage for her. It was almost time for renewal of her present coverage. Ms. Stryker agreed to obtain her automobile coverage from Mr. Ale. Further, Mr. Ale inquired if Ms. Stryker would allow his son, James Ale, to come to her home and write the coverage. Mr. Ale indicated that his son was learning the insurance business, but assured her that he, Mr. Ale, would review all documents prepared by his son. Relying on that assurance and believing that Mr. Ale's son was a licensed agent, Ms. Stryker agreed for Mr. Ale's son to write her automobile coverage. On the evening of December 5, 1994, James Ale came to Ms. Stryker's home. He completed an automobile insurance application for coverage on her 1993 Jeep Cherokee and explained the coverage to her. Ms. Stryker presented to James Ale a check for $222, made payable to Doctors Insurance, as down payment for the insurance premium. Additionally, James Ale presented to Ms. Stryker an E.T.I. Financial Corporation premium finance agreement to sign. She signed the premium finance agreement. E.T.I. is a premium finance company. The premium finance agreement is dated December 6, 1994. It is signed by Respondent and indicates, among other things, Ms. Stryker's down payment, the total premium, and coverage effective on December 6, 1994, by two insurance companies, Fortune and New Alliance. Ms. Stryker's down payment check for $222 was endorsed and deposited by Doctors Insurance Agency. At no time material hereto was James Ale licensed by the State of Florida to transact insurance. At all times material hereto, Mr. Ale knew or should have known that his son, James Ale, was not licensed by the State of Florida to transact insurance. Subsequently, James Ale forwarded to Ms. Stryker an undated letter, together with additional applications for insurance coverage with insurance companies other than Fortune and New Alliance. In the letter, James Ale requested, among other things, that Ms. Stryker sign the applications and return them to him so that he could forward the applications to the insurance companies. Also, included with the undated letter was a copy of an automobile insurance binder, which indicated, among other things, that her vehicle coverage was with two insurance companies, Armor Insurance and Service Insurance, and that the binder period was from March 10, 1995 through March 10, 1996. The binder, according to the undated letter, could be used for proof of insurance. E.T.I. Financial Corporation authorized Doctors Insurance Agency, by and through Mr. Ale, to finance insurance premiums through E.T.I. Mr. Ale was the licensed agent for Doctors Insurance Agency. As an authorized insurance premium finance agent for E.T.I., Doctors Insurance Agency had possession of blank bank drafts from E.T.I. The process and procedure utilized in financing insurance premiums through an insurance company authorized by E.T.I. to represent it included forwarding blank bank drafts, bearing E.T.I.'s name, to the authorized insurance company. The bank draft is completed by the authorized insurance company, which includes making the drafts payable for the entire premium to the insurance company providing the coverage and is signed by the licensed agent of the authorized insurance company. The completed bank draft is forwarded, along with the premium finance agreement and any down payment, to E.T.I. which forwards the draft to the specified insurance company providing the coverage. If a draft is not signed by the licensed agent, the draft is not honored by E.T.I. and, therefore, is not issued to the insurance company providing the coverage. Consequently, no coverage is provided for a vehicle. No premium finance agreement from Doctors Insurance Agency was received by E.T.I. on behalf of Ms. Stryker. No premium finance agreement was ever received by E.T.I. from Doctors Insurance Agency. No down payment for the insurance premium on behalf of Ms. Stryker was received by E.T.I. from Doctors Insurance Agency. No bank draft from Doctors Insurance Agency was received by E.T.I. on behalf of Ms. Stryker and payable to Fortune or New Alliance. No bank draft from Doctors Insurance Agency was received by E.T.I. on behalf of Ms. Stryker and payable to Armor Insurance or Service Insurance. No bank drafts were ever received by E.T.I. from Doctors Insurance Agency. Due to the failure of Doctors Insurance Agency to submit the proper documents to E.T.I., including the bank drafts, no insurance company, which was to provide automobile insurance coverage to Ms. Stryker, received a premium from E.T.I. Therefore, none of the insurance companies provided Ms. Stryker with coverage for her vehicle. Even though Ms. Stryker had a binder for insurance coverage, unbeknownst to her, she had no automobile insurance coverage in effect. On or about May 24, 1995, Ms. Stryker was involved in an automobile accident. Believing that she had automobile insurance coverage in effect, Ms. Stryker contacted Mr. Ale regarding the accident. Mr. Ale informed her that she did not have insurance coverage with his insurance company and never did. Shortly afterwards, Ms. Stryker spoke with James Ale who informed her that he would attempt to locate her documents. She was not contacted again by James Ale. Because she had no automobile insurance coverage, Ms. Stryker was personally liable for the damages resulting from her accident, which exceeded $3,000. Also, she was exposed to potential personal liability for claims of injuries or damages suffered by the driver of the other vehicle involved in the accident. Neither Doctors Insurance Agency nor Mr. Ale paid any monies to Ms. Stryker for the damages that she suffered. On or about June 7, 1995, Ms. Stryker filed a consumer's assistance request with the Department of Insurance and Treasurer, hereinafter the Department. On or about October 18, 1995, almost 5 months after her automobile accident, Doctors Insurance Company issued a refund to Ms. Stryker of her $222 down payment on the insurance premium. Ms. Stryker had paid the down payment more than 10 months earlier.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order: Finding that John Morris Ale violated Subsections 626.611(4), (7), (8), and (13), and 626.621(2) and (12), Florida Statutes (1993), in Count I and violated Subsections 626.561(1), 626.611(7), (8), and (13), and 626.621(2), Florida Statutes (1993), in Count II. Imposing a 21-month suspension of the license of John Morris Ale. DONE AND ENTERED this 29th day of September, 1997, in Tallahassee, Leon County, Florida. ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 29th day of September, 1997.
The Issue The issues in this case are whether Respondents violated Subsections 626.611(7), 626.611(9), 626.611(10), and 626.611(13), Florida Statutes (2008),1 and, if so, what discipline should be imposed.
Findings Of Fact At all times material to the allegations in the Administrative Complaints, Mr. Holliday, III, was a licensed Florida surplus lines (1-20) agent, a life and health (2-18) agent, a general lines (property and casualty) (2-20) agent, an independent adjuster (5-20), and agent in charge at International Brokerage and Surplus Lines, Inc. (IBSL). Mr. Holliday, III, had been associated with IBSL since its inception in 1993. At all times material to the allegations in the Administrative Complaint, Mr. Holliday, IV, was licensed in Florida as a general lines (2-20) agent. At all times material to the allegations in the Administrative Complaint, Mr. Holliday, III, and Mr. Holliday, IV, were officers and owners of IBSL. Most recently, Mr. Holliday, III, was the secretary of IBSL. He handled the underwriting and risk placement for the agency. From approximately March 1993 to April 2009, Mr. Holliday, IV, was the president of IBSL. As president of IBSL, Mr. Holliday, IV's, duties included signing agreements which established IBSL's business function as that of a general managing agent and signing agreements which empowered IBSL to collect premiums on behalf of insureds. IBSL ceased doing business on May 1, 2009. In the insurance industry, a common method of procuring insurance involves a retail producer, a wholesale broker, and a program manager. A customer desiring insurance contacts its local insurance agent, which is known as a retail producer, and applies for insurance. The retail producer has a producer agreement with a wholesale broker, who has a producer agreement with a program manager. The program manager represents insurance companies. The retail producer sends the customer's application to the wholesale broker, and the wholesale broker contacts the program manager and forwards the application to the program manager. The program manager will provide a quote if the insurance company is willing to insure the customer. The quote is passed back to the customer via the wholesale broker and the retail producer. If the customer decides to take the insurance, the program manager will issue a binder to the wholesale broker, who will submit the binder to the retail producer. The wholesale broker will issue an invoice for the premium to the retail producer. The program manager pays a commission to the wholesale broker pursuant to its producer agreement with the wholesale broker, and the wholesale broker pays a commission to the retail producer pursuant to its producer agreement with the retail producer. When the retail producer sends the premium payment to the wholesale broker, the retail producer will deduct its commission. The wholesale broker sends the premium amount to the program manager less the wholesale broker's commission. If the customer is unable to pay the entire amount of the premium, part of the premium may be financed through a premium finance company. The premium finance company may pay the premium to the retail producer or to the wholesale broker. International Transportation & Marine Agency, Inc. (ITMA), is a program manager and is engaged in the business of selling, brokering, and servicing certain lines of policies of insurance written or issued by insurance companies. ITMA is a program manager for Pennsylvania Manufacturers Insurance Association (Pennsylvania Manufacturers), an insurance company. IBSL, a wholesale broker, entered into a producer's contract with ITMA on January 4, 2008. Wimberly Agency, Incorporated (Wimberly), is a retail producer located in Ringgold, Louisiana. In 2008, Wimberly had a producer's agreement with IBSL. Carla Jinks (Ms. Jinks) is the administrative manager for Wimberly. In October 2008, R.L. Carter Trucking (Carter) was a customer of Wimberly and applied for motor truck cargo insurance with Wimberly. Wimberly submitted an application to IBSL and requested that coverage be bound effective October 28, 2008, for Carter. IBSL contacted ITMA and received a binder for a policy with Pennsylvania Manufacturers. The cost of the policy was $9,500.00 plus a policy fee of $135.00 for a total of $9,635.00. Carter paid Wimberly $2,500.00 as a down payment and financed the remainder of the cost with Southern Premium Finance, LLC, who paid the financed portion directly to Wimberly. Wimberly deducted a ten percent commission of $950.00 and sent the remainder, $8,635.00 to IBSL. The check was deposited to IBSL's clearing account. On January 22, 2009, Carter contacted Ms. Jinks and advised that he had received a notice of cancellation effective January 22, 2009, due to non-payment to Pennsylvania Manufacturers. On the same date, Ms. Jinks received a facsimile transmission from IBSL, attaching the notice of cancellation and stating: "There was some confusion with the payment we send [sic] and we are working on getting it reinstated." There were some e-mails between Wimberly and Mr. Holliday, III, concerning the placement of coverage with another company. IBSL was unable to place coverage for Carter. By e-mail dated January 30, 2009, Ms. Jinks advised Mr. Holliday, III, that she had been able to place coverage for Carter and requested a return of the premium paid on a pro rata basis. She advised Mr. Holliday, III, that the return premium should be $7,651.35. By e-mail dated January 30, 2009, Mr. Holliday, III, stated: We will tender the return as quickly as it is processed by accounting. I do sorely regret the loss of this account, and our inability to get the Travelers quote agreed on a timely basis. By February 19, 2009, Wimberly had not received the return premium from IBSL. Ms. Jinks sent an e-mail to Mr. Holliday, III, on February 19, 2009, asking that the return premium be rushed to Wimberly so that it could be used to pay for the replacement policy. As of the date of Ms. Jinks' deposition on November 16, 2009, neither