The Issue The issue in the case is whether Respondent received an insurance premium payment from a client and failed to remit it to the insurer in order to obtain insurance for the client, in violation of Sections 626.611(4), (5), (7), (8), (9), (10), and (13), 626.621(2) and (6), 626.9561, 626.9521, and 626.9541(1)(e)1. and (o)1.
Findings Of Fact At all material times, Respondent has been licensed as a Surplus Lines Agent, Life and Health (debit) Agent, Life Agent, Life and Health Agent, and General Lines Insurance Agent. On July 22, 1988, Charles M. Wilks visited the office of Respondent to purchase insurance on his automobile. Respondent quoted him a premium of $1257 for a one-year term commencing August 19, 1988. Mr. Wilks decided to purchase the insurance at the quoted premium. Accordingly, he gave Respondent a check in the amount of $1257 payable to Respondent's insurance agency. The same day, Respondent gave Mr. Wilks an agency receipt and Temporary Binder and Receipt effective from August 19, 1988, through August 19, 1989. The temporary binder showed the insurer as Dairyland Insurance Company. Respondent caused the check to be promptly cashed and credited to his agency's account. However, Mr. Wilks never received a policy. His wife called the agency every week after the policy did not arrive promptly. But she was unsuccessful in obtaining the policy despite promises by employees of the agency that they would mail the policy to the Wilkses. Upset because the automobile was no longer covered by insurance, Mr. Wilks visited Respondent at his office in November and demanded a policy. Respondent stated that Dairyland could not insure the type of car for which Mr. Wilks sought insurance because the car was a special customized model. In fact, Respondent had never submitted the application for insurance or the premium to Dairyland for issuance of a policy. Respondent convinced Mr. Wilks to purchase the insurance from a different company. Refunding one-half of the previously paid premium, Respondent issued Mr. Wilks a certificate of insurance that purportedly reflects coverage for the automobile from November 7, 1988, through November 7, 1989, from Clarindon National. Respondent again failed to submit the policy application to the insurer. When Mr. Wilks had still not obtained a policy by January, 1989, he went to Respondent's office, but learned that he had moved. After some effort, Mr. Wilks tracked down Respondent and demanded the return of the remaining premium payment that he had previously made. Respondent finally gave Mr. Wilks a check for the balance. Taking the check immediately to the bank, Mr. Wilks received payment on it. Dairyland was less fortunate with Respondent's checks. By letter dated October 19, 1988, the insurer informed Respondent that his authority to write insurance for the company was withdrawn effective December 12, 1988. As of February 14, 1990, the sum owed to Dairyland by Respondent's agency totalled $1049.43 in nonsufficient funds checks.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance enter a Final Order revoking all of Respondent's above-described licenses. DONE and ORDERED this 29 day of March, 1989, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29 day of March, 1989. Copies to: Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Don Dowdell General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Nancy S. Isenberg, Attorney Division of Legal Services Department of Insurance 412 Larson Building Tallahassee, FL 32399-0300 Anthony Brooks 500 E. Semoran Blvd., Suite 32 Casselberry , FL 32707
The Issue Whether, upon proof of eligibility, pursuant to Sections 624.401 and 624.404, Florida Statutes, Petitioner may be granted a Certificate of Authority to transact business as a property and casualty insurer in the State of Florida.
Findings Of Fact Petitioner Dallas National Insurance Company (Dallas National) is a Stock Insurance Company, domiciled in Texas, with headquarters in Dallas, Texas. It writes predominantly small business liability insurance and workers’ compensation insurance, both of which fall in the property and casualty classification of insurance, generally. Respondent Office of Insurance Regulation (OIR) is the State Agency responsible for licensing and regulating insurance in Florida. Absent a Florida license, Petitioner Dallas National cannot legally write or sell insurance in this state. Dallas National is a successor in interest to Dallas Fire Insurance Company (Dallas Fire) and California Indemnity Insurance Company (California Indemnity). California Indemnity was previously licensed to do business in Florida. Its license to do business in Florida was revoked by OIR in 2006, while Dallas Fire and California Indemnity were transitioning into Dallas National, as more fully described infra. In 2006, Petitioner Dallas National filed an application for a certificate of authority as a foreign property and casualty insurer to write lines of workers' compensation and employer’s liability insurance in Florida. That application was denied on December 1, 2006. Petitioner reapplied for a Florida license in 2008, and was denied by a letter from Respondent, dated September 17, 2008. It is this letter and present application and denial that are at issue herein. The September 17, 2008, denial letter incorporated parts of the earlier December 1, 2006, denial letter. (See Preliminary Statement). Dallas Fire was a property and casualty insurer authorized to do business in Texas and Oklahoma, which was acquired by Charles David Wood in July 2002. In December 2003, Dallas Fire, by consent of Mr. Wood and its Board of Directors, was placed under administrative supervision by the Texas Office of Insurance Regulation. By mutual agreement, the Texas regulatory agency’s oversight was not made public, and Mr. Wood continued to manage the company through his own staff, while taking instruction and advice from the Texas regulator. Texas lifted its oversight after approximately 19 months. During this period of time, and for years before and after, Betty Patterson was a Texas Deputy Commissioner of Insurance. At about the same time in 2002, that Mr. Wood accepted Texas’ regulatory oversight, a search was conducted and Chris Nehls was ultimately selected as a replacement corporate president for the company that ultimately became Dallas National. Mr. Nehls continues as president of Dallas National and has final responsibility for all operations, underwritings, claims handling, profits and losses, accounting and finance, and any of the operation and technical functions within the company. He had oversight of Dallas National’s successive license applications to OIR in 2006 and 2008. In 2005-2006, Mr. Wood, with approval by the Texas and California insurance regulatory agencies, acquired California Indemnity, a property and casualty insurer licensed in the State of California and 30 other states. When purchased, California Indemnity had a number of old regulatory actions pending against it by California’s Department of Insurance. California’s insurance regulator’s agreement/acquiescense in Mr. Wood’s purchase of California Indemnity was conditioned on (1) Mr. Wood’s transferring California Indemnity to Texas, where it would be merged with Dallas Fire to become Dallas National; (2) Dallas National’s removing the word “California” from its corporate name by December 31, 2005; and (3) the re-domesticated company’s not writing any insurance in California until California’s insurance regulatory agency approved. This agreement has kept Dallas National under California regulatory scrutiny since that time. Dallas National continues to invite California to inspect its offices, its books, and its business activities, but Dallas National has yet to formally petition for a license in California.1/ On January 2, 2006, effective December 31, 2005, the merger of Dallas Fire and California Indemnity into Dallas National Insurance Company was approved by the Texas Department of Insurance. This effected the name change in a timely manner under Dallas National’s agreement with California. However, Dallas National did not fulfill the letter of its agreement with the California regulator, because the paperwork for finally divesting itself of the word “California” was not completed and filed with California until September 12, 2007. California has neither prosecuted nor fined Dallas National for this delay, and despite a 2003, California violation by Dallas Fire, continues to be willing to work with Dallas National towards California licensure. (Cf. Findings of Fact 66-70). At the present time, Dallas National is licensed as a property and casualty insurer in 39 states and the District of Columbia. Respondent correctly points out that because Dallas National acquired approximately 30 states’ licenses at the same time it re-domesticated California Indemnity and renamed Dallas Fire, Dallas National and Mr. Wood have not proven themselves in the same way as if Dallas National had acquired 30 new licenses on its own. Even so, it appears that, since 2003, at least six states have found Dallas National, and derivatively Mr. Wood, to be honest, competent, and trustworthy enough for licensing purposes. In direct contrast, OIR has pronounced Mr. Wood and Dallas National not sufficiently honest, competent, and trustworthy to be licensed to write insurance in Florida. (See Preliminary Statement). After forming Dallas National in 2002-2003, its principals concentrated on a business model wherein Dallas National would provide workers’ compensation insurance coverage for the “employee staff leasing companies” a/k/a “professional employer organizations” (PEOs) owned by Mr. Wood. Petitioner’s business theory is that Dallas National benefits from more timely and effective underwriting and claims processing because of its access to a PEO’s payroll and computer systems and otherwise benefits from close communication with staff leasing personnel. Mr. Wood owns PEOs operating in many of the states in which Dallas National does business. He opened his first PEO in 1991, and his first PEO in Florida in 1998. AMS Staff Leasing, Inc., AMS Staff Leasing II, Inc., and Equity Group Leasing I, Inc., are PEOs catering to different types of small businesses and authorized and licensed to do business in Florida. They are all owned 100 per cent by Mr. Wood. AMS Staff Leasing, Inc., does most of the staff leasing business in Florida. (Hereafter, AMS Staff Leasing Inc., and AMS Staff Leasing II, Inc., will be referred to as “AMS” and Equity Group Leasing I, Inc., will be referred to as “Equity.”) Companion Property and Casualty Insurance Company (Companion) is domiciled in South Carolina and is an OIR- authorized property and casualty insurer in Florida. Companion currently provides workers’ compensation coverage to Mr. Wood’s Florida PEOs, AMS and Equity. At the present time, DNIC Insurance Holdings, Inc., a holding company owned 100 per cent by Mr. Wood, owns Jefferson Life Insurance Company and, through another entity, owns Petitioner herein, Dallas National Insurance Company. At the present time, Aspen Administrators, Inc. (Aspen), is a Florida-licensed “third party administrator.” Aspen is owned 100 per cent by Mr. Wood. Aspen now processes workers’ compensation claims for Companion in Florida. Previously, it processed claims for Providence Property and Casualty Insurance Company (Providence) in Florida. Aspen also handles workers’ compensation claims on behalf of Dallas National in a number of other jurisdictions. Dallas National or Companion can cease to do business with Aspen and hire another third party administrator at any time. However, due to Mr. Wood’s and Dallas National’s preferred business model, that is an unlikely prospect for Dallas National. Florida PEOs provide a valuable service for small business owners. A PEO can obtain affordable workers’ compensation coverage for a large group of employees and lease those employees to several small businesses which otherwise could not operate. PEOs, like other employers, frequently contract for provided bundled services by third party administrators who perform all the claims handling, payroll tax, human resources services, and other personnel services for the PEO-employer. In Florida, as in most states, a PEO or staff leasing company must obtain workers’ compensation coverage through a master policy covering all employees the PEO employs and then leases to small businesses. California has no PEO/staff leasing law, and individual workers’ compensation policies must be purchased by the PEO to cover each entity to whom the PEO leases employees. This difference has caused both California and Dallas Fire/Dallas National some problems in the past. (See Finding of Fact 67). Although common ownership of an insurer and affiliated PEOs is not prohibited by Florida statute or rule, and although Lion Insurance Company, Southern Eagle Insurance Company, and Frank Crum Insurance Company are all licensed in Florida as property and casualty insurers providing workers’ compensation coverage to employers located in Florida, and although each of these companies, like Petitioner Dallas National, is owned by a single person or entity and is affiliated with a PEO which the 100 per cent individually-owned insurer insures in the State of Florida, OIR is concerned about the inter-relationships of the various entities in this case and with the fact that, as 100 per cent shareholder of all of those entities, Mr. Wood is the “controlling shareholder.” OIR witnesses testified that the Agency views it as critical that a PEO and its insurer be separated so that claims are handled and reported properly. OIR also asserted that all three of the other similarly structured companies and affiliates differ from Dallas National because they use unaffiliated third party administrators, but that was demonstrated only as to one such insurer, a start-up company with no compliance history. PEOs obtain their own Florida licenses, subject to regulatory oversight. (See §§ 468.524—468.535, Fla. Stat.). Third party administrators obtain their own Florida licenses, subject to regulatory oversight. (See §§ 626.8805 and 626.891, Fla. Stat.). Insurance companies obtain their own Florida licenses, subject to regulatory oversight. (See Conclusions of Law). No Florida statute or rule prohibits 100 percent ownership of the stock of an insurance company by a single individual. In short, there is no Florida statute or rule that prohibits Petitioner’s business model, but it is clear from the testimony, and the candor and demeanor of OIR’s witnesses while testifying, that although the Legislature has authorized PEOs/staff leasing companies, OIR’s in-house witnesses see them as opportunities for abuse, and they simply do not like the concept of PEOs, which have been a legitimate business model in Florida since the 1990’s. Having eliminated those