The Issue Whether Respondent, Gregory Bruce Sample, should be disciplined for alleged statutory and rule violations for his role in several insurance transactions.
Findings Of Fact Count I – Jewel Frisani Jewel Frisani was born December 22, 1932. As of September 23, 2010, Ms. Frisani owned two annuities; one issued by MetLife and the other issued by ING Golden American (ING). Ms. Frisani was withdrawing $500 per month from each annuity for a total of $1,000 per month, or $12,000 per year. Death benefits were provided as a feature of each annuity. On September 23, 2010, Ms. Frisani attended a luncheon seminar hosted by Respondent. While at the seminar, Ms. Frisani completed a questionnaire wherein she provided her name, address, and phone number. The questionnaire directs that individuals completing the same should note thereon “Topics of Most Interest to Me.” The questionnaire lists some 25 topics and Ms. Frisani noted that she was only interested in having Respondent to “[r]eview[] [her] existing annuity(ies).” One of the listed topics is “[e]state [p]lanning.” Ms. Frisani did not indicate on the form that she was interested in discussing with Respondent matters related to planning her estate. Soon after the seminar, Respondent contacted Ms. Frisani and they agreed that they would personally meet on October 5 and October 11, 2010, to discuss matters related to her existing annuities. On October 5, 2010, Ms. Frisani met with Respondent to discuss her MetLife and ING annuities. During the meeting, Ms. Frisani showed Respondent a “Portfolio detail” for her ING annuity and a “snapshot” summary of her MetLife annuity. The “Portfolio detail” showed that as of September 30, 2010, the ING annuity had a market value of $65,604.77. The “snapshot” of Ms. Frisani’s MetLife annuity showed that at the beginning of the year, the opening value of her annuity was $50,638.98 and her closing value as of September 30, 2010, was $46,807.73. Neither the “Portfolio detail” nor the “snapshot” summary listed any charges associated with surrendering either annuity. During the meeting with Respondent on October 5, 2010, Ms. Frisani informed Respondent that her “annuities were going to be [the] inheritance for [her] granddaughter.” This explains why the words “Prisilla Frisani granddaughter” appear in Respondent’s handwriting on the bottom of the “Portfolio detail.” Although Ms. Frisani informed Respondent of her desire to leave an inheritance for her granddaughter, she did not impress upon Respondent that any new product(s) that she might purchase must offer death benefits in an amount not less than what she already had with MetLife and ING. Specifically, as to this issue, Ms. Frisani testified as follows: Q. What investment goals did you share with [Respondent] at that meeting? What did you tell him you wanted out of -- A. I wanted him to see if he could do better than what I was getting from my annuities. Q. Okay. And as you stated earlier, what you did like about your old annuities was that -- what was it that you stated earlier that you liked about your old annuities? A. Oh, that I was getting a thousand a month from my -- from my checking, and then they had death benefits for my granddaughter. Q. Did you also share with Mr. Sample that you wanted to continue those benefits? A. No, I didn’t mention that to him there. Q. You didn’t mention the death benefits? A. The death benefits, no. Q. Did you mention -- so you just mentioned that you wanted -- A. I wanted him to make sure that what he was doing would go in the trust, and that I would continue getting my thousand a month. Q. Okay. A. -- from the annuities -- Q. Okay. A. -- and that I wouldn’t lose no money by switching. Q. Okay. And you say he was aware that both annuities had death benefits? A. Well, I don’t know if he was aware of that or not, but Q. Okay. We didn’t discuss too much about the death benefits. Final Hearing Transcript, pp. 149-151. Respondent credibly testified that had Ms. Frisani explained to him that her objective was to maximize the death benefits payable to her granddaughter, then he would have recommended life insurance as a vehicle for her investments instead of annuities. Ms. Frisani also contends that during her meeting with Respondent on October 5, 2010, he assured her that she would not lose any money by surrendering the ING and MetLife annuities. When Ms. Frisani met with Respondent on October 5, 2010, she informed Respondent she was taking a $500 per month partial withdrawal from her ING annuity