Mr. Holliday, III; Mr. Holliday, IV; nor IBSL had given the return premium to Wimberly. K.V. Carrier Services, Inc. (K.V.), is a retail producer located in Medley, Florida. In 2007, K.V. and IBSL entered into a business arrangement with IBSL. Under the arrangement, K.V. was the retailer, IBSL was the wholesale broker, ITMA was the program manager, and Pennsylvania Manufacturers was the insurance company. K.V. collected the down payments for the policy premiums from its customers and sent the down payments to IBSL. The remainder of the premiums were financed by financing companies, who sent the remainder of the premiums to IBSL. IBSL was supposed to send the monies paid for the premiums to ITMA. The following customers made down payments to K.V. and financed the remainder of their premiums with a financing company. E & E Trucking Service OD Transport, Inc. Fermin Balzaldua Eduardo Bravo Carlos Ramirez Edwin Bello Janet Rodriguez UTL, Inc. Prestige Transport USA JNL Transportation, Inc. Valdir Santos DJ Express PL Fast Carrier Ysis Transport K.V. sent the down payments for these customers to IBSL. The financing company sent the remainder of the premiums for these customers to IBSL. The total amount of premiums sent to IBSL for these customers was $19,768.45. IBSL did not send the premium payments for these customers to ITMA. The policies for these customers were cancelled for non-payment. K.V. found another company that was willing to insure K.V.'s customers. K.V. paid the down payments for the new policies from its own funds, hoping that IBSL would repay the finance company with any unearned premiums that would be returned to IBSL as a result of the cancellations. ITMA sent an invoice called an Account Current Statement to IBSL for the business conducted in the month of November 2008. The total amount owed to ITMA was listed as $55,116.32. The invoice included the premium for the policy issued for Carter, less IBSL's commission. The premiums for the policies issued to Eduardo Bravo; Fermin Bazaldua; JNL Transportation, Inc.; Janet Rodriguez; OD Transport, Inc.; and Prestige Transport USA were also included in the Account Current Statement for the business that IBSL conducted in November. IBSL was required to pay the $55,116.32 by December 15, 2008, but did not do so. ITMA received a check from IBSL dated December 31, 2008, for $25,000.00. A notation on the check indicated that it was a partial payment for the November business. The check was unallocated, meaning IBSL did not state to which premiums the partial payment should be applied. Mr. Holliday, III, claimed that IBSL had sent a bordereaux along with the check showing to which policies the payment applied. Mr. Holliday, III's, testimony is not credited. Donald Kaitz (Mr. Kaitz), the president of ITMA, communicated with one of the Respondents, who advised Mr. Kaitz that he needed another week or so to collect some premiums from his retail producers. On January 12, 2009, ITMA received a telephone call from IBSL, stating that IBSL could not pay the balance owed to ITMA and that ITMA should take whatever action it felt necessary. As a result of the communication from IBSL, ITMA issued notices of policy cancellation on all applicable policies listed in the Account Current Statement which was to be paid on December 15, 2008. Copies of the cancellation notices were sent to the insureds and IBSL. ITMA issued pro rata return premiums based on the number of days that each policy had been in effect. The return premiums were sent to IBSL by a check for $18,790.06. Additionally, ITMA sent IBSL a list of the policies that had been cancelled, showing the earned premiums which had been deducted from the $25,000.00. IBSL received and retained a net of $30,116.32, which was owed to ITMA. This amount is derived by deducting the $25,000.00, which IBSL sent to ITMA, from the $55,116.32, which was owed to ITMA. By letter dated April 2, 2009, IBSL sent K.V. a check for $524.80, which stated: We have totaled all amounts owing to IBSL by KV Carrier Service, and we have totaled all pro rated commissions owing by IBSL to KV Carrier Services for the benefit of your clients and have included our check # 1025 in the final amount of $524.80 to settle the account. All net unearned premiums for other than unearned commissions which are funded herein you must contact the insurance carriers involved and request payment under the provisions of Florida Statutes #627.7283. Federal Motor Carriers Risk Retention Group, Incorporated (FMC), is an insurance company, which sells commercial auto liability insurance, specifically targeted to intermediate and long-haul trucking companies. CBIP Management, Incorporated (CBIP), is a managing general underwriter for FMC. FMC had an agreement effective June 1, 2008, with IBSL, allowing IBSL to act as a general agent for FMC. As a general agent for FMC, IBSL was given the authority to accept risk on behalf of FMC. IBSL was given a fiduciary responsibility to accept insurance applications, provide quotes, and bind coverage. Once IBSL binds a policy for FMC, FMC issues a policy and is responsible for the risk. IBSL would receive the down payment from the retail agency, and, in most cases, the finance company would pay the balance of the premium directly to IBSL. The agreement between FMC and IBSL provided that IBSL was to provide FMC a monthly report of premiums billed and collected, less the agreed commission. The report was due by the 15th of the month following the reported month. In turn, FMC was to issue a statement for the balance due, and IBSL was required to pay the balance due within 15 days of the mailing of the statement following the month in which the policy was written. In August 2008, FMC began to notice that IBSL was selling premiums lower than FMC's rating guidelines. IBSL owed FMC approximately $186,000.00, which was due on August 15, 2008. IBSL sent FMC a check, which was returned for insufficient funds. FMC contacted IBSL and was assured that the check was returned due to a clerical error and an error by the bank. Assurances were given to FMC that funds would be transferred to FMC the following day; however, FMC did not receive payment until five days later. In September 2008, Joseph Valuntas (Mr. Valuntas), the chief operating officer for FMC, paid a visit to Mr. Holliday, III, and Mr. Holliday, IV. Mr. Valuntas expressed his concerns about the delay in receiving payment in August. He also pointed out that IBSL had taken some risks which were not rated properly and that there were some risks in which IBSL was not following the underwriting guidelines. After his visit with the Hollidays, Mr. Valuntas wrote a letter to IBSL, restricting IBSL to writing in Florida and limiting the amount of gross written premium to no more than $100,000.00 per month. IBSL did not adhere to Mr. Valuntas' instructions. An example of IBSL's conduct involved the writing of a policy for Miami Sunshine Transfer, which is a risk category designated as public delivery. Public delivery was not a standard that FMC insured and, as such, was not covered by FMC's reinsurance. Beginning on or about September 21, 2008, FMC began getting complaints from policyholders and retail agents about cancellations of policies that had been paid timely and in full. Although the retail agents had paid the premiums in full to IBSL, IBSL had not forwarded the premiums to FMC. By October 2008, IBSL owed FMC approximately $120,000.00 in past due premiums. FMC officially terminated the IBSL agreement in October 2008. IBSL sued FMC for breach of contract. On December 22, 2008, FMC received a check from IBSL in the amount of $25,122.80, but IBSL did not specify what premiums were being paid by the check. From February 1, 2006, through November 20, 2008, IBSL had a business relationship with Markel International Insurance Company Limited (Markel), an entity for which IBSL was writing insurance. IBSL was a coverholder for Markel, meaning that IBSL could produce insurance business for Markel and had the authority to collect and process premiums and bind insurance on Markel's behalf. Once the premiums were collected by IBSL, they were to be reported to Markel, and, within a maximum of 45 days, IBSL was to remit to Markel the aggregate gross written premiums less IBSL's commission. T. Scott Garner (Mr. Garner) is an expert auditor and financial analyst who currently works for Northshore International Insurance Services (Northshore), an insurance and reinsurance consulting firm. Markel retained Mr. Garner to determine the amount of money that IBSL should have sent to Markel for business transacted by IBSL for the period between February 1, 2006, and November 20, 2008. In doing his analysis, Mr. Garner used the bordereauxs which IBSL prepared and provided to Markel. Bordereauxs are monthly billing reports or accounts receivable reports. Mr. Garner also used data from Omni, which is a software system that was used by IBSL. Mr. Garner used the following procedure to determine what IBSL owed Markel. He determined how much risk IBSL wrote during the time period, that is, the gross written premium. He identified the amount of money that Markel had received from IBSL for the time period. Next he determined the amount that should have been received from IBSL, the gross written premiums minus IBSL's commissions. He compared what should have been remitted to Markel with the amount that was actually received by Markel. Based on his analysis, Mr. Garner calculated that IBSL owed Markel $1,208,656.61. Mr. Garner's analysis is credited. Respondent submitted a FSLSO Compliance Review Summary, which was done by the Florida Surplus Lines Office. At the final hearing, Mr. Holliday, III, viewed the report to mean that Markel was incorrect in the amount of money that was owed to it by IBSL. The report does not indicate that the policies on which the premium variances were noted were policies issued by Markel. Additionally, in his review, Mr. Garner eliminated duplicate transactions in determining the amount owed to Markel. The report did give a long list of policies, which should have been reported to Florida Surplus Lines Office, but IBSL had failed to report the policies.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that Respondents committed the violations alleged in Counts I through V of the Administrative Complaints, dismissing Count VI of the Administrative Complaints, and revoking the licenses of Respondents. DONE AND ENTERED this 15th day of October, 2010, in Tallahassee, Leon County, Florida. S SUSAN B. HARRELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 2010.
Findings Of Fact At all times pertinent to this proceeding, Respondent was licensed in this state by the Petitioner as an insurance agent. Respondent was licensed, pursuant to the Florida Insurance Code (Chapter 626, Florida Statutes) as a general lines agent, a health insurance agent, and a residential property and casualty joint underwriting association representative. In February 1990, Maria del Carmen Comas, who was subsequently known as Maria del Carmen Diaz (hereinafter referred to as Maria Diaz), was licensed by Petitioner as an insurance agent. By Final Order entered September 20, 1994, the licensure of Ms. Diaz was revoked by the Petitioner. At all times pertinent to this proceeding, Respondent and Ms. Diaz maintained a close personal and professional relationship. On October 12, 1990, an entity known as The First Assurance, Inc., (hereinafter referred to as FIRST) was incorporated under the laws of the State of Florida. At all times pertinent to this proceeding, Respondent was the president and sole officer of FIRST, which is a Florida incorporated general lines insurance agency. FIRST operated out of offices located at 10680 Coral Way, Miami, Florida (hereinafter referred to as the Coral Way location) until June 1994, when Respondent moved the office of FIRST to 8780 Sunset Drive, Miami, Florida. On September 21, 1993, an entity known as The First Assurance of Miami, Inc., (hereinafter referred to as FIRST OF MIAMI) was incorporated under the laws of the State of Florida by Respondent and Maria Diaz. At all times pertinent to this proceeding, Respondent was the president and sole officer of FIRST OF MIAMI, a Florida incorporated general lines insurance agency doing business at 8780 Sunset Drive, Miami, Florida (hereinafter referred to as the Sunset Drive location). Respondent and Ms. Diaz were equal owners of FIRST OF MIAMI until that corporation ceased its operation in February 1995. On August 26, 1994, an entity known as Marlin Insurance Agency, Inc., (hereinafter referred to as MARLIN) was incorporated