statements attributed to Agency employees in the course of litigation settlement negotiations and relying only upon their testimony at the instant hearing and statements made during the course of the two licensing processes related to this particular Petitioner, which statements reasonably constitute either Agency admissions against interest or the Agency’s rationale in the licensing process, it is clear that Respondent’s reviewers are holding any entity associated with Mr. Wood or with PEOs to a higher, or at least different, standard than other applicants for a Florida workers’ compensation insurance carrier’s license.2/ OIR’s Property and Casualty Financial Oversight Division’s review of the current Dallas National application raised concerns about Dallas National’s relationship with its affiliated PEOs. OIR wants assurance that there are sufficient checks and balances between the affiliated entities. “An adequate firewall,” was the term repeatedly used. What the desired “firewall” is supposed to accomplish was explained only to the extent that the Agency wanted to be certain that injured workers’ compensation claimants (employed by AMS) would be timely and correctly paid their workers’ compensation (indemnity), that their medical bills (medical) would be timely and correctly paid to their medical practitioners, and that Dallas National’s underwriting practices must provide sufficient reserves to cover the “long tail” of workers’ compensation injuries.3/ However, there is no OIR or Division of Workers’ Compensation rule defining an adequate “firewall.” The Agency just believes it is safer, or at least easier, to deny an out-of-state application than it is to monitor a questionable non-domiciliary carrier after licensing, even though Florida can, and does, audit out-of- state insurers. In 2006, Florida cancelled California Indemnity’s license to do business in Florida and required that Dallas National re-apply in its own name, which Dallas National promptly did. On December 1, 2006, Respondent OIR denied Petitioner Dallas National’s first application for Florida licensure. A formal proceeding under Section 120.57(1), Florida Statutes, ensued, and Petitioner Dallas National ultimately dismissed that proceeding and withdrew its 2006 application on the belief that if Dallas National reconstituted its Board of Directors with persons who were not already employees of Dallas National, OIR would grant its next application for a certificate of authority.4/ In 2007, Dallas National reconstituted its Board of Directors. All current members are highly qualified in the field of insurance. None have any adverse criminal or regulatory history. Five-ninths of the Board (a majority) are not Dallas National employees and not previously associated with any Wood enterprise. These new members are Laura Wehrle, Mike Pickens, Mick Thompson, Marta Prado Butterworth, and Betty Patterson. Ms. Wehrle was a senior vice-president of Liberty Mutual Insurance Company, which at the time of her service there had the largest book of workers’ compensation business in Florida. Ms. Wehrle’s area of expertise within Liberty Mutual was PEOs. Mike Pickens is the former Arkansas Commissioner of Insurance, who described Petitioner’s prior problems in that state as extremely minor. (In 2002, while Mr. Pickens was Arkansas Insurance Commissioner, Arkansas disciplined AMS for operating without a license for eight months). Mick Thompson is the current Oklahoma Commissioner of Banking. Marta Prado Butterworth is a successful, self-made business-woman in the health care industry. Betty Patterson was the Texas Deputy Commissioner of Insurance who oversaw Dallas National and who graduated Dallas National from that agency’s oversight. Ms. Patterson and Mr. Pickens have been accredited, active members of the National Association of Insurance Commissioners (NAIC) for many years. Ms. Patterson is a consistent award-winner in that society of state regulators. Both Patterson and Pickens joined Dallas National’s Board quite some time after the end of their terms of office in their respective states (after retirement for Ms. Patterson) and well after Dallas National had been returned to “business as usual” by their respective regulatory agencies. Charles David Wood is Chairman of the Board of Dallas National, but he is currently semi-retired and has been semi- retired from all of his businesses since early 2006. Neither he, the new five Board members, nor Mr. Nehls, who also currently sits on the Board, has ever declared bankruptcy or been arrested, indicted, or convicted of any crime. There also is no evidence that either of the other two members of the Board, who have personal and business relationships with Mr. Wood, has any adverse bankruptcy, criminal, or regulatory history. The Board members who testified herein vigorously defended their own integrity and that of Mr. Wood. All described Mr. Wood as the equivalent of a member emeritus or a supportive, but non-initiating, member of the Board who attends meetings on an irregular basis. All agreed that, with the exception of Mr. Wood, Dallas National now has a dynamic Board that has considerable regular “hands on” expertise and involvement in making Dallas National a better insurer, which is compliant with all regulatory agencies in each of the 39 different regulatory environments where Dallas National operates. None has found that any information has been withheld from the Board by any of Mr. Wood's enterprises. None has found it difficult to get any information sought from Dallas National employees. Except for Mr. Wood’s presence on the Board, the credentials and integrity of the new Board members are apparently not an issue for OIR, but OIR’s regulators are concerned because Dallas National’s by-laws permit removal of any director by a majority vote of the shareholders (that is, unilaterally by Mr. Wood) at any special meeting of the Board called for that purpose. There is no reason to suppose this is a situation unique to Dallas National. (See Finding of Fact 25). OIR also considers it “problematic” that several of Mr. Wood’s companies are housed on several floors of the same building at the same corporate address in Dallas Texas. Of particular concern were the first-hand observations of Susan Bernard, Bureau Chief of the San Francisco and Sacramento Offices of the Field Examination Division of the California Department of Insurance. She observed that administrators for Aspen were located in an open area of the same floor (or perhaps two floors below) Dallas National’s offices; that AMS employees were on the same floor as Dallas National; and that all shared the same computer systems. Added to other factors, Ms. Bernard and OIR interpret the foregoing as amounting to “comingling" and interactions not at “arm’s-length.” The portion of Aspen or AMS located in the same Dallas office building with Dallas National probably is more than just AMS’s and Aspen’s Texas operations, (see infra) but clearly, AMS and Aspen have offices in Florida and in other states in which they do business. Both Ms. Bernard and Stephen Yon, Senior Management Analyst II with the Florida Division of Workers’ Compensation, now part of OIR, testified that it was hard to distinguish where Aspen or AMS left off and Dallas National began in the various computer functions in the Dallas offices, but obviously, both regulators were eventually able to make distinctions, because each prepared reports based on doing so, and Mr. Yon was able to assess Florida fines accordingly. (See Findings of Fact 53-56). That said, computers undoubtedly link Dallas National with all its affiliates in every state, and there is no reason to suppose that computers do not link other insurance companies, to some degree at least, with the employers they insure, with their insured PEOs (such as AMS) if they have them, and possibly with the third party administrators (such as Aspen) for those PEOs. Aspen’s past reporting problems are a big part of OIR’s denial letter for Dallas National’s current application, as are violations of the Florida Workers’ Compensation Statute by both AMS and Aspen (see Findings of Fact 52-56), but no significant comparison was made at hearing between Aspen’s historical past errors and omissions and the historical accuracy of any other third party administrators. Also, no significant comparison was shown with regard to AMS’ past errors and omissions and those of any other PEOs. Another of OIR’s reasons for denying Dallas National’s current application was the alleged incompetency, untrustworthiness and/or “bad faith” performance of Mr. Wood in relation to a 16 days' gap of workers’ compensation coverage of AMS in Florida which occurred in 2002. Over the years, AMS has sequentially obtained workers’ compensation coverage in Florida from several insurance companies, among them Reliance National Insurance Company, CNA Insurance Company (CNA), Insurance Companies of America (ICA), Providence, and Companion. Relevant to OIR’s mistrust of Mr. Wood and its concerns with the 2002 gap of AMS coverage, were a one-million dollar deductible workers’ compensation policy for AMS issued by CNA prior to Mr. Wood's acquisition of Dallas Fire in July 2002. In the last quarter of 2001, CNA had advised AMS that CNA was preparing to stop insuring PEOs but that AMS’ CNA policy would be renewed for the period of September 1, 2001, through September 1, 2002, without cancellation during that period, but without renewal at its end. Nonetheless, in late February, or in March 2002, CNA issued a 30-day cancellation notice to AMS. AMS sued CNA, and the suit was settled with an agreement for CNA to continue workers’ compensation coverage in Florida for AMS through the end of June 2002. To eliminate any potential for a gap in coverage, AMS attempted to arrange for a replacement policy to be issued by Bankers Insurance Company (Bankers), based in St. Petersburg, Florida. At all times material, Bankers was a Florida insurer licensed by OIR. As part of this 2002 transaction, Bankers essentially mortgaged or pledged a stock it owned to Mr. Wood as security or collateral for a five-million dollar loan from him, and in turn, Bankers was to provide workers’ compensation coverage to AMS as of June 20, 2002, so that AMS would have no gap in coverage when CNA pulled out. However, Bankers never issued a workers’ compensation policy to AMS, and OIR submits that a “handshake deal” with Bankers demonstrated Mr. Wood's bad business judgment.5/ AMS next attempted to obtain its workers’ compensation coverage from Guerling Insurance Company. Guerling required a five-million dollar down payment of premium to issue a certificate of insurance to AMS for a policy to take effect at midnight on June 20, 2002. The down payment was made, but after relying for two weeks on the certificate of coverage obtained, AMS (in the persons of Mr. Wood and his personal attorney Mr. Reid) discovered that the certificate, purportedly from Guerling, was a fake.6/ As a result of the fake certificate of insurance, AMS had operated in Florida during a 16-day gap in its workers’ compensation coverage, so even though Mr. Wood personally paid all workers’ compensation claims which arose during the gap, AMS, as the employer of those workers’ compensation claimants, was required to cease business in Florida under a Division of Workers’ Compensation “stop work order” until AMS had obtained new Florida workers’ compensation coverage from yet another source and also had to pay a mandatory $189,000, fine to the Division of Workers’ Compensation, based on one-and-a-half times the premium AMS would have had to pay if it had been covered. Dallas National was not a party to any of the “gap” events. Settlements were reached with CNA and a lawsuit recovered Mr. Wood’s money from Bankers. Dallas National was not a party to any of the lawsuits. All of the foregoing events involving CNA, Bankers, Guerling Insurance, and Mr. Wood (with the exception of the ultimate recovery of Mr. Wood’s money) occurred in June-July 2002. The Texas regulatory agency did not approve Mr. Wood’s acquisition of Dallas Fire until later. See supra. Given the timing of events and the extraordinary efforts of AMS and Mr. Wood to ensure uninterrupted workers’ compensation coverage for AMS, plus Mr. Wood's covering AMS’ losses to workers’ compensation claimants out of his own pocket, the undersigned is not persuaded that AMS, Dallas National, Mr. Wood, or Mr. Reid evidenced any untrustworthiness, bad faith, or incompetence as alleged by OIR in relationship to these 2002, events. In 2005, while Providence was AMS’ workers’ compensation carrier, the third party administrator, Aspen, which was not then incorporated and licensed to adjust claims in Florida, illegally adjusted claims for Providence. Stephen Yon, Senior Management Analyst II, is aware that Aspen is now a Florida-licensed third party administrator servicing several workers’ compensation insurance carriers doing business in Florida. However, Mr. Yon’s 2005 audit of Aspen’s processing of claims for Providence showed a “no license” period and also showed late filings of various workers’ compensation forms with the Division and late payments to claimants. A mandatory fine was imposed. The same situation with late form filings and late payments was found by Mr. Yon’s audits of Aspen, working for Providence and then Companion in 2007, and fines were again paid. Although efforts have been made in 2007-2008, by Dallas National, through Board member Ms. Wehrle, to create a diary system that would reduce these timeliness errors, there has been little improvement to date. Apparently, there were 10 filings that were only one day late out of 68 filed, but other reportage and/or payments were more delayed and the Agency views all these activities as “hazardous practices.” Florida law requires that the employer (PEO) be active and participating in some of the reportage, and the essence of a third party administrator system is that the errors and omissions of the third party administrator relate back to the insurance carrier. In all of the foregoing incidents, AMS was the employer and Aspen was handling claims for either Providence or Companion, not Dallas National. Insurance carriers’ failures to file forms timely or to pay benefits timely as previously related are common in the processing of Florida workers’ compensation insurance claims. Workers’ compensation claimants are supposed to receive their first indemnity checks within 14 days, and some reports must be filed within seven days, and others within 21 days, of the injury, not just within a period following a formal claim (see Section 440.185, Florida Statutes) and the Division requires 95 percent accuracy. (See § 440.20 (8)(b), Fla. Stat.). Fines on these bases are mostly mandatory, but the Division of Workers’ Compensation may distinguish between willful and non-willful