as well as a $500 per month partial withdrawal from her MetLife annuity. Ms. Frisani also had $200,000 in the bank, some of which may have been in a money market account. When asked if she shared information with Respondent concerning the $200,000, Ms. Frisani testified that “I might have mentioned it, yeah.” Ms. Frisani's ING annuity was characterized as a qualified retirement account. Due to her age, in order to avoid a tax penalty on this qualified account, Ms. Frisani was required to take a minimum distribution of four percent annually. Ms. Frisani's MetLife annuity was a non-qualified account. Therefore, she did not have to take from it any required minimum distributions (RMD). Respondent suggested to Ms. Frisani that as a means of paying less in taxes and obtaining growth on her investments, without losing any principal in the stock market, she should consider replacing the ING and MetLife variable annuities with National Western fixed annuities, and that for her $12,000 annual withdrawals she should take $3,000 a year in partial withdrawals from the National Western qualified annuity he was offering her and $9,000 a year from her money market account. The $3,000 per year in withdrawals from the qualified National Western annuity would satisfy her RMD without incurring any penalty. Since her money market account was paying very little interest, the $9,000 a year from this account would make up the balance of money she needed for her annual income. The non-qualified National Western annuity could then grow at a higher interest rate than the funds in Ms. Frisani's money market account. In order to assist Ms. Frisani with her efforts to learn more about the National Western annuity, Respondent, during the meeting of October 5, 2010, gave Ms. Frisani a copy of National Western's multi-page brochure. The brochure allowed Ms. Frisani to familiarize herself with the National Western annuity prior to their next meeting on October 11, 2010. On October 11, 2010, Ms. Frisani met with Respondent a second time. During this meeting, Ms. Frisani signed several forms related to the surrender of the ING and MetLife annuities, and the purchase of annuities from National Western. It is undisputed that each form was completed by Respondent and signed by Ms. Frisani. Ms. Frisani testified that she did not bother to read the documents that Respondent gave her to sign.3/ One of the forms signed by Ms. Frisani for each of the National Western annuities is the Annuity Suitability Questionnaire. The questionnaire asks two related questions. The first question asks “[w]ill the proposed annuity replace any product?” and the second asks “[i]f yes, will you pay a penalty or other charge to obtain these funds?” The answer noted on the form to the first question is “yes,” and the answer to the second question is “no.” During the October 11, 2010, meeting with Respondent, Ms. Frisani also signed, for both National Western annuity contracts, a “Disclosure and Comparison of Annuity Contracts” form (Comparison form). This form facilitates the side-by-side comparison of certain features of an existing annuity contract with those of a replacement annuity contract. Near the top of the Comparison form, there is a line where the contract number for the existing annuity is to be placed. On the Comparison form for the MetLife annuity, the contract number “3201353529” appears. This is the correct contract number for the MetLife annuity. On the Comparison form for the ING annuity, the contract number “I038301-0D” appears. This is the correct contract number for the ING annuity. Neither of these contract numbers appears on the “snapshot” or the “Portfolio detail” documents that Ms. Frisani presented to Respondent during their initial meeting on October 5, 2010. Ms. Frisani received quarterly statements from both ING and MetLife for the annuity contracts that she had with these companies. The ING and MetLife quarterly statements for the period ending September 30, 2010, each lists the annuity contract number, the contract date, and other pertinent information. The MetLife quarterly statement indicates that as of September 30, 2010, Ms. Frisani’s MetLife annuity had an account balance of $46,684.92 and a death benefit in the amount of $57,160.41. Ms. Frisani’s ING quarterly annuity statement for the period ending September 30, 2010, shows the following: Guaranteed Minimum Death Benefit $115,859.39 Accumulation Value $ 65,491.51 Surrender Charges $ 1,345.01 Cash Surrender Value $ 64,146.50 When