under the laws of the State of Florida. Respondent was the sole incorporator of MARLIN. At all times pertinent to this proceeding, Respondent was the president and sole officer of MARLIN, a Florida incorporated general lines insurance agency doing business at the Sunset Drive location where Respondent operated FIRST and FIRST OF MIAMI. MARLIN was originally incorporated for the purpose of purchasing the business of Rodal Insurance Agency in Hialeah, Florida. After the purchase of Rodal was rescinded by court order, MARLIN remained dormant until February 1995, when MARLIN began operating as a general lines insurance agency at the Sunset Drive location. At all times pertinent to this proceeding, Respondent was the supervising agent of MARLIN. As long as FIRST and FIRST OF MIAMI maintained separate offices, Respondent managed the day to day affairs of FIRST and Ms. Diaz managed the day to day affairs of FIRST OF MIAMI. After FIRST moved its offices into those of FIRST OF MIAMI, the separation of management became less distinct. At all times pertinent to this proceeding, Carlos Gonzalez was an employee of FIRST or of FIRST OF MIAMI. Mr. Gonzalez was hired and trained by Respondent and worked under his direct supervision. At no time pertinent to this proceeding did Mr. Gonzalez hold any license or appointment under the Florida Insurance Code. At all times pertinent to this proceeding, Alvaro Alcivar was an employee of FIRST OF MIAMI or of MARLIN. Mr. Alcivar acted under the supervision of either Maria Diaz or of Respondent. At no time pertinent to this proceeding did Mr. Alcivar hold any license or appointment under the Florida Insurance Code. At all times pertinent to this proceeding, Respondent had sole signatory authority of the FIRST's account number Number33080870-10 (the FIRST expense account) and of FIRST's account Number0303043975-10, both maintained at Ready State Bank in Hialeah, Florida. At all times pertinent to this proceeding, Respondent had joint signatory authority with Maria Diaz of the FIRST's account number Number33095150-10 maintained at Ready State Bank in Hialeah, Florida. At all times pertinent to this proceeding, Respondent had joint signatory authority with Maria Diaz of the FIRST OF MIAMI's account number Number33095630-10 maintained at Ready State Bank in Hialeah, Florida. At all times pertinent to this proceeding, Respondent had sole signatory authority of the FIRST OF MIAMI's account number Number0303116492-10 maintained at Ready State Bank in Hialeah, Florida. All premiums, return premiums and other funds belonging to insureds, insurers, and others received in transactions under his license were and remain trust funds held by Respondent in a fiduciary capacity. Respondent obtained a power of attorney from his customers as a routine business practice. Respondent has repeatedly issued checks in payment of fiduciary funds that have subsequently been dishonored by the bank because the account on which the checks were drawn had insufficient funds. ARCAMONTE TRANSACTION (COUNT ONE) On or about July 14, 1993, Susan Arcamonte of Miami, Florida, purchased a new car. Susan Arcamonte needed insurance for this automobile and discussed that need with Carlos Gonzalez, who was employed by FIRST. As a result of her discussions with Mr. Gonzalez, Ms. Arcamonte agreed to purchase a policy of insurance that would be issued by Eagle Insurance Company. The annual premium quoted by Mr. Gonzalez for this policy totaled $1,618.00. Mr. Gonzalez advised her that there would be additional charges if the premium was paid by a premium finance company. Because she did not have the funds to pay the lump sum annual premium and did not want to finance the premium, she had her parents, Edmond and Nancy Arcamonte, pay the annual premium. As instructed by Carlos Gonzalez, this check was in the amount of $1,618.00 and was made payable to "The First Assurance, Inc." This check was in full payment of the annual premium for the automobile insurance policy that was to be issued by Eagle Insurance Company. After receiving the check from Mr. and Mrs. Arcamonte, Mr. Gonzalez issued to Susan Arcamonte an insurance card containing the name "The First Assurance, Inc." and binder numbers 12873 and 931374 written across the top. Mr. Gonzalez represented to Ms. Arcamonte that this was a binder of the coverage they had discussed. Mr. Gonzalez thereafter delivered the check and the completed application for insurance to FIRST. Respondent reviewed the application for insurance and signed the application. The Arcamontes' check was thereafter deposited by Respondent into the FIRST expense account at Ready State Bank, Hialeah, Florida. In July 1993, Respondent or some person in his employ at FIRST and acting with his knowledge under his direct supervision and control, affixed the signature of Susan Arcamonte to a Century Premium Insurance Finance Co., Inc. (Century PFC) premium finance agreement and, in the space provided for her address, filled in the office address of FIRST. Ms. Arcamonte's signature was affixed to this agreement without her knowledge or consent. Respondent personally signed the premium fiance agreement that was sent to Century PFC. Because the address of FIRST was inserted on the premium finance agreement, Ms. Arcamonte did not receive payment coupons, cancellation notices, and other correspondence from Century PFC. Consequently, the existence of the premium finance agreement was concealed from Ms. Arcamonte. The original application for insurance signed by Susan Arcamonte contained a power of attorney purporting to grant Respondent the authority to sign Ms. Arcamonte's name to "applications or similar papers including premium finance contracts". There was no disclosure that the signature on the premium finance agreement was not that of Ms. Arcamonte or that FIRST was executing her signature pursuant to a power of attorney. Respondent contends that the premium finance agreement was executed pursuant to the power of attorney because the check from Mr. and Mrs. Arcamonte was inadvertently separated from her application for payment and erroneously deposited into the FIRST expense account. This contention lacks credibility and is rejected. The fact that Respondent deposited the check in his expense account, that the paperwork for the premium finance agreement contained the FIRST address, that Respondent took no action to rectify this alleged error even after receiving correspondence from the finance company, and that Ms. Arcamonte's signature was forged on the application belie Respondent's contention that this was an innocent mistake. On or about September 20, 1993, the Eagle Insurance policy that Ms. Arcamonte purchased was cancelled for nonpayment of premiums because Respondent, or persons acting under his direct supervision and control, failed to make a regular installment payment on the premium finance agreement. Ms. Arcamonte never received the 10 Day Notice of Cancellation Notices that Century PFC mailed to FIRST's address. It was not until October 1993 when she received a Notice of Cancellation from Eagle mailed September 27, 1993, that she learned that her policy had been cancelled effective September 20, 1993. As a result of Respondent's actions and those of Carlos Gonzalez, Susan Arcamonte failed to timely receive automobile insurance, suffered a finance charge for automobile insurance without her knowledge or consent, had her automobile insurance cancelled, and incurred higher premium charges for subsequent coverage because of a gap in her coverage. Following a criminal complaint filed against him by Ms. Arcamonte, Respondent was arrested and placed in a pretrial intervention program. It was only after this action was taken that Respondent made restitution to the Arcamontes for the $1,618.00 premium they paid. At no time during the transaction, did the Arcamontes deal with anyone from the FIRST other than Carlos Gonzalez. Mr. Gonzalez held himself out to be and acted as an insurance agent during this transaction. Specifically, Carlos Gonzalez did the following: Was introduced to the Arcamontes as an insurance agent and did not correct that misidentification. Interviewed Susan Arcamonte to gather the information necessary to determine level of coverage and to quote a premium for that coverage. Discussed coverage options and requirements including whether Ms. Arcamonte needed personal injury protection. Discussed deductible options and answered general questions about insurance. Selected an insurer for Ms. Arcamonte, quoted a premium for that coverage, and made representations as to the quality of the insurer. Offered to bind insurance coverage for the automobile Ms. Arcamonte was in the process of purchasing and sent a binder to her at the automobile dealership via fax. Personally completed the insurance application and related paperwork. Personally completed an insurance identification card, including binder numbers, as proof of insurance, and presented the identification card to Ms. Arcamonte. Presented Ms. Arcamonte with a business card that identified himself as a representative of FIRST. Respondent knew or should have known of the acts of Carlos Gonzalez. Respondent received from Mr. Gonzalez the application for insurance he had completed for Ms. Arcamonte so that all Respondent had to do was sign it. JOHNSON - MOREL TRANSACTION (COUNT TWO) On May 31, 1993, Linda E. Johnson and her husband, Miguel Morel, visited the residence of Wilfreido Cordeiro, an employee of FIRST who was acting on behalf of FIRST. As a result of their conversation with Mr. Cordeiro about their insurance needs, Mr. Morel and Ms. Johnson completed an application for automobile insurance from Armor Insurance Company (Armor) to be issued through FIRST. Mr. Cordeiro, who was not licensed by Petitioner for any purpose, held himself out to be an agent. He represented to these consumers that coverage with Armor was bound and gave them an identification card with the FIRST name on it that purported to be a binder of coverage. The FIRST insurance identification card was issued without authorization from Armor and in violation of the established policies and practices of Armor. Because Mr. Cordeiro was unlicensed, Respondent acted as the agent of record for this transaction. On or about May 31, 1993, Mrs. Linda E. Johnson tendered to Respondent, or persons acting with his knowledge and under his direct supervision and control, a check in the amount of $500.00 payable to FIRST as a premium down payment for the automobile insurance from Armor. On or about June 4, 1993, Respondent, or persons acting with his knowledge and under his direct supervision and control, deposited Mrs. Johnson's check in the FIRST expense account at the Ready State Bank. On or about June 29, 1993, Mrs. Johnson was contacted by her bank and informed that she had no automobile insurance. She immediately contacted Respondent who provided the bank with a certificate of insurance indicating coverage was placed with American Skyhawk Insurance (American Skyhawk) effective June 1, 1993. No authority to bind coverage had been extended by American Skyhawk prior to the submission of the application two and one-half months after the coverage effective date indicated on the certificate of insurance. On or about August 18, 1993, Respondent, or persons acting with his knowledge and under his direct supervision and control, completed a Century PFC and affixed thereto the signature of Mr. Morel without his knowledge or consent. This agreement reflected that Mr. Morel had paid the sum of $400.00 as a downpayment, despite the fact that Mrs. Johnson's check, in the amount of $500.00, had been received and deposited in the Respondent expense account. As a result of Respondent's action, Mrs. Johnson and Mr. Morel failed to timely receive automobile coverage; suffered a finance charge for automobile insurance without their knowledge or consent; and suffered the loss in at least the amount of $100.00. At no time during the transaction with FIRST did Mr. Morel or Mrs. Johnson knowingly execute a power of attorney. HWANG TRANSACTION (COUNT THREE) On August 29, 1992, Mr. Show Ming Hwang of Miami, Florida, purchased via telephone a policy of insurance for a car he was purchasing. Mr. Hwang called from a car dealership and spoke to an employee of FIRST who was acting under Respondent's direct supervision. Mr. Hwang tendered to FIRST a check in the amount of $869.00 as the full premium for this insurance, which was to be issued by an insurer named Security National. Respondent was the agen t of record for this transaction. Security National issued policy NumberSN00127048 