violations. (See § 440.525, Fla. Stat.). It is unclear which type of fine(s) were imposed on Aspen, and thus the respective insurance companies, for the foregoing failures. That said, it appears that, contrary to Mr. Yon’s testimony that the only way to discipline an insurer, PEO, or third party administrator is with a fine, other disciplinary action might be available against Aspen (see §§ 626.8805 and 626.891, Fla. Stat.), but Florida did not take any other disciplinary action, even though AMS/Aspen has never met the statutory goal of 95 per cent timely payments and has vacillated between 70 and 80 per cent for three years. The failure to pursue any regulatory remedy against AMS and/or Aspen, such as revoking their licenses, suggests that these errors are not truly significant to the Agency. Companion is PEO/Employer AMS’ current workers’ compensation carrier. AMS, while insured by Companion, paid some first day medical claims, because Texas allows an employer to pay on-site first aid claims, and the company’s operatives assumed that such payments were also permitted in Florida. They were wrong. Florida actually requires that all workers’ compensation claims be paid by the insurance carrier from the first day. AMS stopped its illegal procedure when informed of the violation by the Florida Division of Workers’ Compensation. Companion was assessed a fine of only $2500, based on the claims adjusted by AMS. Mr. Yon agreed it was acceptable to the Agency to move licensed AMS adjusters to Aspen, so as to resolve the illegal adjusting problem. There have been no violations of this sort for two years. Companion now pays all medical bills. OIR asserts that Messrs. Wood and Nehls, personally, and Dallas National as a corporate applicant, have lied to OIR in each of the two successive application processes. With regard to the 2006 application, OIR conducted an evidentiary hearing. The transcript thereof is in evidence and although there is a question-and-answer format in which Mr. Wood, Mr. Nehls, and others answered questions, most of the “hearing” is more in the nature of a formalized marathon conversation, which moves from topic to topic with several people chiming in to clarify what OIR’s hearing officer was seeking by a question or to answer the question, or with the hearing officer trying to clarify what Dallas National’s witnesses meant by their answers. Under these circumstances, someone not involved in a company’s day-to-day operation might reasonably fail to answer some questions correctly or fail to correct or elaborate on his answers as the proceeding moved on. Nonetheless, clearly, Mr. Wood incorrectly answered some questions put to him at that hearing by Florida regulators. He testified that with regard to any and all S&P companies with which he was affiliated (1) they had not failed to hold an annual shareholders’ meeting; (2) had not charged unapproved rates; (3) had not operated in any state without a license; (4) had not continued in business after losing workers’ compensation coverage; (5) had not paid claims from collateral funds; and (6) had not become a party to any service agreement including re-insurance, which was not reported to the state of domicile on the appropriate state licensure. At the instant hearing herein, it was shown that at some point before, or while, Dallas National was under Texas oversight in 2002-2003, Mr. Wood, indeed, did not, as required by law, meet with himself for regular shareholders’ meetings, so his answer to question (1) should have been “yes.” It was shown that with regard to the situation with CNA, Bankers, and Guerling, in 2002 (see Findings of Fact 45-51) his answers to questions (3), (4) and (5) should have been “yes.” (See also Findings of Fact 34, 52, and 67, as to reasons that question (3) should have been answered “yes.”) However, the instant hearing did not demonstrate that his answers to questions (2) and (6) were clearly wrong. OIR attributed all six negative answers to lack of trustworthiness. Although Mr. Wood unilaterally and voluntarily submitted an affidavit attempting to correct some of his hearing testimony a couple of weeks after the evidentiary hearing, his affidavit does not really clarify or alter his wrong answers to these questions, and it was a serious omission for Mr. Wood to have not acknowledged the problems that Dallas Fire, AMS, and Aspen have had, if he was aware of them, even though they were remote in time. OIR also construes the business plan submitted with Dallas National’s 2006 application to be suspect. The application required that Mr. Wood list all the companies he owns, but he failed to list Aspen, third party administrator for AMS and Equity, on a chart and may have failed to list either Aspen or Equity, one of his Florida PEOs, in the space provided on another page. Mr. Wood testified herein that the omission was an oversight. Mr. Nehls, Petitioner’s president, who prepared both applications, testified that the oversight was probably his, and the evidence as a whole supports a finding that Mr. Wood had no current “hands on” administration of either Aspen or Equity in relation to the time of either of Dallas National’s applications to OIR and did not prepare either voluminous application, both of which went back and forth with supplements to OIR for a period of time till each was pronounced “complete.” Because he signed both applications, OIR views the omission(s) of the companies as a material misrepresentation, reflective of Mr. Wood’s lack of trustworthiness, but given the fact that all the companies were listed somewhere in the application papers; the parties’ past history, which meant that OIR knew of these companies’ probable affiliation with Dallas National and indeed asked questions about them; the due diligence known to be Florida regulators’ hallmark; and the testimony of OIR’s witnesses that failure to list a company is not an absolute bar to licensing, it is unreasonable to suppose that any plot existed within Dallas National, with Mr. Woods, or with Mr. Nehls to hide these companies or Mr. Wood’s affiliations therewith from Florida regulators. OIR also faults Mr. Wood personally for a portion of the current 2008 application, which discusses Dallas National’s plans to expand into the California insurance market, claiming that this was also a material misrepresentation since California has not yet approved Dallas National to write insurance in that state. Recognizing that Dallas National remains licensed in California, but is not yet authorized to write insurance there, a situation impossible under Florida’s law, and that Mr. Nehls placed discussion of what Dallas National planned to do in California under a heading of the 2008 application which equates with “future business plans,” this information was not a material misrepresentation. OIR has doubts about Dallas National’s underwriting parameters. For this aspect of the case, OIR relied heavily on the testimony of Susan Bernard. Ms. Bernard was accepted as an expert in California financial and regulatory examinations. Unlike Florida, California does not license PEOs, but like Florida’s OIR, California’s regulatory agency mistrusts insurers affiliated with PEOs, even though Ms. Bernard was not able to represent that such an affiliation offended California’s insurance code. California requires that a PEO obtain a separate workers’ compensation policy for each employer to whom it leases employees. (See Finding of Fact 24). In July 2003, Dallas National was not permitted to sell insurance in California, but Mr. Wood’s company, AMS, secured, through another entity, what a California corporation that leased employees from AMS was led to believe was a valid Dallas Fire workers’ compensation policy. The policy was disavowed by Dallas Fire, and therefore, the small employer who leased employees from California AMS suffered a gap in coverage in violation of California’s Labor Code and its leased employees also were without workers’ compensation coverage for that same period. Someone at AMS or at Dallas Fire apparently described the invalid policy or binder as a “test certificate,” and California’s Insurance Department issued a scathing letter of admonishment to Dallas Fire with the promise of a cease and desist order if Dallas Fire ever again issued such a disingenuous document or wrote insurance in California without Agency approval to do so. Based on the timing of the transitioning of Dallas Fire into Dallas National, it is hard to be sure what really happened in this situation, but so far as this record is concerned, neither Dallas Fire nor Dallas National has done anything similar since. Ms. Bernard, a Certified Financial Examiner, has performed three onsite visits to Dallas National’s Texas headquarters to consider recommending licensure of Dallas National by California. These visits were in August 2006, August 2007, and December 2007. She testified that, based on a reasonable sample in August 2006, Dallas National’s compliance with its own underwriting guidelines was non-existent. Her sampling in August 2007, produced only minimally better adherence to Dallas National’s own guidelines, and on that occasion, Dallas National’s own accountants, Ernst & Young, also found significant underwriting flaws, while the Texas Department of Insurance approved the underwriting at that time. Her sampling in December 2007, using Dallas National’s new underwriting guidelines, again was only slightly better than the last time, but Ms. Bernard conceded that at the same time she audited Dallas National on that occasion, the Texas Department of Insurance was also present and again found Dallas National’s underwriting compliance in December 2007, to be acceptable. Ms. Bernard’s report at the close of her examination in December 2007, was partially affected by her concern over the proximity of AMS and Dallas National’s offices being in a single building and using the same computers (see Findings of Fact 39- 41), and her speculation that a 2007 sports event disaster involving a different Wood company could deplete the reserves of Dallas National and all Wood corporations. However, on the basis of Dallas National’s failure, at that time, to consistently apply its own underwriting guidelines, Ms. Bernard recommended that California not license Dallas National until Dallas National met all its own underwriting guidelines. Due to California’s time and budget constraints, Ms. Bernard has not returned to audit Dallas National since December 2007, despite urgings by Dallas National’s Board to do so. In 2008, a Board-authorized underwriting committee spear-headed by Ms. Patterson and Ms. Wehrle completely overhauled Dallas National’s underwriting guidelines. Ms. Bernard has not reviewed Dallas National’s new underwriting guidelines, and Ms. Wehrle did not elaborate on them in detail. However, there is no current information that these guidelines are not adequate nor that they are not being followed. Since effective underwriting plays into the overall financial picture of an insurance company, the current reports of actuaries and accountants for Dallas National (see infra) would seem to suggest that Dallas National’s underwriting is currently adequate. Since Petitioner Dallas National was created out of the merger of California Indemnity and Dallas Fire, Dallas National has employed Milliman, Inc., a prominent, independent actuarial firm with 60 years of experience and a credible reputation. Milliman, Inc., has advised Dallas Fire from the time Mr. Wood purchased Dallas Fire in 2002, and has given Dallas National a “responsible” rating (essentially a “clear” financial rating) each year since 2003. Dallas National uses A-rated reinsurance partners and independent accountants and auditors. One of its independent accountants is Ernst & Young. Dallas National uses independent investment advisors to maintain a conservative and profitable investment portfolio. Dallas National relies heavily on opinions of all these advisers with regard to loss reserves and collateral. OIR faults Dallas National in two technical compliance categories. First, OIR claims that Companion is “fronting” for Dallas National in violation of Subsections 624.404(4)(a) and (b), Florida Statutes. Second, by citing what OIR asserts is an illegal re-insurance agreement with Companion, OIR charges that Dallas National has set up insufficient loss reserves. Section 624.404, Florida Statutes, provides, in pertinent part, as follows: 624.404 General eligibility of insurers for certificate of authority.--To qualify for and hold authority to transact insurance in this state, an insurer must be otherwise in compliance with this code and with its charter powers and must be an incorporated stock insurer, an incorporated mutual insurer, or a reciprocal insurer, of the same general type as may be formed as a domestic insurer under this code; except that: (4)(a) No authorized insurer shall act as a fronting company for any unauthorized insurer which is not an approved reinsurer. (b) A "fronting company" is an authorized insurer which by reinsurance or otherwise generally transfers more than 50 percent to one unauthorized insurer which does not meet the requirements of s. 624.610(3)(a), (b), or (c), or more than 75 percent to two or more unauthorized insurers which do not meet the requirements of s. 624.610(3)(a), (b), or (c), of the entire risk of loss on all of the insurance written by it in this state, or on one or more lines of insurance, on all of the business produced through one or more agents or agencies, or on all of the business from a designated geographical territory, without obtaining the prior approval of the office.