Respondent met with Ms. Frisani on October 11, 2010, the evidence reasonably suggests that Ms. Frisani had her quarterly statements with her and presented the same to Respondent so as to assist him with completing the paperwork related to the surrender of Ms. Frisani’s existing annuities and the purchase of the new annuities from National Western. For Ms. Frisani’s MetLife annuity, Respondent wrote on the Comparison form that this annuity contract was issued in “Yr99.” The MetLife quarterly statement that Ms. Frisani presented to Respondent shows, however, that the actual date of issue for the MetLife annuity was April 22, 2005. The evidence does not sufficiently explain this discrepancy. For the MetLife annuity, Respondent also noted on the Comparison form that this annuity had a nine year surrender charge period and a first year surrender charge rate of nine percent that decreased by one percentage point each year that the annuitant maintained the policy. Although Respondent accurately noted the surrender period and related percentages on the Comparison form, it is not clear from the evidence where Respondent got this information, given that neither the MetLife quarterly statement for the period ending September 30, 2010, nor the “snapshot” make mention of surrender charges or related percentages. Respondent, nevertheless, obviously knew of the surrender period and related charges for Ms. Frisani’s MetLife annuity. The Comparison form also notes that the MetLife annuity provides for a “Waiver of Surrender Charge Benefit or Similar Benefit.” Again, however, there is nothing in the MetLife quarterly statement or “snapshot” that makes mention of the waiver of any surrender or similar charges. During the meeting with Respondent on October 11, 2010, Ms. Frisani also signed, for the MetLife annuity, a form titled “DISCLOSURE OF SURRENDER CHARGES IF EXISTING ANNUITY IS REPLACED OR EXCHANGED.” There is a section of the disclosure form where estimated surrender charges are noted. For this section, Respondent wrote in “0” as the amount of surrender charges associated with replacing the MetLife annuity with an annuity from National Western. Contrary to Respondent’s representations on the form, Ms. Frisani incurred $2,142.50 in surrender charges related to the surrender of the MetLife annuity contract. On October 11, 2010, when Respondent met with Ms. Frisani, he knew, or should have known, based on the information available to him, that Ms. Frisani would incur surrender charges related to the surrender of the MetLife annuity. The totality of the evidence as to this transaction indicates that Respondent willfully misled Ms. Frisani, thus causing her to be misinformed about the charges related to the surrender of her MetLife annuity. Petitioner also alleges that Ms. Frisani suffered financial harm as a result of Respondent deceiving her into believing that she would not incur charges related to the surrender of her ING annuity. According to Petitioner, Ms. Frisani incurred $1,345.01 in surrender charges related to this transaction. The evidence of record is insufficient to support this allegation. The “DISCLOSURE AND COMPARISON OF ANNUITY CONTRACTS” form that Respondent completed for Ms. Frisani’s ING annuity notes that nine years was the surrender charge period for this annuity. If this representation is true, the surrender charge would terminate in November 2009. Petitioner’s Exhibit 37 contains a summary of the terms of Ms. Frisani’s ING annuity and it shows seven years as the surrender charge period for this annuity. Whether it is seven years or nine years, neither of these yearly figures would result in a surrender charge, given that Ms. Frisani had held the ING annuity for nine years and eleven months at the time of actual surrender. To further complicate matters, Ms. Frisani’s ING quarterly statement for the period ending September 30, 2010, shows that if she were to surrender the annuity on September 30, 2010, she would incur $1,345.01 in surrender charges. As previously noted, Ms. Frisani’s ING annuity, as of September 30, 2010, had an accumulated value of $65,491.51. Subtracting the stated surrender charges would result in a cash surrender value of the ING annuity of $64,146.50. When this annuity was actually surrendered on or about October 25, 2010, ING issued a check in the amount of $65,172.33 to National Western for Ms. Frisani’s new annuity. The evidence does not explain with sufficient clarity why there is only a $319.18 difference between the accumulated