providing insurance coverage for Mr. Hwang effective August 29, 1992. On December 22, 1992, Mr. Hwang asked FIRST to cancel his policy with Security National because he had moved and had secured other coverage. On January 15, 1993, Security National cancelled insurance policy NumberSN00127048 in response to Mr. Hwang's request. On January 26, 1993, Security National sent to Respondent its check Number216878 in the sum of $366.35 payable to Mr. Hwang. This check was a refund of the unearned premium for the cancelled policy. In addition to the unearned premium, Mr. Hwang was also entitled to a refund of the unearned commission from FIRST. The amount of the unearned commission was $64.55 and should have been paid by FIRST directly to Mr. Hwang. On February 8, 1993, Respondent, or an employee of FIRST acting under his direct supervision, endorsed the check from Security National in the name of Mr. Hwang and deposited that check in the FIRST expense account at Ready State Bank. Mr. Hwang was unaware that his name had been endorsed on the check and had not authorized such endorsement. This endorsement was not pursuant to a validly executed power of attorney. Mr. Hwang made repeated attempts to obtain the refunds to which he was entitled. Finally, he secured the intervention of the Petitioner. After that intervention, Respondent issued a FIRST check on December 17, 1993, payable to Mr. Hwang in the amount of $431.00 as payment of the refunds. Less than a month later, this check was dishonored because there were insufficient funds in the account on which it was drawn. After further intervention by the Petitioner, Respondent issued a cashier's check in the amount of $431.00 payable to Mr. Hwang. This check, dated March 22, 1994, was thereafter received and deposited by Mr. Hwang. Respondent failed to return the refunds to Mr. Hwang in the applicable regular course of business and converted the refund from Security National to his own use until the intervention of the Petitioner. As a result of Respondent's actions, Mr. Hwang failed to timely receive these refunds. MARIA DIAZ (COUNT FOUR) On September 20, 1994, the Petitioner entered a Final Order that revoked all licenses that it had previously issued to Maria Diaz (who was at that time known as Maria del Carmen Comas). In September 1994, Ms. Diaz, accompanied by Respondent, visited the Petitioner's office in Miami where she was told that the revocation of her license was forthcoming. After that information was given to them, Respondent and Ms. Diaz knew or should have known that the revocation of her licensure was imminent. There was insufficient evidence to establish when Ms. Diaz received a written copy of the order revoking her licensure. Ms. Diaz and Respondent assert that they did not know about the revocation until the end of January, 1995. The order entered in September 1994 prohibited Ms. Diaz from engaging in or attempting to engage in any transaction or business for which a license or appointment is required under the Insurance Code or directly owning, controlling, or being employed in any manner by any insurance agent or agency. After Respondent and Ms. Diaz had been told that the revocation of her licensure was imminent, Ms. Diaz engaged in transactions requiring licensure and acting in violation of the order revoking her licensure. This activity included applying to Seminole Insurance Company (Seminole) in December 1994 seeking appointment as a general lines insurance agent by Seminole, the submission of a large number of applications to Seminole, and the mishandling of an insurance transaction with Johannah Rexach in July and August 1995. Ms. Diaz began a business as a travel agent at the MARLIN office and continued to be present in the MARLIN office long after she had received written notice of the revocation of her licensure by Petitioner. At least on one occasion in May 1995, Ms. Diaz answered the MARLIN telephone by saying "insurance". Ms. Diaz continued to greet her former insurance customers and mailed out renewal notices after both she and Respondent had actual knowledge of the revocation of her licensure. Respondent knew or should have known of Ms. Diaz's activities. While there was insufficient evidence to establish that Ms. Diaz was formally on MARLIN's payroll, the evidence is clear and convincing that Respondent permitted Ms. Diaz to share office space while she attempted to develop her travel agency and that, in return, Ms. Diaz helped out at the MARLIN office. Respondent employed the services of Ms. Diaz and he placed her in a position to engage in transactions that required licensure after he knew or should have known that her licensure had been revoked. MARTINEZ TRANSACTION (COUNT FIVE) On April 23, 1994, Mr. and Mrs. Santiago Martinez of Miami, Florida, completed applications for automobile insurance from Fortune Insurance Company (Fortune) and Aries Insurance Company (Aries). The record is unclear as to whether the insurance was to be issued through FIRST or FIRST OF MIAMI. The individual with whom Mr. and Mrs. Martinez dealt was Alvaro Alcivar. This was during the time that FIRST and FIRST OF MIAMI maintained separate offices and it was before Respondent and Ms. Diaz had been told that her licensure was about to be revoked. The greater weight of the evidence established that Mr. Alcivar was, at that time, an employee of FIRST OF MIAMI and that he was working under the supervision of Maria Diaz. Succinctly stated, premiums paid by Mr. and Mrs. Martinez were deposited into a FIRST OF MIAMI bank account that showed First Assurance of Miami, Inc., d/b/a Complete Insurance as the owner of the account. The premium payment was not forwarded to the insurer. Because of this failure, Mr. and Mrs. Martinez did not receive insurance coverage for which they had paid. While Petitioner established that Mr. Alcivar and whoever was his supervising agent mishandled this transaction, there was insufficient evidence to establish that Respondent was aware of this transaction until Mr. and Mrs. Martinez demanded a refund of the premium they had paid. At that juncture, he attempted to resolve the problem. Consequently, it is found that the evidence failed to establish that Respondent was responsible for these violations of the Florida Insurance Code. ZAFRANI TRANSACTION (COUNT SIX) In July 1992, Mr. Issac Zafrani and his son, Ramon, of Miami, Florida, purchased automobile insurance with Oak Casualty Insurance Company (Oak) after dealing with Carlos Gonzalez. The various documents associated with this transaction refer to the agency issuing this policy as FIRST, FIRST OF MIAMI, or Rodal Insurance Agency. Mr. Gonzalez was an employee of FIRST and operated under the direct supervision of Respondent. The entire transaction was completed by Mr. Gonzalez at the automobile dealership where Mr. Zafrani was purchasing an automobile. All subsequent dealings by Mr. Zafrani was through Mr. Gonzalez by telephone or at locations other than the offices of FIRST. Mr. Gonzalez held himself out to be and acted as an insurance agent during this transaction. Specifically, Carlos Gonzalez did the following: Was introduced to the Zafranis as an insurance agent and did not correct that misidentification. Personally completed the insurance application and related paperwork. Discussed coverage and deductible options. Selected an insurer for the Zafranis, deter- mined the premium for the coverage, and accepted the payment for the premium. Personally completed an insurance identifi- cation card, including what purported to be proof of insurance, and presented the identification card to the Zafranis. Presented the Zafranis with a business card that identified himself as a representative of FIRST. The Zafranis paid for the renewal of their policy through FIRST each year on an annual basis. On September 1, 1994, the Zafranis tendered to Mr. Gonzalez their check in the amount of $1,748.00 as payment in full of the annual premium for the policy year 1994-95. This check was made payable to FIRST OF MIAMI and was deposited in the FIRST Expense Account at Ready State Bank ( Number0303080870- 10). Respondent was the only person with authority to sign on this account. On September 30, 1994, an employee of FIRST completed a premium finance agreement that purported to finance the Zafranis' premium for the Oak Casualty insurance and forged Issac Zafrani's signature to that agreement. This false document reflected that the total premium was $1,748.00 and that the Zafranis had made a downpayment of $524.00 and had an unpaid balance of $1,224.00. This action was taken without Issac Zafrani's knowledge or consent. Mr. Zafrani had not executed a power of attorney to authorize these acts. Respondent knew or should have known of this act. On September 30, 1994, Respondent, or an employee of FIRST working under his direct supervision, issued a premium finance draft from Artic to Oak in the amount of $1,485.80 based upon this false application. A few weeks after they paid the renewal premium, the Zafranis complained to Mr. Gonzalez that they had not received their renewal policy from Oak. Mr. Gonzalez advised them that the company had cancelled their policy in error. He promised that he would investigate the matter and take corrective action. On December 23, 1994, Respondent, or an employee of FIRST acting under his direct supervision, submitted an automobile insurance application to Seminole Insurance Company indicating that coverage had been bound for Issac Zafrani. On December 23, 1994, Respondent issued FIRST check Number1196 payable to Seminole in the amount of $1,681.65 in payment of the policy he was attempting to secure on behalf of the Zafranis. On or about December 27 1994, Mr. Gonzalez issued to the Zafranis a FIRST card with what purported to be a binder number from Seminole Insurance Company. No authorization to bind that coverage had been issued by Seminole. On January 3, 1995, Artic issued a cancellation notice on the Oak Casualty policy because of missed payments on the premium finance agreement. The Zafranis did not know about this premium finance agreement and Respondent failed to make the payments. In January 1995, FIRST check Number1196 that had been tendered to Seminole was dishonored by Respondent's bank because the account on which the check was drawn had insufficient funds to pay the check. As a result of these actions, the Zafranis failed to timely receive automobile insurance for which they had fully paid and suffered the loss of the sum of $1,748.00. Respondent knew or should have known of these actions. DEBT TO WORLD PREMIUM FINANCE COMPANY (COUNT SEVEN) On August 29, 1995, a final judgment was entered in a Dade County Court action brought by World Premium Finance Co., Inc. (World PFC) against FIRST OF MIAMI and the Respondent, individually, as defendants. This final judgment awarded damages against FIRST OF MIAMI in the sum of $7,203.03 and awarded damages against both defendants in the sum of $15,000 plus attorney's fees of $1,000. The World PFC complaint was based on worthless checks FIRST OF MIAMI and Respondent had issued in connection with premium finance contracts and included debts for unpaid downpayments and unearned commissions on premium finance contracts that had been cancelled. Respondent's assertion that these debts were the responsibility of Maria Diaz is rejected. While Ms. Diaz initially made the arrangements for FIRST OF MIAMI to finance through World PFC and was the agent responsible for some of these transactions, it is clear that Respondent was the agent for many of these underlying transactions. Further, some, if not all, of these worthless checks were drawn on accounts for which Respondent was the only person with signatory authority. The downpayments and unearned commissions constitute fiduciary funds for which Respondent is responsible. Respondent has failed to pay these fiduciary funds to World PFC after repeated demands for payments. GUTIERREZ TRANSACTION (COUNT EIGHT) On October 11, 1993, Ms. Madalina N. Gutierrez of Miami, Florida, completed an application for automobile insurance. Aries Insurance Company was the insurer for this policy and FIRST was the insurance agency. The premium for this policy was to have been $574.00. The person with whom Ms. Gutierrez dealt with was Carmen "Mela" Babacarris, an employee of FIRST OF MIAMI. Ms. Babacarris has never held any license or appointment under the Florida Insurance Code. Ms. Gutierrez paid to FIRST the sum of $287.00 on October 11, 1993, when she applied for this insurance. On that date, Ms. Babacarris gave to Ms. Gutierrez an insurance card that purported to bind coverage