(Emphasis supplied) No case law has developed around Florida’s “fronting” statute. When OIR advised Dallas National’s new Board of Directors that the Agency viewed Dallas National’s relationship with Companion as a “fronting” situation, the Board, including the former state regulators, closely reviewed the statute. The Board members collectively could not discern how Florida’s “fronting” statute could be applied to Dallas National’s situation with Companion, and sought advice from Companion, Ernst & Young, and Milliman, Inc. Relying on consistent advice from all these entities that Florida’s “fronting” statute did not apply, Dallas National’s Board proceeded to administrative hearing. Mr. Wood's PEOs have been issued high deductible workers’ compensation policies by Companion. Companion and Dallas National have a re-insurance agreement which starts with a million-dollar deductible, whereby Companion agrees to pay the first million dollars per claim by each employee of the PEO. Thereafter, Companion must seek reimbursement from the policyholder, the PEO. Dallas National re-insures claims between one and five million dollars. Other reinsurance coverage for Companion is provided by other companies for claims between five and 30 million dollars, and Companion is the direct writer above 30 million dollars. OIR witnesses who had never reviewed the actual reinsurance agreement in this case were not helpful by their opinions that a “fronting” situation exists, and those opinions are discounted. Steve Szypula currently is the Chief Analyst in OIR’s Property and Casualty Oversight Unit. He was accepted as an expert in financial regulation, accounting, and regulation examination, and testified that the providing of reinsurance coverage by Dallas National to Companion for workers’ compensation coverage written by Companion for AMS constituted an unlawful “fronting” arrangement in violation of Subsections 624.404(4)(a) and (b). However, Mr. Szypula’s area of practice is not specifically workers’ compensation, and he has no background in reinsurance, specifically. Mr. Szypula found no fault with the Milliman Inc. December 31, 2008, report, including reserves or its calculations and agreed that, with or without a high deductible, Companion is always required to pay workers’ compensation claims from the first dollar. However, his “fronting” theory requires that the statutory phrase, “entire risk of loss” be read as the single word, “premium,” and that the million-dollar deductible in the subject insurance policy be equated with a “credit risk." By his interpretation, Mr. Szypula opined that more than 50 percent of Companion’s risk was being ceded to Dallas National because the premium was a simple “pass through.” Ray Neff is a Member of the American Academy of Actuaries; the former Director of the Florida Division of Workers’ Compensation, when the Division was housed in the Department of Labor; and a former Bureau Chief of the Florida Department of Insurance Bureau of Rates. Mr. Neff is an actuary and certified Reinsurance Arbitrator, and was accepted as an expert with special knowledge regarding re-insurance arrangements and interpretation of re-insurance agreements and insurance in general. Mr. Neff agreed with Mr. Szypula that, under the re- insurance agreement between Dallas National and Companion, Companion takes the risk of loss on the entire claim and is liable from the first dollar, due to the nature of workers’ compensation insurance, as compared with other types of insurance/re-insurance. He further testified that the insurer must pay the deductible first and may only seek reimbursement from its re-insurers later. Therefore, Companion is liable for, and must first pay, all claims, regardless of whether there is, or is not, eventual reimbursement by re-insurers. Concentrating on the phrase “entire risk of loss” as used in Section 624.404(4)(b), Florida Statutes, Mr. Neff opined that an unlawful “fronting” arrangement did not exist between Companion and Dallas National by the terms of their re-insurance agreement in this case. By that agreement, Dallas National agrees to insure between one million and five million dollars in liability. The one million dollar deductible policy issued to AMS by Companion does not mean that Companion does not assume the risk of the first million dollar loss, because via Florida Administrative Code Rule 69O-189.006,7/ the insurer is always responsible for first paying the injured claimant directly, regardless of any deductible, and only thereafter may seek reimbursement. Mr. Neff maintains that, unlike those other types of casualty insurance which are Mr. Szypula’s forte, reinsurance of workers’ compensation policies is only a reimbursement mechanism and not a true deductible. Because of his education, training, and experience, his clarity of explanation, and particularly his use of the actual language of the “fronting” statute analyzed, Mr. Neff is the more credible witness over Mr. Szypula. OIR presented the testimony of Joseph Boor, who reviews general lines, commercial, intangible and surety rate filings for OIR. Mr. Boor has special experience in hurricane losses. He is an esteemed actuary, a member of the Casualty Actuarial Society, and the first person in the United States to have achieved the “Senior Professional of Insurance Regulation” designation by NAIC. However, Mr. Boor does not review workers’ compensation rate filings. He was accepted as an expert in actuarial science, loss reserving, and large deductible business practices. Even though he did not point to any errors in Milliman Inc.’s December 31, 2008, annual actuarial report, Mr. Boor used that report to conclude that Dallas National is deficient in loss reserves by plus or minus 42 million dollars. Mr. Boor was brought on relatively late in Respondent’s preparation of the case and purely for purposes of litigation testimony. Accordingly, he had to revise his figures several times. To his credit, in the highest standards of his profession, Mr. Boor pro-actively disclosed his mathematical errors to all concerned. Milliman, Inc., conducted an independent loss reserve analysis of Dallas National as of December 31, 2008,8/ on both a gross and net basis with respect to reinsurance and rendered its year-end statement of actuarial opinion on the held reserves of Dallas National. Two fully credentialed actuaries (both Fellows of the Casualty Actuarial Society) performed the work, including a review of the company’s entire claim liability, which went through two peer reviews, one of which was “firm-wide,” before Milliman, Inc., issued its final opinion. Robert Meyer, a principal and consulting actuary of that firm, is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. He was accepted as an expert actuary in the field of property and casualty insurance. He explained Dallas National’s loss reserving process and critiqued Mr. Boor’s methodology and conclusions, to the effect that Mr. Boor used reserves in place of collateral so as to overstate collateral; had suggested reserves be posted before a loss occurred; and made unreasonable assessments on claims now and in the future. Vastly simplified, Mr. Meyer’s defense of Milliman Inc.’s report, approving Dallas National’s loss reserves as reasonable, is more credible than Mr. Boor’s opinion for the foregoing reasons, and most particularly because Mr. Boor skewed loss development factors on the basis of his choice of an industry database, and his adjustment thereof, which overestimated the claim liability of Dallas National and Companion.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office of Insurance Regulation enter a Final Order issuing the license for which Petitioner Dallas National Insurance Company has applied. DONE AND ENTERED this 3rd day of February, 2010, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 3rd day of February, 2010.
Findings Of Fact Based upon all of the evidence, including the stipulation of facts, the following findings of fact are determined: Petitioner, Florida Surplus Lines Association, Inc. (Association), is a Florida nonprofit corporation organized and maintained for the benefit of its members who include surplus lines agents and insurers and others who place surplus lines insurance. Petitioner's members are licensed or regulated by the Department of Insurance pursuant to Part VIII of Chapter 626, Florida Statutes. The parties have stipulated that petitioner has standing to bring this action on behalf of its members. Surplus lines insurance is a specialty line of insurance written for certain types of risks that authorized insurance carriers (those holding a certificate of authority) will not or cannot cover. It constitutes a limited, out-of-state insurance market that supplements the "authorized" in-state insurance market. Thus, when Florida residents cannot obtain coverage from authorized Florida insurers, they may seek insurance from out-of-state insurers (not authorized to do business in the state) who "export" the coverage to Florida surplus lines insurers who then handle the placement of the insurance. Under this statutory scheme, petitioner's members are not authorized insurers who hold certificates of authority but rather they are made "eligible" by the Department of Insurance to receive exported business. They do, however, countersign surplus lines policies covering Florida risks. On April 29, 1993, Chapter 93-128, Laws of Florida, became effective. The new law was the result of the extensive damage caused by Hurricane Andrew, which struck the southeastern coast of Florida in late August 1992. Section 2 of the law created an emergency management, preparedness, and assistance trust fund to be administered by the Department of Community Affairs and funded by the imposition of an annual surcharge of $2.00 on "every homeowner's, mobile homeowner's, tenant homeowner's, and condominium unit owner's policy" and $4.00 on "every commerical fire, commercial multiple peril, and business owner's property insurance policy" issued on or after May 1, 1993. Therefore, the new law applied to all residential and commercial casualty policies issued on or after May 1, 1993. Petitioner's members offer policies that fall within these broad categories. The same section required the surcharge to be paid by the policyholder and collected and remitted by the insurer. Since petitioner's members are engaged in the business of offering insurance policies, and they countersign property insurance policies, they are "insurers" as that word is commonly used and understood. Finally, section 2 has been codified as Section 252.372, Florida Statutes (1993). Section 2 of chapter 93-128 provided further that respondent, Department of Revenue (DOR), "shall collect, administer, audit, and enforce the surcharge pursuant to section 624.5092, Florida Statutes." This meant that DOR would utilize the procedures outlined in section 624.5092 for administering and collecting the newly-imposed tax. That statute prescribes the manner in which taxes should be paid to and collected by DOR. To implement this new responsibility, on August 20, 1993, DOR published notice in the Florida Administrative Weekly of its intent to adopt new rule 12B-8.0012. The proposed rule, which is quite lengthy in text, reads as follows: 12BN-8.0012 Insurance Policy Surcharge: Rate and Computation. Every insurer, including surplus lines and surplus lines agents, must collect a surcharge of $2 and $4 from the policyholders of certain types of property insurance issued or renewed on or after May 1, 1993. The proceeds will be deposited into the Emergency Management, Preparedness, and Assistance Trust Fund. The $2 surcharge applies to each residential dwelling fire policy, homeowner's, mobile homeowner's, tenant homeowner's, condominium unit owner's, and any other type of insurance coverage on residential property, issued or renewed on or after May 1, 1993. The $4 surcharge applies to each commercial fire, commercial multiple peril, and business owner's property insurance policy issued or renewed on or after May 1, 1993, including marine policies if the coverage includes real property. The surcharge does not apply to policies on tangible personal property, except multiple peril type policies on residential or commercial property and mobile homes. For purposes of this rule, the date of issue or renewal shall be the effective date of the policy. The surcharge applies to all policies issued or renewed even if they are subsequently cancelled. However, if the policy is cancelled back to the effective date, the surcharge shall not apply. The surcharge must be collected by the insurer from the policyholder and must be remitted in the same manner as the insurance premium tax to the Department of Revenue on Form DR-907, Insurance Premium Tax Quarterly Return, and on Form DR-908, Insurance Premium Tax Return. The surcharge on surplus lines policies must be remitted by the surplus lines agents, unless the surplus lines insurer collects and remits the surcharge, and must be remitted on Form DR-907 and Form DR-908. The surcharge is required to be remitted by the surplus lines agent for only the surplus lines policies. The authorized insurer is required to collect and remit the surcharge for all other policies. The $250 quarterly and annual filing fees do not apply to either the surplus lines agent or the surplus lines insurer. The insurance premium tax on surplus lines will continue to be remitted to the Department of Insurance as required. The surcharge is required to be remitted on the required return for the calendar quarter the policy is issued or renewed without regard to the collection of the surcharge from the policyholders. The insurer is responsible for collecting the surcharge and may cancel the policy for nonpayment of the surcharge. The first installment on the surcharge was due June 15, 1993, for May and June with the subsequent installment due on October 15 for the calendar quarter ending September 30. A separate line denoting the surcharge is provided on the revised Form DR-907 and the revised Form DR-908, annual return, which is due by March 1. The estimated payment must be based on at least 90 percent of the actual number of policies subject to the surcharge to avoid penalty and interest as provided in s. 624.5092, F.S. Penalty and interest may be compromised as provided in s. 213.21, F.S. The surcharge is not considered to be a part of the premium charge, and is therefore not subject to the insurance premium tax. The surcharge is imposed on the policy- holder and will not be considered for retaliatory tax purposes whether or not the surcharge is collected from the policyholder. The text of the notice identified Subsection 213.06(1), Florida Statutes, and Chapter 93-128, Laws of Florida, as the specific authority for adopting the rule and Section 624.5092, Florida Statutes, and Chapter 93-128, Laws of Florida, as the laws being implemented. Finally, the notice summarized the new rule as one which "provid(ed) guidance for computing and remitting the $2 and $4 surcharge," and further stated its adoption was "needed to conform the rule to the 1992 and 1993 statutory revisions." Of significance to this controversy are all or parts of sections (1) and (8) of the proposed rule which expressly provide that the surcharge is applicable to surplus lines policies. Petitioner generally contends that surplus lines policies were not specifically referred to in either chapter 93- 128 or section 624.5092 and thus the surcharge was not intended to apply to that type of transaction. For this reason, among others, it argues that the proposed rule goes beyond the terms of the enabling statutes. In 1989, Chapter 89-167, Laws of Florida, created Section 624.5092, Florida Statutes, which transferred the responsibility for the administration and collection of all taxes enumerated in subsection 624.5092(3) from the Department of Insurance to DOR. That subsection identifies Sections 624.5091, 624.4425, 624.475, 624.509-624.515, 627.356, 627.357, 629.5011, 637.406, 651.027, and 440.57, Florida Statutes, as the taxing statutes which DOR is obligated to administer. Omitted from this subsection are Section 626.932, Florida Statutes, which imposes a premium receipts tax on surplus lines insurance transactions, and Section 626.933, Florida Statutes, which sets forth the procedure for collecting that tax. Therefore, surplus lines insurance transactions are not identified as being subject to the administration procedures in subsection 624.5092(3). The parties have stipulated that under section 624.5092 DOR is authorized to administer, collect and enforce insurance taxes prior to 1989 on all open years for all insurers subject to Section 624.509, Florida Statutes. They have also stipulated that DOR has the authority to assess surcharges and tax for all insurers that are subject to Sections 624.509 and 624.5091, Florida Statutes. These two statutes pertain to the payment of a premium tax and retaliatory tax, respectively, by insurers holding a certificate of authority. Surplus lines insurers do not possess such authorization. Neither chapter 89-167 nor chapter 93-128 amended sections 626.932 or 626.933. As noted earlier, those sections impose a surplus lines tax and the manner for collecting the same, respectively. Also, they did not amend subsection 624.5092(3) to include any tax imposed by Part VIII of chapter 626, the state surplus lines act. Section 4 of chapter 93-128 amended subsection 624.5092(1) by adding the underscored language below: The Department of Revenue shall administer, audit and enforce the assessment and collection of those taxes to which this section is applicable. The Department of Insurance is authorized to share information with the Department of Revenue as necessary to verify premium tax or other tax liability arising under such taxes and credits which may apply thereto. Besides the substantive contentions, petitioner also contends the rule's economic impact statement (EIS) is inadequate because DOR did not consider the rule's impact on small businesses. In making that assessment, DOR utilized the provisions of Subsection 120.54(2)(a)1.