value as of September 30, 2010, and the actual cash surrender value as of October 25, 2010. Also, on or about October 22, 2010, ING sent Ms. Frisani a “Confirmation Notice” regarding transactions related to her annuity account. The Confirmation Notice provides the name (Jeffrey A. Masters), phone number, and mailing address for Ms. Frisani’s ING financial advisor along with a notice advising that “The ING Variable Annuity Customer Contact Center is available Monday through Thursday 8:30 AM to 6:30 PM Eastern Time and Friday 8:30 AM to 5:30 PM Eastern Time at 1-800-366- 0066.” The Confirmation Notice also states the following: IMPORTANT NOTICE: Please carefully review all of the transactions detailed on this confirmation notice. You must inform us of any errors we may have made with respect to allocations of your investment dollars within30 days from the date of this notice. If you do not respond within 30 days, all allocations listed on this confirmation notice will be deemed final pursuant to your instructions. The Confirmation Notice lists two transactions with an effective date of October 22, 2010. The first transaction shows a “Total Cash Surrender” of $65,172.33, and the second transaction shows a “Total Surrender Charge” of $1,345.01. Independent of what Respondent may have told Ms. Frisani, she was given notice by ING that there was a $1,345.01 charge associated with surrendering her ING annuity and that she had 30 days from the date of the notice to inform ING about any irregularities associated with the transaction. There is no evidence that Ms. Frisani ever contacted ING or Jeffrey A. Masters about the $1,345.01 surrender charge. Also, Ms. Frisani had until November 21, 2010, to inquire about the surrender charges or any other matters, including death benefits, related to the surrender of her ING policy. There is no evidence suggesting that Ms. Frisani availed herself of this option. Petitioner failed to prove that Ms. Frisani suffered, as a consequence of Respondent’s conduct, financial harm in the amount of $1,345.01, as alleged. The Department also alleges that Respondent misrepresented to Ms. Frisani that she would receive a $9,000 bonus following her first year of ownership of the National Western annuities. Respondent denies this allegation. None of the documentary evidence references a $9,000 bonus and the only testimony regarding this alleged bonus is from Ms. Frisani. Ms. Frisani’s testimony, without more, is insufficient to satisfy Petitioner’s burden with respect to this allegation. In its Proposed Recommended Order, Petitioner contends that Respondent “stated on Ms. Frisani’s disclosure and comparison of annuity contracts that she would not incur any administrative fees or margins, but the National Western (annuity number 0101255052) contract clearly states otherwise.” It is correct that the disclosure and comparison form notes that the National Western annuity will have zero “Administrative fees or Margins.” The disclosure and comparison form in evidence does not define what constitutes an administrative fee or margin. Petitioner equates the “charge” that Ms. Frisani paid for the National Western annuity withdrawal benefit rider with an administrative fee, but the record does not support Petitioner’s conclusion. There is no indication that National Western considers the charge for the withdrawal benefit rider as an administrative fee. The National Western documents signed by Ms. Frisani advise that “[t]he Account Value of the policy is reduced each year by the Annual Rider Charge” and “[t]here is a charge for this rider, which is assessed annually.” (emphasis added). In looking at Ms. Frisani’s National Western statement for this annuity for the period November 4, 2010, through September 26, 2011, the only “fee” listed is an “Option A Asset Fee” that shows zero as the percentage associated with it. The annual rider charge is not listed as an “administrative” or any other type of fee. Without more, the undersigned is unable to conclude that the annual rider charge is the equivalent of an “administrative fee” as these terms are used in the disclosure and comparison form signed by Ms. Frisani on October 11, 2010. Respondent explained his rationale for recommending the National Western annuities to Ms. Frisani. He estimated that Ms. Frisani may have made $5,000 with her ING variable annuity in the ten years that she owned it and $5,000 with the MetLife variable annuity in the five years she owned that annuity, so her net return was