with Aries. She returned on November 1, 1993, and paid to FIRST the balance owed of $287.00. Both of these payments were tendered to and received by Ms. Babacarris on behalf of FIRST. The sums paid by Ms. Gutierrez for this insurance coverage were not remitted by the FIRST to Aries or to any other insurer. As a consequence, Ms. Gutierrez did not receive the insurance coverage for which she had paid. Ms. Gutierrez was unable to obtain a refund of the sums that she had paid to FIRST. Respondent knew or should have known of the acts pertaining to this transaction by Ms. Babacarris since the transaction was processed through the FIRST, the agency for which Respondent was the sole supervising agent. RICO TRANSACTION (COUNT NINE) On June 27, 1994, Mr. Rafael Rico of Miami, Florida, completed an application for automobile insurance from Aries Insurance. It is unclear from the documents whether this insurance was to be issued through FIRST or through FIRST OF MIAMI. This confusion in the record is attributable to the fact that the persons involved in this transaction and associated with these two agencies made little distinction between the two agencies. This application was completed at the automobile dealership from which Mr. Rico was purchasing the vehicle to be insured. The individual with whom Mr. Rico dealt was Alvaro Alcivar. At all times during the transaction with Mr. Rico, Mr. Alcivar held himself out to be and acted as an insurance agent. Specifically, Mr. Alcivar did the following: Personally completed the insurance application and related paperwork. Discussed coverage and deductible options and answered Mr. Rico's general insurance questions. Selected the insurer for Mr. Rico's coverage. Personally completed an insurance identification card, including a policy number, as proof of insurance and provided it to Mr. Rico. Indicated that coverage was bound immediately and gave to him a card that purported to be a Florida Automobile Insurance Identification Card indicating that Mr. Rico had insurance coverage through Aries. Developed the premium and downpayment. Accepted payment from Mr. Rico. Presented Mr. Rico with a business card identifying himself as a representative of FIRST OF MIAMI. Mr. Alcivar was the only representative of the FIRST or of the FIRST OF MIAMI with whom Mr. Rico dealt. On June 27, 1994, Mr. Rico tendered to Mr. Alcivar the sum of $947.00 as payment for this insurance with the sum of $500.00 being paid in cash and the balance being charged to Mr. Rico's Mastercard. This Mastercard entry was processed through the account of the FIRST, not that of the FIRST OF MIAMI. Despite the payments by Mr. Rico, the premium to which Aries was entitled for this coverage was not remitted by FIRST or by FIRST OF MIAMI. As a result of this failure, Aries cancelled the binder that had been issued to Mr. Rico. Mr. Rico was damaged as a result of this failure. He lost the premium he had paid and the lending institution that financed his vehicle placed insurance on the vehicle at a higher premium than that charged by Aries. Based on the relationship between FIRST and FIRST OF MIAMI, the relationship between Respondent and Ms. Diaz, the repeated references to FIRST in the documentation of this transaction, and the deposit of at least $447.00 in the Mastercard account of FIRST, it is concluded that Respondent knew or should have known about this transaction. CHERI TRANSACTION (COUNT ELEVEN) On November 19, 1994, Mr. Dieuseul Cheri of Miami, Florida, completed an application for automobile insurance that was to be issued by Seminole Insurance Company as the insurer. The application for insurance reflects that Maria Diaz was the agent for this transaction, but the name of the agency is FIRST, not FIRST OF MIAMI. Likewise, the premium finance agreement pertaining to this transaction reflects that FIRST is the producing agency. The entire transaction was handled by Alvaro Alcivar at an automobile dealership where Mr. Cheri was purchasing a vehicle and occurred after Ms. Diaz had been told in September that the revocation of her licensure was imminent. Mr. Cheri gave to Mr. Alcivar the sum of $205.00 in cash as the downpayment for the premium for this Seminole policy. At all times Mr. Alcivar held himself out to be and acted as an insurance agent. Specifically, Mr. Alcivar: Was introduced to Mr. Cheri as an insurance agent and did not correct that misidentification. Personally completed the insurance application and related paperwork. Discussed coverage and deductible options and answered Mr. Cheri's general insurance questions. Selected the insurer for Mr. Cheri's coverage. Personally completed an insurance identification card, including a policy number, as proof of insurance and provided it to Mr. Cheri. Completed a named driver exclusion agreement for Mr. Cheri's policy, which had a significant effect on the coverage provided under the policy, and completed a vehicle inspection. Developed the premium and downpayment. Accepted payment from Mr. Cheri on behalf of FIRST OF MIAMI. Presented Mr. Cheri with a business card identifying himself as a representative of FIRST OF MIAMI. Mr. Alcivar was the only representative of the FIRST or of the FIRST OF MIAMI with whom Mr. Cheri dealt. FIRST OF MIAMI failed to bind coverage with Seminole on Mr. Cheri's behalf until November 22, 1994. As a result, there was a lapse in Mr. Cheri's coverage from November 17 until November 22, 1994. On November 19, 1994, FIRST OF MIAMI submitted a premium finance agreement on Mr. Cheri's insurance policy to World Premium Finance Co., Inc. (World PFC). The World PFC contract as well as the application were signed by Maria Diaz. Ms. Diaz never met Mr. Cheri. The premium finance agreement submitted to World PFC by FIRST OF MIAMI indicated that he had made a premium downpayment of only $105.00 despite the fact that Mr. Cheri had made a downpayment of $205.00. The evidence is not clear that Respondent knew or should have known of this transaction because of the involvement of Ms. Diaz. Instead, this is an example of the Respondent permitting Ms. Diaz to continue to participate in insurance transactions that require licensure after Respondent and Ms. Diaz had been told in September 1994 that revocation was imminent. ALVARO ALCIVAR (COUNT TWELVE) Petitioner established by clear and convincing evidence that Alvaro Alcivar performed acts and made representations to consumers that require licensure pursuant to the Florida Insurance Code. Petitioner also established that Respondent knew or should have known of these acts and that he aided and abetted these violations by Mr. Alcivar. CARLOS GONZALEZ (COUNT THIRTEEN) Petitioner established by clear and convincing evidence that Carlos Gonzalez performed acts and made representations to consumers that require licensure pursuant to the Florida Insurance Code. Petitioner also established that Respondent knew or should have known of these acts and that he aided and abetted these violations by Mr. Gonzalez.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order that adopts the findings of fact and conclusions of law contained herein. It is further recommended that Petitioner revoke all licensure and appointment held by Respondent pursuant to the Florida Insurance Code and that it impose against Respondent an administrative fine in the amount of $10,000.00. DONE AND ENTERED this 15th day of April 1996 in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON, 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 15th day of April 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-0317 The following rulings are made as to the proposed findings of fact submitted by Petitioner. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5,6, 7, 8, 9, 11, 12, 13, 14, 15, 16, 18, 19, 20, 21, 22, 23, 27, 25, 27, 28, 29, 30, 31, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 73, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 123, 125, 126, 127, 139, 140, 141, and 142 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in part by the Recommended Order. The testimony at the formal hearing that the office was moved in June 1994. The proposed findings of fact in paragraphs 10, 17, and 81 are adopted in part by the Recommended Order, but are rejected to the extent they are contrary to the findings made. The proposed findings of fact in paragraphs 26, 32, 72, 74, 75, 76, 83, 129, 130, 131, 136, 137, 143, and 144 are subordinate to the findings made. The proposed findings of fact in paragraphs 46, 61, 82, and 124 are rejected as being unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 77, 78, 79, 80, 128, 132, 133, 134, 135, and 136 are rejected as being contrary to the findings made. The following rulings are made as to the proposed findings of fact submitted by Respondent. The proposed findings of fact in paragraphs 1, 3, 4, 5, 7, 8, 9, 13, 15, 17, 18, 19, 20, 23, 26, 32, 33, 34, 35, 36, 37, 40, 41, 49, 50, 53, 54, 55, 64, 72, and 73 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in part by the Recommended Order, but are rejected in part since Respondent moved the offices of the FIRST from Coral Way to Sunset Drive at a time pertinent to this proceeding. The proposed findings of fact in paragraphs 6 and 52 are adopted in part by the Recommended Order, but are rejected to the extent they are contrary to the findings made. The proposed findings of fact in paragraphs 10, 11, 21 and 27 are rejected as being unsubstantiated by credible evidence. The evidence that supports these proposed findings lacks credibility. The proposed findings of fact in paragraphs 12 and 31 are adopted in part by the Recommended Order, but are rejected to the extent the proposed findings mischaracterize the evidence. The proposed findings of fact in paragraphs 16 are adopted in part by the Recommended Order, but are rejected to the extent they are unnecessary to the conclusions reached. The proposed findings of fact in paragraph 24 are adopted in part by the Recommended Order, but are rejected to the extent they are contrary to the finding that they knew that the revocation of Ms. Diaz's licensure was imminent. The proposed findings of fact in paragraphs 25, 28, 30, 38, 39, 40, 45, 46, 47, 51, 56, 58, 59, 60, 61, 62, 65, 66, 67, 69, 71, 74, 75, 76, 77, and 78 are rejected as being contrary to the findings made. The proposed findings of fact in paragraphs 29 and 57 are subordinate to the findings made. The proposed findings of fact in paragraph 31 are rejected since they contain an inference that Respondent told Ms. Diaz to move as soon as he knew of her interaction with insurance customers. The proposed findings of fact in paragraph 42 are rejected as being a mischaracterization of the evidence. The proposed findings of fact in paragraphs 48, 63, 68, and 70 are rejected as being unnecessary to the conclusions reached. COPIES FURNISHED: John R. Dunphy, Esquire Department of Insurance and Treasurer Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 Charles J. Grimsley, Esquire Charles J. Grimsley and Associates, P.A. 1880 Brickell Avenue Miami, Florida 33129 Honorable Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner, Acting General Counsel Department of Insurance The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed in Florida as a life and variable annuity contracts salesman and as a life and health insurance agent. In 1994 twin sisters Edith Ellis and Gertrude Franklin attended a luncheon at which Respondent made a presentation. The sisters were then 79 years old, and both were the owners of single-premium insurance policies issued by Merrill Lynch. They decided to cash in their existing policies and purchase new policies through Respondent. Both Ellis and Franklin executed 1035 exchange forms whereby the monies obtained from cashing in their Merrill Lynch policies were transferred to the insurance companies issuing their new policies. Both were charged a substantial penalty by Merrill Lynch. On August 11, 1994, Security Connecticut Insurance Company issued to Edith Ellis a flexible premium adjustable life insurance policy with a face value of $150,000. The cover page of the policy recites in bold print that it is a flexible premium adjustable life insurance policy, directs the insured to read the policy, and provides a 20-day period for canceling the policy with a full refund. It also contains a statement that provides: This Policy provides flexible premium, adjustable life insurance to the Maturity Date. Coverage will end prior to the Maturity Date if premiums paid and interest credited are insufficient to continue coverage to that date. Dividends are not payable. Flexible premiums are