-5., Florida Statutes, and found the impact on small businesses to be minimal, that is, affected persons need only file a two page form on a quarterly basis reflecting the number of surplus lines policies issued or renewed during the preceding quarter. Given these minimal statutory requirements, DOR could not consolidate or simplify the reporting requirements, exempt small businesses, establish less stringent schedules, establish alternative performance standards, or create less stringent reporting requirements. Finally, copies of the proposed rule were sent to the minority business sections of the Department of Commerce and Department of Management Services, and DOR did not receive any reply or comment from those agencies. DOR did not receive a request for an economic impact statement from any affected person. Also, it received no information regarding any economic impact on any businesses affected by the proposed rule or on the size of businesses affected by the proposed rule prior to the initiation of this proceeding. Although some of petitioner's members qualify as small businesses as that term is defined within Section 288.703, Florida Statutes, and petitioner advised DOR of its position regarding the invalidity of the proposed surcharge, there is nothing of record to indicate that petitioner, or any of its members individually, specifically requested preparation of an EIS or provided information sufficient to make DOR aware of specific concerns regarding the economic impact of the proposed rule.
The Issue The issue in this case is whether Respondents have violated provisions of Section 627.837, Florida Statutes, through payment of alleged monetary inducements to insurance agents for the purpose of securing contracts which finance insurance premiums.
Findings Of Fact Petitioner is the Department of Insurance and Treasurer (Department). Respondents are Puritan Budget Plan, Inc., and Gibraltar Budget Plan, Inc., (Respondents). Findings contained in paragraphs 3- 23, were stipulated to by the parties. Stipulated Facts Common shares in Respondents' corporations were sold to insurance agent/shareholders for between $500.00 and $2,500.00 per share, depending on date purchased. Presently, and for the purposes of this litigation, marketing and/or administrative fees paid by Respondents to agent/shareholders range from $1.00 to $13.00 per contract produced, depending on the number of payments made, and the amount of the down payment. Each per contract marketing and/or administrative fee paid by Respondents to agent/shareholders is completely unrelated to the number of contracts produced by that agent/shareholder, and is based upon the characteristics of each contract, pursuant to the terms of the shareholder purchase agreement. Perry & Co., pursuant to a written agreement, manages the day to day activities of Respondents, including solicitation of new shareholder/agents. Alex Campos is currently President of Perry & Co. Perry & Co., Dick Perry or Alex Campos have no equity ownership, either direct or indirect, in Respondents corporations. No shareholder of Perry & Co. is also a shareholder in either Respondent, and no shareholder of the Respondents is a shareholder in Perry & Co. No officer or director of Perry & Co. is an officer or director of either Respondent, and no officer or director of either Respondent is an officer or director of Perry & Co. The individual management agreements between Perry & Co. and Respondents are terminable with proper notice by either party. Respondent Puritan Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Puritans' principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Respondent Gibraltar Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Gibraltar's principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Customers of Respondents are typically financing automobile insurance premiums. There is little if any variation among licensed premium finance companies in the State of Florida as to the interest rate charged to customers. In 1988, the Department inquired of Respondents' activities in relation to agent/shareholder compensation arrangements. After several meetings with representatives from Respondents, the Department closed the matter without taking any action. Also in 1988, the Department proposed the adoption of Rule 4-18.009, which in part would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes, but later withdrew the proposed rule. Again in 1994, the Department proposed a rule which would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes. After a hearing and adverse ruling by the hearing officer, the Department withdrew proposed Rule 4-196.030(8). Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in the unnecessary financing of contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in insurance agents adding or sliding unnecessary products to make the total cost of insurance more expensive and induce the financing of additional contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. An "inducement" is presently defined as "an incentive which motivates an insurance purchaser to finance the premium payment or which motivates any person to lead or influence an insured into financing the insurance coverage being purchased; or any compensation or consideration presented to a person based upon specific business performance whether under written agreement or otherwise." Rule 4-196.030(4), Florida Administrative Code (July 27, 1995). This rule is currently effective but presently on appeal. There is no evidence that Respondents unnecessarily financed any premium finance contracts or engaged in any "sliding" of unnecessary products to induce the unnecessary financing of contracts. Section 627.837, Florida Statutes, does not prohibit the payment of corporate dividends based on stock ownership to shareholders who are also insurance agents. According to the Final Bill Analysis for H.B. 2471, in 1995 the Legislature amended Section 627.837, Florida Statutes, relating to rebates and inducements. This section was amended to clarify that this statute does not prohibit an insurance agent or agents from owning a premium finance company. The statute, as amended, is silent on the issue of how owner-agents may be compensated. Other Facts Approximately 80 percent of Respondents' insureds will turn to the shareholder/agent to handle premium mailing and collection. When a shareholder/agent provides these valuable services and labor to Respondents through the servicing of the premium finance contract with an insured, payment for those services and/or recoupment of the expenses involved with their provision is made, at least in part, in the form of the marketing and administrative fees paid by Respondents to the shareholder/agent. The marketing and administrative fee payment by Respondents to shareholder/agents is made from the net profit of the corporation and represents payment of ownership interest (dividends) to shareholder/agents in addition to payment for shareholder/agent services or expenses. Respondents generally finance "non-standard" private passenger automobile insurance. Such insurance generally covers younger drivers and drivers with infraction points against their license. The average non-standard premium is $500 per year. Thirty percent of non-standard insureds will cancel their insurance prior to the renewal date. Cancellation of policies and financing arrangements by non-standard insurers require the agent to return unearned commissions, about $30 generally. In contrast, payment of an insurance premium in cash guarantees an agent his/her entire commission, an average of $90 per non-standard policy. Consequently, the financial interest of most agents is best served by cash sale of auto insurance as opposed to financing the insurance. The average amount generated by 95 percent of all premium finance contracts executed in Florida would yield an agent/shareholder approximately six dollars per contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered dismissing the Administrative Complaints. DONE and ENTERED in Tallahassee, Florida, this 28th day of November, 1995. DON W. DAVIS, 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 28th day of November, 1995. APPENDIX In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties. Petitioner's Proposed Findings 1.-11. Accepted to extent included within stipulated facts, otherwise rejected for lack of citation to the record. 12. First sentence is rejected as not substantially dispositive of the issues presented. Remainder rejected for lack of record citation if not included within stipulated facts. 13.-15. Rejected to extent not included within stipulation, no citation to record. Incorporated by reference. Rejected, no record citation, legal conclusion. 18.-19. Rejected, not materially dispositive. 20. Rejected, no record citation. 21.-23. Rejected, not materially dispositive. Rejected, record citation and relevancy. Rejected, weight of the evidence. Incorporated by reference. Respondent's Proposed Findings 1. Rejected, unnecessary to result. 2.-3. Accepted, not verbatim. 4. Rejected, unnecessary. 5.-7. Accepted, not verbatim. 8.-9. Rejected, unnecessary. 10. Accepted per stipulation. 11.-12. Rejected, unnecessary. 13. Accepted per stipulation. 14.-16. Accepted, not verbatim. Rejected, hearsay. Rejected, relevance. Rejected, unnecessary. 20.-22. Accepted per stipulation. 23. Rejected, unnecessary. 24.-57. Incorporated by reference. 58.-60. Rejected, unnecessary. 61.-62. Rejected, subordinate and not materially dispositive. 63.-67. Rejected as unnecessary to extent not included in stipulated facts. Accepted per stipulation. Rejected, unnecessary. Accepted per stipulation. 72.-76. Rejected, unnecessary. 77. Accepted per stipulation. 78.-79. Incorporated by reference. 80.-87. Accepted per stipulation. 88. Incorporated by reference. 89.-90. Accepted per stipulation. 91.-95. Rejected, subordinate. 96. Accepted. 97.-101. Rejected, unnecessary. 102. Incorporated by reference. COPIES FURNISHED: Alan Liefer, Esquire Division of Legal Services 612 Larson Building Tallahassee, FL 32399-0333 Steven M. Malono, Esquire Cobb, Cole & Bell 131 N. Gadsden St. Tallahassee, FL 32301 Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300
Findings Of Fact At all times pertinent hereto, respondent, Stephen Paul Platt, was licensed by respondent, Office of the Treasurer, Department of Insurance (Department), as a general lines insurance agent and surplus lines insurance agent. On or about March 15, 1994, the Department mailed to the respondent the necessary forms for filing the First Quarter 1994 surplus lines report and instructions to remit the taxes due pursuant to that report. Under existent law, such report was to be filed with the Department on or before April 30, 1994. Respondent did not file his quarterly report with the Department until June 3, 1994; however, respondent had incurred no tax liability for that quarter, and no taxes were due. At hearing, respondent acknowledged his obligation to file the quarterly reports in a timely fashion, but requested relief here based on the complicated pregnancy his wife experienced while carrying their fourth child, as well as the complications that occurred during and post delivery. According to respondent, whose testimony is credited, his fourth child was born April 21, 1994, and in the two weeks preceding the child's delivery, as well as the two or so weeks after the delivery, he was not in the office but, rather, was attendant to his wife and child during this difficult delivery. Given such circumstances, the nominal delay that occurred in filing the First Quarter 1994 surplus lines report, especially since no tax was due, should, except for a nominal fine, be excused.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department enter a final order which finds respondent guilty of having violated the provisions of Section 626.931(1), Florida Statutes, which imposes a fine of $50.00 against respondent for such violation, and which dismiss all other charges. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 28th day of February 1995. WILLIAM J. KENDRICK 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 28th day of February 1995. APPENDIX The Department's proposed findings of fact are addressed as follows: Adopted in paragraph 1. Adopted in paragraph 2. 3 & 4. Adopted in paragraph 3. COPIES FURNISHED: Michael K. McCormick, Esquire Lisa S. Santucci, Esquire Department of Insurance and Treasurer Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 Stephen Paul Platt 10640 NW 27th Street, #101 Miami, Florida 33172 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, PL-11 Tallahassee, Florida 32399-0300
The Issue Whether Respondent, a licensed insurance agent, violated the Florida Insurance Code as alleged in the Administrative Complaint and the penalties, if any, that should be imposed.