a half percent and one percent, respectively. On the other hand, the National Western fixed annuities Respondent sold Ms. Frisani had a guaranteed five percent growth so she would be earning ten times the amount she had been making on her ING annuity and five times the amount for her MetLife annuity. The National Western annuities also included a five percent bonus, which approximated $6,000. Respondent summarized his comparison of the National Western annuities he sold Ms. Frisani with the ING and MetLife annuities she previously owned as follows: [S]o she had these old contracts with no safety, that had produced a half percent interest from the get-go for ten years. We moved her to National Western, which is an equity index annuity. The principal is fixed. It had a five percent income rider guarantee, which is what she wanted. And we were able to take the nonqualified account and just let it grow. The other is the qualified contract. She -- she has to take out four percent for her RMD. She's making five, which means she continues to actually make some money. Had she stayed with the variable, she was just depleting it every year by this four percent. So she was losing principal every year, so we stopped that. We stopped that. It's stopped cold. Final Hearing Transcript, pp. 1157-1158. Respondent further explained that Ms. Frisani's National Western annuities are structured so she can withdraw up to ten percent annually from the account, but if she does not take any withdrawals in the first year then she is allowed to take up to twenty percent in the second year, and if she elects not to take any withdrawals in the second year then she may withdraw up to thirty percent for the third year, and so on for the duration of the annuity period. Respondent had an objectively reasonable basis for recommending the National Western annuities to Ms. Frisani. Count II – Fred and Eileen Sarracino Fred Sarracino and Eileen Sarracino are married and reside in Lake Placid, Florida. Mr. Sarracino was born on September 20, 1934, and is a retired automobile mechanic. Mrs. Sarracino was born on February 1, 1935, and is retired from working for an insurance broker in Pennsylvania. In October 1993 Mr. Sarracino paid an initial premium of $2,000 towards the purchase of an Allmerica Financial Life Insurance and Annuity Company variable annuity contract (Commonwealth 46). Over the next 15 years, he added premium payments to Commonwealth 46 so that it had a surrender value of $46,435.53 on June 30, 2008, and an enhanced death benefit of approximately $54,000 on March 31, 2008. In October 1993 Mrs. Sarracino paid an initial premium of $2,000 towards the purchase of a separate Commonwealth variable annuity contract (Commonwealth 45). Over the next 15 years, she added premium payments to Commonwealth 45 so that it had a surrender value of $18,979.81 on June 30, 2008, and an enhanced death benefit of approximately $75,000 on March 31, 2008. In September 1997 Mrs. Sarracino paid an initial premium payment of $94,226.16 toward another Commonwealth variable annuity contract (Commonwealth 03). Over the next 11 years, she added premium payments to Commonwealth 03 so that it had a surrender value of $172,831.01 on June 30, 2008, and an enhanced death benefit of over $237,000 on March 31, 2008. During the initial months of 2008, Mr. and Mrs. Sarracino were losing money on their Commonwealth variable annuities and decided, in mid-2008, to attend a seminar presentation hosted by Respondent at a restaurant in Sebring, Florida. Mr. and Mrs. Sarracino met privately with Respondent on June 30, 2008. Acting on Respondent’s recommendations, Mr. Sarracino surrendered Commonwealth 46 and used the proceeds of $46,435.53 to purchase an Old Mutual Financial Life Insurance Company annuity (Old Mutual 67). Mrs. Sarracino surrendered Commonwealth 45 and applied the proceeds of $18,979.81 to purchase an Old Mutual annuity (Old Mutual 68). Mrs. Sarracino also surrendered Commonwealth 03 and applied the proceeds of $172,402.45 to purchase yet another Old Mutual annuity (Old Mutual 69). In total, Respondent earned $31,428.52 in commission from these transactions. When Respondent took the applications for each of the Old Mutual annuities, he misrepresented the financial profile of the Sarracinos on the annuity suitability forms. Respondent accomplished this in part by having the Sarracinos sign blank suitability forms which Respondent later filled in with false information.4/ Respondent falsely noted on the