payable to the end of the period shown, if any, or until the Insured's death, whichever comes first. The cover page also recites that the first premium is $75,000 and that the monthly premium is $805.75. After deductions, Merrill Lynch only transferred $44,928.81, and Ellis never paid any additional premiums. Therefore, the policy was not funded to maturity since the company only received a partial payment. The insurance company did not set up this policy to receive periodic premium payments because it was originally anticipated that the company would receive $75,000 which would carry the expense, based upon the then interest rate. The policy was dependent upon interest rates. The company sent annual statements, however, to both Ellis and to the agency where Respondent worked. These statements clearly showed a declining accumulated value for the policy and specified how much it had declined from the previous year. When Ellis surrendered the policy on July 3, 2002, its value was $4,849. First Colony Life Insurance issued a flexible premium adjustable life insurance policy to Gertrude Franklin on October 18, 1994, with a face value of $600,000. The cover page provides for a 20-day cancellation period with a full refund of premiums paid. In bold type, the cover page further advises as follows: "Flexible Premium Adjustable Life Insurance Policy", "Adjustable Death Benefit Payable at Death", "Flexible Premiums Payable During Insured's Lifetime", and "Benefits Vary with Current Cost of Insurance Rates and Current Interest Rates." It also advises that the initial premium is $56,796. The insurance company received an initial premium payment of $203,993.75 on December 19, 1994, and an additional premium payment in February 1996, for a total of premiums paid of approximately $266,000. The total premiums received, however, were insufficient to fund the policy to maturity since that would have required in excess of $400,000 in premiums. Annual statements sent by the insurance company reflected that the policy value was declining. On August 26, 1996, the insurance company received a letter over the name of Nancy Franklin, the trustee of the trust which owned the policy, advising the company to send billing and annual statements to the address of the agency where Respondent was employed. Respondent sent that letter as a courtesy because Gertrude Franklin asked him to keep her papers for her because she had no place to keep them. Gertrude Franklin, not her daughter, signed that letter. Respondent left that agency in October 1997 and was not permitted to take any records with him. In 2002 Edith Ellis showed her policy to someone at a senior center. Based upon that person's statements she called her sister and told her that their policies were no good. They contacted Respondent who came to their homes and reviewed their policies. He advised Gertrude Franklin that her only options at that point were to pay an additional premium or to reduce the face value of the policy to $400,000 in order to keep it in effect longer. She chose the latter course. Respondent gave Franklin a letter for Nancy Franklin's signature directing the insurance company to reduce the face value of the policy. Franklin, not her daughter, signed the letter and forwarded it to the company. The company reduced the face value based upon that letter which it received on April 1, 2002. That directive allowed the policy to stay in force another two months.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Administrative Complaint filed against Respondent in this cause. DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2004. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Nancy Wright, Esquire 7274 Michigan Isle Road Lake Worth, Florida 33467 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Findings Of Fact The Respondent was licensed as a General Lines Insurance Agent at all times material hereto. He generally wrote insurance for the various insurance companies he represented through General Agents such as Frank MacNeill and Son, Inc. and Amalex, Inc. The Respondent operated his insurance agency under the corporate name Pennington Insurance Agency, Inc. The Respondent was owner and President of Pennington Insurance Agency, Inc. and exercised supervision and control over its employees, and in particular the employee Earnest L. Middleton. All funds collected from insured pertinent to this proceeding were premium payments and represented trust funds held by the Respondent in a fiduciary capacity on behalf of his General Agent or the insurance companies whose policy contracts generated the premiums. From August through December, 1981, the Respondent engaged in negotiations with representatives of Amalex, Inc. and specifically, Mr. Walter Gibson, President of Amalex, Inc. and Mr. Larry Durham of Durham and Company Insurance Agency. These negotiations ultimately led, in November of 1981, to the Respondent becoming an employee-agent of Amalex, Inc. The Respondent was to be paid a salary which was to be an advance upon commissions earned at the rate of 75% on new policies and 60% on "renewals." This commission-salary arrangement was entered into pursuant to an oral agreement between the Respondent and Walter Gibson of Amalex. There was never any written contract between the Respondent and Amalex, Inc. delineating the employment arrangement or the compensation which Respondent was to be provided by Amalex, Inc. in return for his "brokering" business for Amalex, Inc. There was never any written contract concerning the method of forwarding of premium payments to Amalex, Inc. This oral agreement was modified at the behest of Amalex, Inc. on or about March 19, 1982, so as to reduce the compensation of the Respondent. The Respondent's new compensation under the modified arrangement provided for a 60% draw against commissions for new business and a 50% draw against commissions on renewal business. The Respondent received payments from Amalex, Inc., totaling $5,980 as advances on commissions for times pertinent to the allegations in the Complaints. The regular course of business practice established by Amalex, Inc. with the Respondent, required the Respondent to forward premium collections within 45 days of receiving a statement or bill from Amalex, Inc. During the period August, 1981, until December, 1981, numerous discussions and negotiations were had between the Respondent and Mr. Gibson in an effort to work out the details of the employment terms between Respondent and Amalex, Inc. Additionally, these negotiations hinged somewhat upon a proposed merger of Durham and Company and Amalex, Inc., which never occurred. In any event, the Respondent held the good faith belief that during the period of time from August, 1981, through December, 1981, until their business relationship got successfully started, that he had been authorized by Mr. Gibson to retain all premiums on commercial lines policies written by his office. In his testimony, Mr. Gibson disagreed with the Respondent's version of their arrangement concerning business insurance premiums. There was clearly a disagreement between Gibson and Respondent as to what the terms of the Respondent's compensation were to be. In fact, the Respondent received notice no later than March 19, 1982, in a letter from Gibson to the Respondent, that indeed there was a dispute as to his compensation arrangement and the manner in which he was to remit premium payments to Amalex, Inc. In a letter to Mr. Gibson of May 27, 1982, the Respondent reveals his recollection of the oral agreement and states it to be his belief that he was authorized to retain commercial account premiums only from September 1, 1981, through December, 1981. The letter reveals, by its content, that he was aware that Amalex, Inc. opposed his retention of commercial policy premiums, at least after December, 1981 (Respondent's Exhibit 5, in evidence). The Respondent was clearly not permitted by Amalex to retain all premiums collected on commercial policies sold by him during the entire period of their business relationship. Indeed, many of the commercial accounts were, in fact, paid when collected, in whole or in part, by the Respondent during the business relationship with Amalex which extended through most of 1982. One account, the American Legion Policy Account, eventually was paid in full by Respondent to Amalex. The Respondent's testimony and that of his former employee, Ernest Middleton, is at odds with that of Mr. Gibson, the president of Amalex and the Respondent's own testimony, in different portions of the record, is to some extent, inconsistent. At one point the Respondent indicated that he was authorized to retain all commercial premiums for coverage of his office operating expenses. At another point, both he and Middleton testified there was an allowance of $1,200 a week from Amalex for expenses to run the office. At still another point, by way of an exhibit (Petitioner's Exhibit No. 13 in evidence), the Respondent appeared to be of the belief that the expense allowance from Amalex was to be $400 per week for operating his office. In any event, by his letter of May 27, 1982, to Amalex and Mr. Gibson, the Respondent clearly reveals it to be his belief that the authorization to retain all commercial account premiums did not extend beyond December, 1981, which arrangement is more logical since it was, in the Respondent's own words, an arrangement to cover expenses until the business "got rolling." Thus the Respondent knew no later than May 27, 1982, by his own admission, that he was expected, after December, 1981, to forward all premium payments, both on personal lines and commercial lines policies to Amalex or the policies would be cancelled. This letter, the letter of March 19, 1982, from Mr. Gibson to the Respondent, portions of the Respondent's testimony, as well as the testimony of Mr. Gibson and his employee Mary Stratton, taken together, belies the Respondent's assertion that he could retain the commercial premiums to cover his own office expenses without accounting for them and forwarding them to Amalex. Such was clearly not the case after December 31, 1981, at the very latest. The Respondent additionally had agency contracts with Frank MacNeill and Son, Inc., a General Agent, for which concern the Respondent wrote insurance policies. These contracts required him to forward premium collections within 30 days of receipt of them from the insured. On or about March 20, 1984, the Respondent sold to Ollie Rodgers an automobile insurance policy and collected $211 from Mr. Rodgers as a down payment and also received $428 from National Premium Budget Plan for financing the balance of the premium payment over time. Count 1 of the Administrative Complaint involves solely the Ollie Rodgers policy. That policy was brokered through Frank MacNeill and Son, Inc. This only count concerning the MacNeill business arrangement with the Respondent does not charge a general failure to remit premiums to MacNeill in violation of the agency agreements and Chapter 626, Florida Statutes. Thus, although evidence is of record concerning the Ollie Rodgers incident and several thousand dollars in disputed other premium amounts MacNeill maintains the Respondent owes it, the charge in the Administrative Complaint concerning MacNeilles and the Respondent's business arrangement, and the question concerning the withholding of premiums due MacNeill, only concerns the Ollie Rodgers' policy and account. The alleged failure of the Respondent to remit several thousand dollars in premiums owed to Frank MacNeill contained in the testimony of Petitioner's witnesses at hearing, specifically Joe McCurdy, the secretary- treasurer of Frank MacNeill and Son, Inc., is not the subject matter of any charge or allegation in the Administrative Complaint. Mr. McCurdy testified that the Respondent had ultimately paid all monies due Frank MacNeill except for $734.23 in court costs and attorneys fees. He was the only witness testifying concerning the Frank MacNeill business arrangement and none of his testimony linked the premiums paid by Ollie Rodgers to the Respondent with any delinquent premium amount actually owed Frank MacNeill and Son, Inc. There was no testimony tying the account balance which Pennington ultimately paid MacNeill, after litigation ensued, with the Ollie Rodgers account and premium amount paid to the Respondent by Rodgers. There is no specific proof that the Ollie Rodgers account itself was unpaid by the Respondent. From March 4, 1982, to November 9, 1982, the Respondent received premium payments from one Irving Herman in the amount of $7,161 on a