Findings Of Fact At the time of the formal hearing and at all other times pertinent to this proceeding, the Respondent was licensed in the State of Florida by Petitioner as a life and health insurance agent and a general lines insurance agent. Shirley Maroon, Alexis Ehrenhaft, and Sonya Rouviere are sisters who, at the times pertinent hereto, owned a commercial building located at 1501 Southwest 8th Street, Miami (the subject property). Prior to August 1991, the subject property was insured for casualty loss through Granada Insurance Company. The Granada insurance policy had been obtained through Hartnett, Inc., a general lines insurance agency. Fred B. Hartnett was, at the times pertinent hereto, the sole stockholder, director, and officer of Hartnett, Inc. At all times pertinent to this proceeding, Fred B. Hartnett, was the individual with Hartnett, Inc., who had been appointed as the agent of Granada Insurance Company. In 1991, Fred B. Hartnett was approximately 90 years of age, but he remained active in his business. In 1991, Respondent was not an officer, director, or shareholder of Hartnett, Inc. In August 1991, the co-owners of the subject property received a premium renewal notice for the Granada policy that was to be paid to the Hartnett Agency. The amount of the renewal premium was $4,485. Granada initially informed Hartnett, Inc. that the renewal premium for the subject property would be in the amount of $5,008. Following that initial determination, the Respondent asked Richard Friedburg, one of Granada's underwriters, to determine whether the premium for the subject property could be reduced. As a result of that discussion, a revised quote of $4,485 for the renewal premium was made by Granada. The billing to the co-owners for the renewal premium was from Hartnett, Inc. The transmittal letter, dated August 6, 1991, was on a Hartnett, Inc. form and was signed on behalf of Hartnett, Inc. by Maria Rienoso. The letter referenced the Granada policy and provided, in pertinent part, as follows: Enclosed please find a bill and applications which we ask that you review and sign where indicated by a check mark so we may process renewal of the above captioned policy . . . If you have any questions, do not hesitate to contact our office. We ask that you forward signed applications and renewal premium to our office no later than 9/3/91 to insure there is no lapse in coverage. On August 21, 1991, a check representing the renewal premium for the Granada policy in the amount of $4,485 was made out and signed by two of the co- owners, Ms. Maroon and Ms. Ehrenhaft. Ms. Rouviere, the only one of the three co-owners who testified at the formal hearing, was not present when the renewal check was prepared or executed. Ms. Rouviere did not have firsthand knowledge as to how the renewal check was delivered to the Hartnett Agency. There was no evidence that any of the three co-owners had any direct conversations or direct contact with Respondent pertaining to the renewal of the policy. On or about August 22, 1991, the Respondent received check #646 executed by Ms. Maroon and Ms. Ehrenhaft in the amount of $4,485 that was to be in payment of the Granada renewal premium. The check was deposited into a bank account of Hartnett, Inc. There was no evidence that Respondent had any control over this account. Hartnett, Inc. had handled the insurance on the subject property for several years. The only agent with whom Ms. Rouviere dealt at the Hartnett agency was the Respondent. There was no evidence as to whether the other two co-owners dealt with other agents at Hartnett, Inc. In August 1992, the subject property was damaged by Hurricane Andrew. In October 1992, the claim filed with Granada by the co-owners of the subject property was denied on the grounds that Granada had never received the renewal premium and had, consequently, cancelled the policy prior to the date of loss. At all times pertinent to this proceeding, Hartnett, Inc. was on an "account current" basis with Granada Insurance Company, which meant that Granada billed Hartnett, Inc., for Granada policies that had been bound by Hartnett, Inc. Granada Insurance Company did not bill Hartnett, Inc., for the renewal policy for the subject property because it did not know that Hartnett, Inc., had bound the renewal coverage. On August 3, 1990, an Amended Final Order was filed in a disciplinary proceeding that had been instituted against Respondent by the Petitioner. The style of that proceeding was "In the Matter of William John Hartnett" and Petitioner's case number was 86-L-595RET. The Amended Final Order placed the Respondent on probation pursuant to Section 626.691, Florida Statues, for a period of two years from August 3, 1990. Among the special conditions of probation was subsection (d), which provided in pertinent part, as follows: (d) During the period of probation, Respondent shall take special care to ensure that his accounts with insurers and/or managing general agents are kept current and that insurance premiums are properly remitted to insurers and/or managing general agents in the applicable regular course of business. . . .
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Petitioner enter a final order which dismisses the administrative complaint filed against Respondent. DONE AND ENTERED this 18th day of July, 1994, 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 18th day of July, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-7153 The following rulings are made on the proposed findings of fact submitted by the Petitioner. The proposed findings of fact in paragraphs 1, 2, 3, 4, 6, 7, and 8 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 5 are adopted in part by the Recommended Order, but are rejected to the extent they are unsubstantiated by the evidence or are contrary to the findings made. The proposed findings of fact in the first sentence of paragraph 9 are unnecessary as findings of fact, but are incorporate as a conclusion of law. The proposed findings of fact in the last sentence of paragraph 9 are adopted in material part by the Recommended Order. The following rulings are made as to the findings of fact submitted by the Respondent. The proposed findings of fact in paragraphs 1 and 2 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraphs 3 and 4 are subordinate to the findings made. The proposed findings of fact in paragraph 5 are rejected as being conclusions which are unnecessary as findings of fact and which are rejected to the extent they are contrary to the conclusions reached. COPIES FURNISHED: Lisa S. Santucci, Esquire Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 William L. Rogers, Esquire 2750 International Place 100 Southeast Second Street Miami, Florida 33131 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, General Counsel Department of Insurance The Capitol, PL-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.
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made: At all times material to the allegations of this case, Respondent is and has been licensed in the State of Florida as a life and health insurance agent and as a general lines insurance agent. On December 3, 1990, Respondent received an application for workers' compensation and employers' liability insurance from Emma Ware, corporate secretary for Abel Towing Service, Inc. Also at that time, Respondent received a check from the company in the amount of $817.00 which represented the premium due from the insured for the coverage sought. The check described above, which was made payable to A.B.C. Insurance Agency, was deposited by Respondent into an account for ABC Enterprises, Inc. on or about December 5, 1990. On December 3, 1990, Respondent issued to Lennon Ware, as the insured, a certificate of insurance indicating that the insured had obtained workers' compensation and employers' liability insurance effective 12/3/90 and that the company affording coverage was NCCI. NCCI does not afford workers' compensation insurance through authorized agents such as the Respondent. Consequently, the Respondent, or any other licensee, may not bind coverage on behalf of NCCI. NCCI receives applications for insurance, such as from Abel Towing and, when complete, assigns the insurance coverage to one of several companies in the assigned risk group. NCCI operates under plan guidelines to provide insurance for entities that cannot obtain coverage from the voluntary market. NCCI administers the assignment to insurance companies, and acts as the middle man to collect the premium. NCCI does not, itself, provide the insurance coverage. After December 3, 1990, based upon the certificate of insurance issued by Respondent, Emma Ware and Lennon Ware operated under the mistaken assumption that their company, Abel Towing Services, Inc. had obtained workers' compensation and employers' liability insurance. On January 29, 1991, an employee of Abel Towing was injured on the job and taken to a hospital for treatment. In connection with that injury, a claim was submitted to Respondent for payment under the insurance coverage presumed to be in effect. On or about February 5, 1991, Respondent forwarded an application for insurance coverage on behalf of Abel Towing to NCCI. That application was incomplete as it did not contain the company's form 941, federal quarterly tax reports, for the year 1990. NCCI returned the application as incomplete and advised Respondent as to the forms required for binding coverage. In response to requests from Respondent, Emma Ware delivered copies of Abel Towing's tax reports to Respondent in February, 1991. Respondent failed to timely forward the completed application to NCCI to secure an insurance binding date of February 7, 1991. Respondent then forwarded the application to NCCI in March, 1991. In order to secure a binding date of March 5, 1991, Respondent was required to have the application package completed by and postmarked to NCCI by March 20, 1991. Again, the information submitted by Respondent on behalf of Abel Towing was incomplete. Ultimately, the insurance was not bound and effective according to NCCI until March 27, 1991. Respondent failed to inform Abel Towing or the Wares that the insurance application had been returned by NCCI. Respondent failed to timely act to procure insurance for Abel Towing and the Wares in December, 1990. Respondent failed to timely procure insurance for Abel Towing and the Wares in January, 1991, when she became aware of the injury to one of Abel Towing's employees. NCCI allows fifteen days from the first receipt of an application for insurance within which to correct deficiencies or provide information needed to complete an application. If provided within the time line, NCCI will honor the original date and bind the insurance effective at that time. Respondent did not forward any insurance application to NCCI on behalf of the Wares or Abel Towing in December, 1990. ABC Enterprises, Inc. is not the corporate name under which Respondent does insurance business.