suitability form that Mrs. Sarracino’s monthly disposable income was $1,600. Mrs. Sarracino credibly testified that her monthly disposable income when she met with Respondent was more in the range of four to five hundred dollars. Respondent also falsely noted on the form that Mrs. Sarracino owned $60,000 worth of certificates of deposit (CDs), variable annuities amounting to $300,000, and had $60,000 in mutual funds. Respondent noted on the suitability form that Mr. Sarracino, like his wife, also had monthly disposable income in the amount of $1,600. This is false. Respondent also falsely noted on the form that Mr. Sarracino owned $60,000 worth of CDs, variable annuities totaling $300,000, and $60,000 in mutual funds. Finally, Respondent falsely stated that Mr. Sarracino owned a life insurance policy with a cash value of $10,000. The unrefuted evidence is that Mr. Sarracino has never owned a life insurance policy of any amount. Respondent willfully misrepresented the financial profile of the Sarracinos so that they could pass Old Mutual’s underwriting standards and he could receive a commission. Count III – Warren and Darlene Morgan Warren and Darlene Morgan are married and live in Port Charlotte, Florida. Mr. Morgan was born on May 24, 1947. Mrs. Morgan was born on April 21, 1948. In 2005, the Morgans decided they should consult a financial advisor closer to their home. In May and June 2005, the Morgans met with Respondent for the purpose of purchasing four Allianz annuities. On May 28, 2005, Mr. Morgan made an initial premium payment of $56,949.16 toward the purchase of the first Allianz annuity contract (Allianz 32). On May 28, 2005, Mr. Morgan made an initial premium payment of $16,701.27 toward the purchase of a second Allianz annuity contract (Allianz 22). On May 28, 2005, Mrs. Morgan purchased the third Allianz annuity contract (Allianz 02). The initial premium payment was $16,701.27. On June 15, 2005, Mrs. Morgan purchased the fourth Allianz annuity contract (Allianz 43). She made three premium payments on this policy between May 28, 2005, and June 15, 2005, totaling $68,040.34. Each of the Allianz annuities Respondent sold the Morgans was intended as a long-term investment as evidenced by the respective annuities’ multi-year surrender charge periods and high surrender charge penalties. After purchasing the Allianz annuities, the Morgans and Respondent met annually to review the Morgans' investments, but until 2010, they decided not to change anything. In early calendar year 2010, Respondent, consistent with the practice of conducting their annual review, called the Morgans and informed them of a new product that might appeal to them. Respondent and the Morgans met on January 7, 2010, and Mrs. Morgan testified that Respondent compared the new product with the Allianz annuities they owned. Mrs. Morgan stated in her testimony that “we asked a lot of questions” during the meeting with Respondent. Mrs. Morgan thoughtfully considered the merits of purchasing the new product and explained that initially she was opposed to replacing their Allianz annuities because she believed the surrender penalty that she and her husband would pay was too steep a price for the exchange. She testified, however, that her husband, Warren, wanted to make the change and so she agreed to do so. On January 7, 2010, when they met with Respondent, Darlene and Warren Morgan were 61 and 62 years of age, respectively, and their investment objective remained focused on growth. During the meeting, Respondent suggested that the Allianz annuities should be replaced with annuities issued by Forethought Life Insurance Company (Forethought) and Old Mutual Financial Life Insurance Company (OM). The Forethought annuities were offering a new feature known as an "income rider" that was not available when the Morgans purchased the Allianz annuities in 2005. Allianz 32 was exchanged for a Forethought annuity contract (Forethought 03). Mr. Morgan incurred a surrender penalty of $6,151.79 for exchanging this Allianz annuity, which at the time of the exchange was valued at approximately $58,000. Allianz 22 was exchanged for an OM annuity (OM 57). Mr. Morgan incurred a surrender penalty of $4,441.09 for exchanging this Allianz annuity, which at the time of the exchange was valued at approximately $16,000. Allianz 43 was exchanged for a Forethought annuity (Forethought 92). Mrs. Morgan incurred a surrender penalty of $21,469.82 for exchanging this Allianz annuity, which at the time of the exchange was