commercial insurance premium account. The Respondent forwarded some of these funds to Amalex, Inc., but an outstanding balance of $2,353 remains which has not been paid by the Respondent to Amalex. The Respondent has asserted that he could lawfully retain this balance because it was a commercial account and he was authorized to keep all premiums for commercial insurance to pay his office expenses. For the reasons found above, the Respondent was not authorized to retain any commercial premium funds in his own account and in his own business after December, 1981, as he admits himself in his letter of May 27, 1982, to Gibson of Amalex, Inc. The Respondent was required to forward all the premium payments attributable to the Herman policy, and in this instance, he forwarded only some of them, without accounting to Amalex as to why he retained the balance of the Herman premiums. The Respondent also collected $799 in premium payments from Irving Herman on an individual insurance policy. The Respondent forwarded most of this premium to Amalex, Inc. but retained $95 of it. The business practice of Amalex was to send a monthly statement to the Respondent detailing amounts payable on new business. When a policy was sent to the Respondent for coverage he had written, an invoice was included. Additionally, Amalex and its president, Mr. Gibson, sent numerous letters to the Respondent requesting payment of the large amount of past due accounts. The premium amounts paid by Mr. Herman for his individual policy and his commercial policy to Respondent was received on behalf of his General Agent, Amalex, a substantial amount of which he failed to remit. Since the above amounts were not remitted to Amalex, Inc. by the Respondent, it can only be inferred that he used the unremitted funds for his own purposes. On September 23, 1982, or thereafter, the Respondent collected premium payments from Joseph S. Middleton on behalf of his company, Florida Lamps, Inc., in the amount of $1,467. The Respondent remitted a portion of this to Amalex, but retained $917.55. This premium, for insurance for that business, was collected for insurance written well after the Respondent was on notice from Amalex that he was not authorized to retain premiums collected on commercial lines or business insurance, as found above. A monthly statement, invoice, as well as numerous letters were directed from Amalex to the Respondent requesting payment of this past due amount, to no avail. Thus, the above- referenced balance of the premiums related to the Florida Lamps, Inc. insurance policy and account were retained by the Respondent for his and his agency's own benefit and use rather than remitted to Amalex, the entity entitled to them. The Respondent failed to properly account to Amalex regarding the use of or the whereabouts of these funds. On or about October 20, 1982, the Respondent received from Eric Gunderson, on behalf of Eric's Garage, $182, which represented the premium down payment on a garage liability policy, a type of commercial-lines insurance. About the same time, the Respondent also received $438 as the remaining balance., on the premium on this policy from the Capitol Premium Plan, Inc., a premium financing company. This premium payment was received by the Respondent well after notice by Amalex, his General Agent, that it was not acceptable for the Respondent to retain commercial account premiums on policies written for companies for whom Amalex was General Agent. None of this premium payment was ever forwarded to Amalex, even after repeated demands for it. Rather, the premium funds were retained by the Respondent and used for other purposes. On March 3, 1982, the Respondent sold to Citiweld Welding Supply, a package business policy including workers' compensation coverage issued by the Insurance Company of North America through Amalex, Inc., as its General Agent. The Respondent collected a total of $2,162.62 in premium payments from Citiweld. He collected those payments in six monthly installments following a down payment of $500. The Respondent made monthly payments of $163 to Amalex, Inc., and then later monthly payments of $153. The Respondent collected a total of $2,162.62 which was $80.62 in excess of the actual premium due on the policy. This policy was not financed by a financing agreement, which might be characterized by an additional financing fee, thus the Respondent collected $80.62 in excess of the amount of premium due on the policy. The Respondent ultimately remitted to Amalex a total of $1,275. Thus, $807 is still due and owing to Amalex by the Respondent. The Respondent, according to his own former employee, Earnest Middleton, was collecting an additional $20 a month service charge on the Citiweld account. There is no evidence that he was authorized to collect the additional $20 per month service charge, and no portion of that service charge was ever forwarded to Amalex. It was retained by the Respondent. The fact that the Respondent was making periodic monthly payments to Amalex during this period, without the existence of a financing agreement with the insured, corroborates the position of Amalex, established by Mr. Gibson and Ms. Stratton, that there was no authority to withhold commercial account premium payments at this time, and that premiums due Amalex from the Respondent were to be paid pursuant to monthly statements or billings sent to the Respondent. Ms. Stratton's and Mr. Gibson's testimony in this regard is corroborated by the letter of March 19, 1982, to the Respondent from Gibson (in evidence), wherein he was informed that such commercial insurance business and related premiums should be billed and paid for on a monthly basis. On or about August 31, 1981, Respondent sold a package workman's compensation policy to B & L Groceries, Inc. to be issued through Amalex, Inc., who represented the insurance company for whom the policy was written. The Respondent received approximately $3,350 from B & L Groceries, which represented the premium on the above policies. The premium payments were not forwarded in the regular course of business to Amalex, the General Agent. On or about December 17, 1981, the Respondent sold to B & L Seafood Restaurant, Inc., a package commercial insurance policy and endorsement also issued through Amalex. The Respondent collected $2,112 premium on that policy. That premium was not forwarded in the regular course of business to Amalex. On September 1, 1981, the Respondent sold to Parker's Septic Tank Company, a general liability and business automobile insurance policy, also issued through the General Agent, Amalex, Inc. He collected from that business approximately $2,542 as premium payment on the insurance policies. The automobile policy was cancelled thereafter, such that a total net premium of $1,056 remained due and owing to Amalex, which the Respondent failed to forward in the regular course of business. These policies sold to B & L Groceries, B & L Seafood Restaurant and Parker's Septic Tank Company, were sold during the time when the Respondent believed that he was authorized by Amalex, Inc., and its president, Mr. Gibson, to retain premiums on all such commercial or business insurance policies to cover his office expenses, and thus it cannot be found that he willfully retained and misappropriated those premiums, although Amalex's entitlement to those premiums was later the subject of a civil action between the Respondent and Amalex, Inc., such that Amalex did demand payment of those premiums, which the Respondent failed to do. On or about March 4, 1982, the Respondent sold to The Cypress Gallery a package business insurance policy and endorsement issued through Amalex, Inc. The Respondent collected at least $883 from The Cypress Gallery, representing the earned premium on that policy which was cancelled on July 22, 1982. He failed to forward the earned premium in the regular course of business to Amalex, the General Agent. On March 16, 1982, Respondent sold to Eurohouse Custom Builders, Inc., fire, general liability, automobile and builder's risk policies together with several endorsements issued through Amalex, Inc. He collected premium payments on those policies in the earned amount of $1,197, although the policies were later cancelled after that amount of premium was earned by the insurance company and Amalex. He failed to forward the $1,197 earned premium to Amalex in the regular course of business. On July 9, 1982, the Respondent sold to Byron Hood, a package commercial insurance policy and automobile policies issued through Amalex, Inc., on which the Respondent collected a total premium amount of $1,430 from IMAC, a premium finance company. The Respondent failed to forward this premium amount in the regular course of business to Amalex, Inc. On May 14, 1982, the Respondent sold to Jeanes Swap Shop, a package commercial insurance policy with an endorsement which was issued through Amalex, Inc., and upon which the Respondent collected and received a $314 premium. The Respondent forwarded most of the premium to Amalex, but failed to forward $39 of it. On or about March 31, 1982, the Respondent sold to Lawns Unlimited a commercial policy issued through Amalex, Inc. The Respondent collected and received from Lawns Unlimited $816, which represented the premium payment for that policy. This premium payment was never forwarded to Amalex in its entirety and an earned premium of $242 is still due Amalex as General Agent. On or about July 2, 1982, the Respondent sold to Robert Lewis a package commercial insurance policy issued through Amalex. The Respondent received $500 from Lewis as a premium payment for that policy. The Respondent failed to forward $150 of that premium to Amalex. On or about April 1, 1982, the Respondent sold to Joe Strickland a homeowners and boat insurance policy issued through Amalex, Inc. He collected a premium from Mr. Strickland in the amount of $353 which he failed to forward in the regular course of business to Amalex, the General Agent. This was a personal homeowners and marine insurance policy issued to Mr. Strickland, and the $353 premium could not possibly have been the subject of any misunderstanding concerning Respondent's retention of it for coverage of office expenses. On April 30, 1982, the Respondent sold to "Pop-a Top Lounge" a general liability and fire insurance policy issued through Amalex, Inc. The Respondent collected a premium of $647 on that policy and failed to forward it in the regular course of business to Amalex, the party entitled to it as General Agent. Near the end of 1982, the Respondent sold to Arnold Construction Company various endorsements on its existing business insurance coverage so as to add coverage for additional motor vehicles. That policy and the endorsements were issued through Amalex, Inc. The Respondent collected from Arnold Construction Company a premium payment in the amount of $1,302 and failed to forward it in the regular course of business to Amalex, the General Agent. Numerous requests were made of the Respondent by Amalex, Inc. for the payment of the delinquent premiums the Respondent owed it on all outstanding accounts beginning in March, 1982. In October, 1982, Amalex began requiring cash remissions with applications for insurance written by the Respondent. The Respondent has failed to pay the outstanding account balances representing premium trust fund payments due to Amalex, Inc., such that in excess of $18,000 in outstanding premium payments have not been remitted to that firm. It is true that two of the amounts billed and depicted on Exhibit No. 12 as constituting that approximate $18,000 outstanding premium payment amount, represent $1,368 and $174 for business written in November and December of 1981, during which time the Respondent was under the genuine belief that he had an agreement with Amalex, Inc., to retain in his office all business insurance premium payments. Even though that is the case, and the B & L Groceries, B & L Seafood and Parker Septic Tank Co. premiums are attributable to this time period, the fact remains that the greater portion of the disputed approximate $18,000 amount remains outstanding and has never been paid by the Respondent to Amalex, Inc., the entity entitled to the funds. The amounts collected and not remitted by the Respondent on the insurance accounts delineated above constitute trust funds held in a fiduciary capacity by the Respondent on behalf of the General Agent, Amalex, Inc., who is General Agent for the insurance companies for whom the Respondent wrote the policies.1 The Respondent thus misappropriated these trust funds by failing to remit them in a timely fashion to the General Agent, Amalex, Inc., in the regular course of business. Although the Respondent clearly failed to properly account for and deliver the subject funds, there is no evidence to show that the Respondent was guilty of faulty record keeping in his own agency. In fact, Petitioner did not adduce any competent, substantial evidence to indicate what manner of record keeping the Respondent engaged in, good, bad or indifferent.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the Respondent, John Wayne Pennington's General Lines Insurance Agent's license be suspended for a period of two years, in accordance with Section 626.641, Florida Statutes. DONE and RECOMMENDED this 3rd day of March, 1986 in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1986.