Recommendation Based on the foregoing, it is recommended that the Department of Insurance and Treasurer enter a final order finding that the Respondent has violated Section 626.611, Florida Statutes, and suspending her licenses for a period of six months. RECOMMENDED this 14th day of April, 1992, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of April, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-7566 RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE PETITIONER: 1. Paragraphs 1 through 19 are accepted with the deletion of the phrase "Pursuant to the reapplication of February 26, 1991," found in paragraph 13. That phrase is rejected as contrary to the weight of the evidence or irrelevant. RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE RESPONDENT: None submitted. COPIES FURNISHED: Joseph D. Mandt Division of Legal Services Department of Insurance and Treasurer 412 Larson Building Tallahassee, Florida 32399-0300 Janet Joyce Buck 6102 Walbridge Street Orlando, Florida 32809 Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance and Treasurer Division of Legal Services The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue Whether or not Petitioner's application for examination as a general lines agent should be approved.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received, and the entire record compiled herein, I hereby make the following relevant factual findings: On or about September 2, 1989, Petitioner, Kimberly L. Strayer, formerly known as Kimberly Lindsay, filed an application for examination as a general lines agent with Respondent, Department of Insurance. Since January 1988, Petitioner has been the sole owner and president of Central Florida Insurance Agency (Central). On or about December 28, 1989, Respondent informed Petitioner, by letter, that her application for examination as a general lines agent was denied for the following reasons: Petitioner operated Central Florida Insurance Agency without a licensed general lines agent in the full-time active charge of that agency from January 1, 1988 through August 31, 1988. During January 1988 Petitioner accepted applications and down payments from the following insureds: Robert Smallwood, Annelle Jones, Mickey Lawson, Donald Johnson, Thomas Jones, Manning O'Callahan and Christopher Stevens. Petitioner issued a binder and an automobile identification card for each insured indicating that coverage was bound with State Farm Mutual Insurance Company, as servicing carrier for the Florida Joint Underwriting Association (FJUA). At the time Petitioner had no authority to accept either applications or premiums on behalf of State Farm. Petitioner failed to forward such applications and premiums to the insurer until April 12, 1988. During January 1988, Petitioner accepted an application and premium payment of $274.00 from Tammy Clay. Petitioner issued a binder indicating that coverage was bound with State Farm and Union American Insurance Companies. Petitioner failed to forward either the application or the premium payment to any insurer. Petitioner issued a fictitious policy number to Ms. Clay and after nearly four months, submitted a money order to State Farm payable to Tammy Clay, on or about May 1989. At the hearing, Petitioner admitted that she did not have a licensed general lines agent in full-time active charge of her agency; that she accepted applications and premium payments from the above-named insureds for auto insurance to be bound with State Farm Mutual Insurance Company and that she accepted an application for premium payment for automobile insurance from Tammy Clay in the amount of $274.00 for coverage to be bound by State Farm Mutual Insurance Company. Petitioner was first employed in the insurance sales industry during the summer of 1987. At the time, she was only seventeen years old and had completed the eleventh grade. Petitioner's first employment in the insurance industry was with Friendly Auto Insurance (Friendly) which had several offices throughout Polk County, Florida. Friendly was owned by Petitioner's now husband, Larry Lindsay when she was hired. Petitioner formed Central during late 1987 and began operating Central on or about January 1, 1988. Petitioner received her supervision and training while employed with Friendly, primarily through on the job experiences. During late 1987, Petitioner's husband encountered problems with one of his business partners which resulted in strained relations. The resultant strained relations prompted Petitioner to organize Central. Central purchased several of Friendly's agencies of which her now husband had an interest, with Petitioner paying a nominal amount for the "book of business" that Friendly had generated. When Central commenced operations during January of 1988, Bob Seese was the licensed insurance agent who was authorized under the rules of the FJUA to accept applications and bind coverage through one of the FJUA servicing carriers, State Farm. Friendly and its successor, Central, generated a substantial volume of so-called high risk auto insurance business for drivers who could not obtain insurance through the regular market. Bob Seese had been associated with and served as the licensed agent for the Friendly agency in Lakes Wales which Central purchased in January 1988. At the time Petitioner commenced operating Central, she hired Bob Seese as the licensed general lines agent. She considered that Central was authorized to accept applications and continue to bind FJUA insurance coverage through State Farm. Petitioner forwarded all of the FJUA insurance applications which were bound by Bob Seese to State Farm within a period ranging from one week to approximately one month. State Farm refused to accept the applications submitted by Petitioner based on its contention that initially, Bob Seese was not authorized to bind coverage through Central, as he had not transferred his license to Central and Seese could only operate out of the Friendly agency of Lake Wales. 1/ Bob Seese was formally authorized by State Farm to conduct business through Central during February 1988. As a result of that authorization, all of the above-named insureds obtained insurance and none of the insureds suffered any monetary loss as a result of Seese's belated authorization. All of the premium payments that Petitioner received were, in time, forwarded to the respective carriers. Petitioner properly gave new insureds binder numbers which were serially dispensed in the order that premium payments were received. During January 1988, Petitioner accepted an application and premium payment for auto insurance from Tammy Clay for coverage to be bound by State Farm. Petitioner submitted Clay's application and premium payment to State Farm and it was returned on one occasion based on the fact that a facsimile stamp was used by the purported licensed agent (Seese). Petitioner resubmitted it and State Farm again returned it based on State Farm's contention that Seese was not authorized to conduct business through Central. Petitioner has now completed the required formal educational courses to demonstrate her eligibility to sit for the general lines agent's examination. Petitioner is now knowledgeable about insurance matters and is aware of the proper procedures for operating as a general lines agent. When Petitioner formed Central, she had less than one year's experience in the insurance business and was ineligible to sit for the general lines agent exam as she was not of majority age.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Respondent enter a Final Order granting Petitioner's application for examination as a general lines insurance agent. DONE and ENTERED this 31st day of October, 1990, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of October, 1990.
The Issue The issues in this case are whether Respondent, Henry Symeon Demayo, committed the offenses alleged in an Administrative Complaint, as amended, issued by Petitioner, the Department of Financial Services and, if so, what penalty should be imposed.
Findings Of Fact The Parties. Petitioner, the Department of Financial Services (hereinafter referred to as the "Department"), is the agency of the State of Florida charged with the responsibility for, among other things, the investigation and prosecution of complaints against individuals licensed to conduct insurance business in Florida. Ch. 626, Fla. Stat. Respondent Henry Symeon Demayo is currently and was at the times relevant, licensed in Florida as a surplus lines agent (01-20), general lines agent (02-20), life and health agent (02- 18), and health agent (02-40). Mr. Demayo’s license number is A065749. At all relevant times, Mr. Demayo is and was at the times relevant, “self-appointed” as to his surplus lines license. Mr. Demayo was the president of Brokerage Insurance Group Corp., a insurance agency licensed since December 13, 2006. Florida Surplus Lines Office Reviews On February 3, 2003, the Florida Surplus Lines Service Office (hereinafter referred to as the “FSLSO”), through its agent, Thomas Abel, conducted a “no business review” of Mr. Demayo’s surplus lines business. Mr. Abel requested and received a total of 50 business files from Mr. Demayo, which he reviewed. As a part of his review, Mr. Abel scanned a number of documents from the files provided to him by Mr. Demayo (pages 19 through 42 of Petitioner’s Exhibit 2). Mr. Abel also prepared a spread-sheet, pages 16 and 17 of Petitioner’s Exhibit 2, summarizing his findings, and an FSLSO Compliance Review Summary (pages 14 and 15 of Petitioner’s Exhibit 2). On April 15, 2003, Mr. Abel returned to Mr. Demayo’s business to conduct a “secondary review.” Again, Mr. Abel scanned documents from Mr. Demayo’s files (pages 49 through 63 of Petitioner’s Exhibit 2), prepared a spread-sheet (page 48 of Petitioner’s Exhibit 2), and an FSLSO Compliance Review Summary (pages 43 through 47 of Petitioner’s Exhibit 2). As a result of Mr. Abel’s findings, the Department issued the Administrative Complaint at issue in this case. At some point during the reviews, Mr. Abel suggested to Mr. Demayo that he had failed to properly report insurance transactions which are the subject of some of the charges in the Administrative Complaint. While not compelled to do so, Mr. Demayo followed Mr. Abel’s advice and reported most, if not all, those transactions to FSLSO, beginning in 2003. Mr. Demayo also paid surplus lines tax, discussed, infra, on some of the late reported insurance transactions. Count I; Failure to Remit Surplus Lines Tax. Section 626.932, Florida Statutes, requires that surplus lines agents collect a tax equal to five percent of the gross premium of all insurance premiums charged for the sale of surplus lines insurance (hereinafter referred to as the “Tax”) which has a Florida connection. The Tax is required to be remitted by surplus lines agents to the FSLSO. Surplus lines insurance on risks or exposures with no connection with the State of Florida are not subject to the Tax. As relevant to this matter, surplus lines insurance on, or with respect to, vessels, cargo, or aircraft written under Section 626.917, Florida Statutes (essentially commercial marine and aircraft surplus lines), is exempt from the Tax. The Department alleged in Count I of the Administrative Compliant that Mr. Demayo sold three separate surplus lines insurance policies for which Tax was due that he failed to remit. In its Proposed Recommended Order, the Department has conceded that Mr. Demayo was not liable for Tax on two of those policies, leaving only one policy at issue. The policy which remains at issue is a policy sold to Steiner Day Spa Group (hereinafter referred to as “Steiner”), policy number 6476583, covering the period 10/31/2001 to 10/31/2002 (hereinafter referred to as the “Steiner Spa Policy”). Based upon documents provided to Mr. Abel by Mr. Demayo, the Steiner Spa Policy was placed with Lexington Insurance Company, a surplus lines insurer. In a “FAX SHEET” dated October 29, 2001, also provided by Mr. Demayo to Mr. Abel, which was sent from Brokerage Insurance Group to “Southeastern Risk Specialists,” the following is stated concerning payment for the Steiner Spa Policy: I will bill $54,322.42, distributed as follows: $51,555. Premium 35. Fee. 2,577.75 Tax 154.67 Service Fee We are to handle the filings Based upon another document provided by Mr. Demayo to Mr. Able (page 23 of Petitioner’s Exhibit 2), Steiner Spa (formerly The Greenhouse Spa), had a location at the Portofino Bay Hotel, Orlando, Florida, which the Department argues gives the policy a Florida connection. Contrary to his representation in the “FAX SHEET,” Mr. Demayo did not remit any Tax to FSLSO for the Steiner Spa Policy. According to Mr. Demayo, Steiner had purchased The Greenhouse Spa, including the Orlando location, prior to issuance of the Steiner Spa Policy. The Orlando location was, according to Mr. Demayo, closed before the policy took effect and, therefore, there was not risk insured in Florida. Mr. Demayo did not explain, however, why the list of spa locations included with the Lexington Insurance Company policy included the Orlando location, why there is no mention in any of the documentation concerning the Steiner Spa Policy of the closing of the Orlando location, or, most importantly, why his office informed Southeastern Risk Specialists that Brokerage Insurance Group would be billing $2,577.75 of Tax for the Steiner Spa Policy. His testimony, summarized in paragraph 18, is therefore rejected as unconvincing. Based upon the foregoing, it is found that Mr. Demayo should have paid Tax for the Steiner Spa Policy. Count III; Failure to File Quarterly Reports. Section 626.931(1), Florida Statutes, requires that surplus lines agents file with the FSLSO a quarterly affidavit, “on forms as prescribed and furnished by the Florida Surplus Lines Service Office, stating that all surplus lines insurance transacted by him or her during such calendar quarter has been submitted to the Florida