valued at approximately $65,000. Allianz 02 was exchanged for an OM annuity (OM 58). Mrs. Morgan incurred a surrender penalty of $4,441.09 for exchanging this Allianz annuity, which at the time of the exchange was valued at approximately $16,000. Combined, the Morgans incurred $36,503.79 in surrender penalties associated with the exchange of their annuities. Respondent’s total commission for these transactions was $16,581.62. The Administrative Complaint alleges that Respondent “hurriedly pushed annuity application and suitability forms in front of Mr. and Mrs. M[organ] and had them sign them without allowing them any time to review them,” and that the “entire meeting on or about January 7, 2010, lasted approximately 20 minutes.” The Administrative Complaint also alleges that consistent with Respondent’s alleged conduct of rushing the Morgans, he had them sign blank forms related to the exchange of the Allianz annuities. According to Mrs. Morgan’s testimony, the meeting with Respondent on January 7, 2010, lasted approximately 45 minutes (more than twice as long as alleged), during which they “asked a lot of questions.” As for the issue of allegedly signing blank forms, Mrs. Morgan testified as follows: Q: Did you sign blank forms or were they partially filled out? A: I don’t know. Because he was at his desk writing very fast. Part of it could have been filled out. Final Hearing Transcript p. 645 Q: All right. But what I’m asking you is: As you sit here today, can you state with certainty that any of the forms that he had you sign were, in fact, blank? A: No, I cannot state with certainty that. Final Hearing Transcript p. 678 The evidence is insufficient to clearly and convincingly establish that the Respondent rushed the Morgans into exchanging their Allianz annuities or that Respondent had them to sign blank documents. Respondent, in filling out the transfer, application, and suitability forms for the purchase of the Forethought and OM annuities, listed therein information regarding the Morgans that was false. Respondent included a false statement that the Morgans had a net worth of $400,000, excluding the value of their home, that the Morgans’ liquid assets totaled $65,000, and that the Morgans owned CDs. Respondent willfully misrepresented the financial profile of the Morgans so that they could pass the Old Mutual and Forethought underwriting standards thereby allowing him to receive a commission. Petitioner, in its Proposed Recommended Order, offers several proposed factual findings that ultimately show, “[b]ased on all of the evidence, [that] there was no objectively reasonable basis to recommend the Morgans’ annuity exchanges. § 627.4554(4)(a), Fla. Stat. (2010).” Section 627.4554, by its express terms, only applies to “Senior consumers” that are “65 years of age or older.” Neither of the Morgans was within this age range when they met with Respondent in 2010 and, therefore, section 627.4554 cannot be relied upon by Petitioner as a basis for imposing disciplinary action against Respondent. Count IV Petitioner withdrew Count IV of its Administrative Complaint. Count V – Joel and Evelyn Langer Petitioner alleges that Respondent told Joel and Evelyn Langer that he was familiar with the “IRS 72t rule,” when in reality he was not, and because of his unfamiliarity with this rule, this meant that Respondent “knew that by selling the Langers’ annuities, they would incur substantial withdrawal penalties [pursuant to] the terms of the[ir] annuity contracts.” The essence of this allegation is that Respondent did something wrong in arranging for the issuance of the OM annuities that adversely affected the Langers’ 72(t) protections with the Internal Revenue Service (IRS) and also caused them to lose money. Joel and Evelyn Langer are married and reside in Port Charlotte, Florida. Mr. Langer was born on September 10, 1948. Mrs. Langer was born on August 31, 1949. During their employment, Mr. and Mrs. Langer put their savings in mutual funds managed by Royal Bank of Canada Wealth Management (RBC). Mr. and Mrs. Langer were forced into early retirement before reaching age 59 1/2. The mutual fund investments then became their only liquid assets and they depended on these funds for income. On February 21, 2008, Mr. and Mrs. Langer, who were 58 and 59 years of age respectively, attended a luncheon seminar Respondent hosted in Port Charlotte, Florida. The Langers were interested in obtaining more information about annuities, because they had their life savings invested