The Issue Whether Respondents committed the violations alleged in the Administrative Complaints, and, if so, what penalties should be imposed on either or both of them.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Respondent, Eduardo Enrique Mendez ("Mendez"), at all times material to this matter, was a licensed insurance agent subject to the regulatory jurisdiction of the Petitioner. Petitioner issued Mendez license number A176292. Mendez is licensed as a 2-18 life and health agent and a 2-20 general lines agent for the sale of property and casualty. Mendez first started in the insurance business in 1969 while in Panamá. He came to the United States in 1988. In South Florida, he has been known as "Mr. Panama" in the insurance industry for approximately 20 years. Respondent, Insurance Resources of the Americas, Inc. ("Insurance Resources"), is and was, at all times material in this matter, a corporation registered as a Florida insurance agent subject to the regulatory jurisdiction of Petitioner, having been issued license number R054007. Mendez is the corporation's owner and president. Insurance Resources typically handles all kinds of property and casualty insurance, but for approximately the last six years has specialized in the used car dealer business by providing bonds for the car dealers to open their operation. Bass Underwriters ("Bass") is a managing general agent which works with insurance agents who purchase insurance for their customers. Bass has no direct relationship with the customers only with the retail agent who is responsible for collecting the premium. On January 22, 2003, Insurance Resources, as producer, and Bass signed a producer agreement which allowed Insurance Resources to sell insurance through Bass or certain carriers that Bass obtains as a wholesaler. Insurance Resources received commissions as compensation under the agreement. The agreement contained a provision which guaranteed the collection of additional premiums that might arise as a result of an audit of the insurance customers. The provision provided in relevant part: Producer shall be liable to Bass Underwriters, Inc. for the full amount of premium, fees and applicable sum taxes, less commission, including additional and/or adjustable premiums developed under audits or applicable rating plan on every insurance contract placed by Producer through Bass Underwriters, Inc. Producer shall remit Twenty Five Percent (25%) of the premium upon binding. The full amount of premium, fees and applicable state taxes, less commission is due to Bass Underwriters, Inc. not later than the 15th day of the first (1st) month after the effective date of such contract, audit, rating plan, or other adjustment. During the term of the producer agreement, three policies were issued that Bass determined additional premiums were owed by Insurance Resources. On June 29, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, L. Boulevard Café, in the amount of $6,955.00. L. Boulevard Cafe, a restaurant, obtained a Century Surety policy through Insurance Resources effective November 15, 2004. In making the application, the restaurant declared a certain amount of projected sales. The premium was based upon the total sales recorded by the customer. Century Surety did a self audit and determined that the amount of sales was significantly more than the coverage. Subsequently, the carrier went back and assessed additional premiums to make up the difference between the amount of coverage represented and the self reported amount, which totaled $6,955.00. Around August 2005, after receiving the Bass invoice with the additional premiums, Insurance Resources notified L. Boulevard Café about the invoice and explained that the additional insurance premium of $6,955.00 was owed because of the difference in the amount calculated from the audit. Mendez notified Rafael Garcia, prior owner of L. Boulevard Café, about the additional insurance premium but L. Boulevard Cafe was having financial problems. L. Boulevard Café never made the additional premium payment. On July 1, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Winner's Circle, in the amount of $418.00. Winner's Circle obtained a XL Specialty Insurance Company policy through Insurance Resources effective May 23, 2005. An inspection was performed after the policy quote was bound and issued. The subsequent inspection concluded that the construction code of the building was different from the construction code represented on the application. The difference triggered a premium increase of $418.00. When Insurance Resources found out about the additional premium for Winner's Circle, Mendez sent an invoice explaining the increase and requesting payment. Winner's Circle refused to pay the amount because the policy was issued under a lower premium. Winner's Circle decided not to keep the policy when Respondent requested that they make payment of the additional premium amount and the balance of the premium on the policy. Payment was never made. The policy was cancelled. The account was credited and the final total owed was $160.40, which Bass became responsible for with the carrier. On July 11, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Venecar, Inc., in the amount of $1,298.00. Venecar, a small used car dealership, obtained a Century Surety policy through Insurance Resources effective July 18, 2004. The insurance inspectors did an inspection after the policy was issued and determined that one more employee and driver than had been represented in the application existed and that employee generated a change in the rating for the premium, which Bass ultimately decided was an additional premium of $1,298.00. After Insurance Resources learned about the results of the inspection, Mendez called Bass and told Ms. Rodriguez, the accountant, that the premium increase of $1,298.00 was too high and could not be the proper rate for one driver because one driver should be around $400.00. Bass ignored Mendez's proposition. Subsequently, Mendez told Venecar about the outstanding premium amount owed and they refused to pay. Insurance Resources followed up and contacted Venecar several more times requesting the additional premium payment to no avail. Soon thereafter, Venecar closed. Mendez reported his efforts to Bass while he tried to collect the three changed premium amounts. Insurance Resources never collected the additional premium from L. Boulevard Café, Winner's Circle, or Venecar even though Mendez repeatedly sought to get the outstanding premiums from all three insured customers. Despite Respondents best efforts, they never received any of the additional premiums that accrued. Bass still expected Insurance Resources to pay the additional premiums pursuant to the producer agreement. On May 1, 2006, Bass sent Insurance Resources a statement of account. The invoice statement informed Insurance Resources that the premium due for the three different accounts totaled $8,021.39. The statement outlined the amount owed from each insured. After Bass made several demands for the three accounts, Bass submitted the account to collections and the matter ultimately ended in litigation. On November 5, 2007, a final judgment was entered against Insurance Resources in favor of Bass for the principal of $8,021.39, costs of $275.00, and prejudgment interest of $1,298.14, for a total of $9,594.53. The judgment remains unsatisfied. On February 15, 2008, Insurance Resources paid $1,919.00 on the judgment. On February 29, 2008, Insurance Resources paid $640.00 on the judgment. There is a balance owed of $7,035.53. Insurance Resources also had a relationship with AAPCO, a premium finance company that financed the balance of what an insured could not pay. Respondent Insurance Resources was an authorized entity to accept premium finance contracts utilizing AAPCO premium finance. Insurance Resources had the authority to write check drafts on AAPCO's bank account for the entire premium amount owed on a customer's insurance policy and remit it to the insurer. Respondent would then submit the policy application together with the premium down payment received from the consumer to AAPCO, which would finance the rest of the policy premium. In 2009, Insurance Resources was having problems financially. Mendez approached Mrs. Blanco, AAPCO's office manager, and told her Insurance Resources sales had dropped fifty percent. Mendez, on behalf of Insurance Resources requested to make a payment arrangement.1 Blanco refused to make any type of arrangements. She insisted that Insurance Resources pay everything up front. Mendez approached her several more times but she would not negotiate. At one point, Mendez even requested that AAPCO place the $4,000.00 in producers fees owed to Insurance Resources against the monies owed and she refused to pay Respondent the $4,000.00 In 2009, Mendez submitted three checks to AAPCO's as down payments for insureds' accounts. Check number 1347 was for $10,228.47. The check was from account number 2000034377804 Mr. Panama Inc.'s account. Check number 1342 was from the same account in the amount of $2,828.15. However, check number 159 was for $3,368.44 from Insurance Resources account number 2000040742805. Checks 1347, 1342, and 159 totaled approximately $16,425.00. The funds were intended to be premium down payments on insurance policies purchased by Florida insurance consumers. Insurance policies were issued for each of the checks for down payments for insured's accounts Insurance Resources submitted. AAPCO deposited the three checks and they were submitted to the bank for negotiation. Each check was returned for insufficient funds. AAPCO attempted to collect the money for the three checks that were returned for non-sufficient funds. AAPCO demanded payment of the funds and even called Mendez in an effort to collect the funds. Mendez admitted at hearing that the three checks bounced because he had used the funds for his business operating account since the business was doing bad financially. Insurance Resources had not yet repaid AAPCO their monies owed for the three checks. AAPCO has suffered a financial loss due to nonpayment. After nonpayment, AAPCO turned the matter over to AAPCO's legal department. After an investigation, Petitioner charged Respondents with numerous violations by separate Administrative Complaints dated April 21, 2010. The Charges: In Count I of the Administrative complaint filed against Mendez, Petitioner charges Mendez with violations of sections 626.561(1), 626.611(7), (9), (10), and 626.621(4), Florida Statutes, for failing to remit all premiums due to Bass. In Count II, Petitioner charges Mendez with violations of sections 626.561(1),626.611(7), 626.611(9) and (10), and 626.621(4) for submitting the three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand. In Count I of the Administrative complaint filed against Insurance Resources, Petitioner charges Insurance Resources with violation of sections 626.561(1),626.6251(5)(a),(d),(f),(j), and (k) for failing to remit all premiums due to Bass.2 In Count II Petitioner charges Insurance Resources with violations of sections 626.561(1), and 626.6251(5)(a),(d), (f),(j), and (k) for remitting three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order that: (a) finds Respondents not guilty as charged in Count I, of the Administrative Complaints; (b) finds Respondents guilty in Count II; (c) suspends Respondent Mendez's license for 12 months with reinstatement conditioned upon repayment to AAPCO; and (d) suspends Respondent Insurance Resources' license for three months with reinstatement conditioned upon repayment to AAPCO. DONE AND ENTERED this 28th day of February, 2011, in Tallahassee, Leon County, Florida. S JUNE C. MCKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 2011.
The Issue 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