Surplus Lines Service Office as required.” As of May 7, 2003, Mr. Demayo had failed to file a quarterly report/affidavit with the FSLSO for the following periods: October 1999 through December 1999; January 2000 through March 2000; October 2000 through December 2000; January 2001 through March 2001; July 2001 through September 2001; April 2002 through June 2002; and July 2002 through September 2002; 23 Mr. Demayo also failed to timely file a quarterly report/affidavit with FSLSO for the following periods: April through June 2007; July through September 2007; October through December 2007; and January through March 2008. Count IV; Filing False Quarterly Reports and Failing to Remit the Tax. In the Administrative Complaint, the Department alleges that Mr. Demayo filed false quarterly reports for nine different quarters. For some of those reports, the Department also alleged that Mr. Demayo failed to remit Tax. The Department alleged specifically which policies were falsely reported and for which policies, no Tax was remitted (hereinafter collectively referred to as the “Disputed Policies”). In its Proposed Recommended Order, the Department has addressed fewer quarterly reports and policies than alleged in the Administrative Complaint. To the extent that reports or policies included in the Administrative Complaint were not addressed in the Proposed Recommended Order, those allegations were not proved. April 1999 through June 1999 Quarter. Mr. Demayo signed a Quarterly Report Affidavit and Tax Return (page 78 of Petitioner’s Exhibit 2)(hereinafter referred to as the “Quarterly Report”), for the April 1, 1999, through June 30, 1999, quarter, representing that “no surplus lines business was transacted during the calendar quarter.” Consequently, no Tax was paid. On March 11, 2003, Mr. Demayo reported to the FSLSO that he had written a surplus lines policy, which was placed with Lloyd’s Underwriters at London (hereinafter referred to as “Lloyd’s”), for Greater Atlantic Holdings, policy number C35087/99, effective April 8, 1999 (hereinafter referred to as the “Greater Atlantic Policy”). The only evidence as to whether Tax was due on the Greater Atlantic Policy came from Mr. Demayo, who testified that Greater Atlantic Holdings was a Bahamian company and that all the risks for the policy, since it was placed with Lloyd’s, was located outside Florida. This testimony is credited and, therefore, the transaction was not reportable and no Tax was due. July 1999 through September 1999. Mr. Demayo signed the Quarterly Report (page 79 of Petitioner’s Exhibit 2), for the July 1, 1999, through September 30, 1999, quarter, representing that “no surplus lines business was transacted during the calendar quarter.” Consequently, no Tax was paid. On March 21, 2003, Mr. Demayo reported to the FSLSO that he had written a surplus lines policy, which was placed with Markel International Insurance Company Limited, for Trans- Photo, policy number TE9900, effective August 5, 1999 (hereinafter referred to as the “Tans-Photo Policy”). The Department has correctly pointed out that Mr. Demayo’s testimony concerning Markel International Insurance Company Limited and other companies with the name “Markel” in them was confusing, at best. Mr. Demayo testified clearly and convincingly, however, that the policy had no connection with Florida and was, therefore, neither a reportable policy or one subject to Tax. The only evidence concerning the nature of the Trans-Photo Policy, provided by Mr. Demayo, was that the policy was for marine cargo with no Florida exposure purchased. April 2000 through June 2000. Mr. Demayo signed the Quarterly Report (page 81 of Petitioner’s Exhibit 2), for the April 1, 2000, through June 30, 2000, quarter, representing that “no surplus lines business was transacted during the calendar quarter.” No Tax was paid. On February 28, 2003, Mr. Demayo reported to the FSLSO that he had written a renewal surplus lines policy for Image, which was placed with Lloyd’s, policy number C00564/00, effective April 7, 2000 (hereinafter referred to as the “Images Policy”). The same date, Mr. Demayo reported to the FSLSO that he had written a surplus lines policy for Greater Atlantic Holdings, which was placed with American International Specialty Lines Insurance, policy number EX54300046, effective April 14, 2000 (hereinafter referred to as the “Greater Atlantic Renewal Policy”). Tax on this renewal policy was paid by Mr. Demayo on or about April 30, 2003. Finally, Mr. Demayo received additional premium for a Greater Atlantic Holdings policy, policy number C35087/99, placed with Lloyd’s. Additional premium was received twice, one amount effective April 8, 2000, and the other effective April 11, 2000 (hereinafter referred to as “GAH Additional Premium”). These transactions were not reported until March 6, 2003, and March 11, 2003, respectively. Image is a photo concessionaire which places photo imaging equipment on ships, which is used outside of Florida. The evidence failed to prove that the coverage for the Image Policy had any connection with Florida. e. The only evidence as to whether Tax was due on the Greater Atlantic Policy came from Mr. Demayo, who testified that Greater Atlantic Holdings was a Bahamian company and that all the risks for the policy, since it was placed with Lloyds, was located outside Florida. This testimony is credited. Therefore the Greater Atlantic Renewal Policy and the GAH Additional Premium transactions were not subject to Tax or reporting. July 2000 through September 2000. Mr. Demayo signed the Quarterly Report (page 80 of Petitioner’s Exhibit 2), for the July 1, 2000, through September 30, 2000, quarter, representing that “no surplus lines business was transacted during the calendar quarter” and that zero Tax was paid. On March 11, 2003, Mr. Demayo reported to the FSLSO that he had received additional premium for a Greater Atlantic Holdings policy, placed with Lloyd’s, policy number C35087/99, effective August 18, 2000 (hereinafter referred to as the “Third GAH Additional Premium”). The only evidence as to whether Tax was due on the Third GAH Premium came from Mr. Demayo, who testified that Greater Altantic Holdings was a Bahamian company and that all the risks for the policy for which the additional premium was paid, since it was placed with Lloyds, was located outside Florida. This testimony is credited. Therefore the Third GAH Additional Premium transaction was not subject to Tax or reporting. April 2001 through June 2001. Mr. Demayo signed the Quarterly Report (page 83 of Petitioner’s Exhibit 2), for the April 1, 2001, through June 30, 2001, quarter, representing that “no surplus lines business was transacted during the calendar quarter” and that zero Tax was paid. On February 28, 2003, Mr. Demayo reported to the FSLSO that he had placed a renewal policy for Image, placed with Lloyd’s, policy number C00564/01, effective May 11, 2001 (hereinafter referred to as the “Image Renewal Policy”). The only evidence as to whether Tax was due on the Image Renewal Policy came from Mr. Demayo, who testified that the Image Renewal Policy was a marine policy with no Florida exposure. This testimony is credited. Therefore the Image Renewal Policy was not subject to Tax or reporting. October 2001 through December 2001. Mr. Demayo signed the Quarterly Report (page 84 of Petitioner’s Exhibit 2), for the October 1, 2001, through December 31, 2001, quarter, representing that “no surplus lines business was transacted during the calendar quarter” and that zero Tax was paid. On February 6, 2003, Mr. Demayo reported to the FSLSO that he had placed a new business policy for Maritime Telecommunication, placed with Lloyd’s, policy number C00606/01, effective November 9, 2001 (hereinafter referred to as the “Maritime Policy”). On the same date, Mr. Demayo also reported that he had placed a renewal policy for Image Photo Services, Inc., with American International Specialty Lines Insurance Company, policy number EX54300010, effective November 30, 2001 (hereinafter referred to as the “IPS Renewal Policy”). Tax on the IPS Renewal Policy was paid on or about April 30, 2003. Finally, Mr. Demayo also reported that he had placed a renewal policy for Ocean Images with Lloyd’s, policy number 51/2001LP, effective October 19, 2001 (hereinafter referred to as the “Ocean Renewal Policy”). The only evidence as to whether Tax was due on the Image Renewal Policy or the Ocean Renewal Policy came from Mr. Demayo, who testified that both were marine policies with no Florida exposure. This testimony is credited. Therefore the Image Renewal Policy and the Ocean Renewal Policy were not subject to Tax or reporting. January 2003 through March 2003. Mr. Demayo signed the Quarterly Report (page 86 of Petitioner’s Exhibit 2), for the January 1, 2003, through March 31, 2003, quarter, representing that “no surplus lines business was transacted during the calendar quarter” and that zero Tax was paid. On March 18, 2003, Mr. Demayo reported to the FSLSO that he had placed a renewal policy for Image, placed with Lloyd’s, policy number C7027/00, effective February 20, 2003 (hereinafter referred to as the “2003 Image Renewal Policy”). The only evidence as to whether Tax was due on the 2003 Image Renewal Policy came from Mr. Demayo, who testified that the 2003 Image Renewal Policy was a marine policy with no Florida exposure. This testimony is credited. Therefore the 2003 Image Renewal Policy was not subject to Tax or reporting. The evidence presented by the Department in support of the allegations of Count IV was circumstantial and indirect. The Department has suggested that the following proposed facts support its position with regard to the April 1999 through June 1999 Quarterly Report, paragraph 35 of the Department’s Proposed Recommended Order: Respondent filed the policy with FSLSO [Dept. Ex. No. 2 at 73] Respondent did not backout the policy from the FSLSO system. [Dept. Ex. No. 13]. If the policy should never have been filed with FSLSO, as Respondent now asserts, then Respondent would have backed out the policy from the FSLSO system. Southpoint Pharmacy, 596 So.2d at 109 (an ALJ may make reasonable inferences). After all, Respondent has backed out dozens of other policies and additional premium transactions that he filed with FSLSO, [Depart. Ex. No. 13], including the contemporaneously filed policies identified in Paragraphs 19a, 19d, and 19e of the Amended Complaint. [Dept. Ex. No. 2 at 73, 74]; [Dept. Ex. No. 2 at 73 (Respondent entered new business for Greater Atlantic Holdings (policy number 361261011999) on 3/19/2003 with FSLSO and backed out of that transaction the very following day (the Department incorrectly charged the Respondent with the backout in ¶ 19b of the Amended Complaint)]; [Dept. Ex. No. 13 at First Quarter 2007 at page 3]. And Respondent has had nearly six years to back out this policy. [Dept. Ex. No. 2 at 73 (policy filed with FSLSO on 3/19/2003)]. Yet, Respondent hasn’t done so. [Dept. Ex. No. 13]. Additionally, Respondent claims that Matt Webster and Lisa French, employees of FSLSO, assisted him in backing out policies that he filed in error, such as policies that had no Florida risk. [Tr. At 168, 238-239]. If Matt Webster and Lisa French assisted Respondent, there is a good reason why this policy was not backed out of the FSLSO system; the policy was required to be filed with FSLSO. Southpointe Pharmacy, 596 So.2d at 109 (an ALJ may make reasonable inferences). The Department has suggested essentially the same proposed facts support its position with regard to all of the Quarterly Reports at issue in Count IV. The Department’s argument that the suggested inferences support the allegations of the Administrative Complaint, is rejected. Mr. Demayo explained why he reported the Disputed Policies: Mr. Able suggested that he do so, and Mr. Demayo, concerned about the consequences of not reporting them, followed Mr. Abel’s advice. Mr. Demayo’s explanation for why the Disputed Policies were reported to FSLSO was a reasonable one and, given the lack of evidence to the contrary, has been credited. Therefore, no inference can reasonably be drawn from the fact that Mr. Demayo reported the Disputed Policies to FSLSO. Without this suggested inference, little is left to support the Department’s allegations. Ultimately, while Mr. Demayo’s testimony was often self-serving and somewhat misleading, it was not his burden to prove the true nature of the coverage of the Disputed Policies. It was the Department that was required to prove, clearly and convincingly, that the coverage of the Disputed Policies had a connection with Florida. Virtually no such proof was presented by the Department, while Mr. Demayo testified that none of the policies had any connection with Florida. Mr. Demayo offered an explanation of the nature of the coverage of each of the Disputed Policies while the Department offered essentially no direct evidence. The Department failed to prove that the Disputed Policies had any connection with the State of Florida and, therefore, Mr. Demayo was not required to report them in a Quarterly Report or make payment of any Tax on them.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department finding that Henry Symeon Demayo violated the provisions of Chapter 626, Florida Statutes, described, supra; dismissing all other charges; suspending his licenses for a period of three months; and requiring that he pay an administrative fine of $2,500.00. DONE AND ENTERED this 19th day of August, 2009, in Tallahassee, Leon County, Florida. LARRY J. SARTIN 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 August, 2009. COPIES FURNISHED: Robert Alan Fox, Senior Attorney Division of Legal Services Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Sophie Demayo, Esquire 9100 Southwest 115th Terrace Miami, Florida 33176 Tracey Beal, Agency Clerk Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Benjamin Diamond, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307