in the stock market, which was rapidly declining, and they were looking to move their funds to another investment product. The Langers felt annuities would be “a safer investment.” The Langers met with Respondent and explained that they would need immediate income that would qualify for disbursement under the 72(t) provisions of the federal income tax code. Because the Langers had been forced into early retirement, they had elected to draw on their investments through the 72(t) provisions of the federal income tax code. The 72(t) provisions allow the investor, prior to age 59 1/2, to receive distributions from their retirement investment, in substantially equal periodic payments without paying a penalty for early withdrawal, provided the investor receives the distribution for a period of five years without interruption. Respondent placed all of Mr. and Mrs. Langer’s liquid assets into three Old Mutual annuity contracts, hereinafter “Old Mutual 02,” “Old Mutual 03” and “Old Mutual 04.” On March 7, 2008, Mrs. Langer purchased Old Mutual 02. The initial premium was paid with an RBC check in the amount of $237,563.23, made payable to Old Mutual Financial Life. Respondent earned a commission in the amount of $26,131.96 for this transaction. On March 7, 2008, Mr. Langer purchased Old Mutual 03. The initial premium was paid with an RBC check in the amount of $393,073.89, made payable to Old Mutual Financial Life. Respondent earned a commission in the amount of $43,238.13 for this transaction. On March 7, 2008, Mrs. Langer purchased Old Mutual 04. The initial premium was paid with an RBC check in the amount of $72,572.48, made payable to Old Mutual Financial Life. Respondent earned a commission in the amount of $7,982.97 for this transaction. As previously noted, Petitioner alleges that the Langers incurred “substantial withdrawal penalties” as a consequence of Respondent botching the paperwork related to the Langers maintaining the protections afforded by the IRS 72(t) rule. Although the evidence is not at all clear as to the amounts of the alleged penalties, it appears as though the Langers did not actually incur any penalties, as alleged, because OM, on or about April 8, 2008, issued refund checks to Mr. and Mrs. Langer in the amounts of $1,329 and $2,018, respectively. As for the alleged mishandling by Respondent of the Langers’ IRS 72(t) paperwork, Petitioner's expert witness, John Richard Brinkley, testified that he assumed Respondent failed to send the IRS the necessary paperwork to entitle the Langers to the IRS rule 72(t) privileges for the OM annuities sold to them by Respondent. Mr. Brinkley conceded, however, that he never verified whether the necessary forms were or were not delivered, or to whom such fault should be allocated. Similarly, both Mr. and Mrs. Langer conceded during their testimony that they could not say whether it was Respondent's supposed error in qualifying the OM annuities under the IRS rule 72(t) provisions, or whether the supposed error was the fault of OM itself. The unrefuted evidence is that Respondent faxed OM specific instructions to set up the annuities so that the annuities complied with the IRS rule 72(t) provisions and that OM subsequently confirmed, in letters sent to each of the Langers, that the annuities indeed were being set up to conform to the IRS rule 72(t) provisions. While there is evidence that Respondent initially may have completed the incorrect OM form for this transaction, the evidence is inconclusive as to the effect this had on how the OM annuities were originally structured by the company. Additionally, the Department's investigator, Juanita Midgett, wrote to OM inquiring as to whether Respondent bore any responsibility in ensuring that the annuities he sold the Langers did, in fact, conform to the IRS rule 72(t) provisions. OM's letter in response stated that Respondent bore no responsibility for any “premature penalty tax,” and reminded Ms. Midgett that the Langers were required “to consult their personal tax advisor before submitting a request should they elect to take early distributions from their retirement funds.” Petitioner has failed to meet its burden of proof with respect to this issue. The Administrative Complaint also alleges that “[d]ue to [Respondent’s] failure to take into account the L[angers’] necessity for a monthly income, the OM 02 and OM 03 contracts had to be reissued thereby altering the initial premiums” paid by the Langers. The only argument advanced by Petitioner in its Proposed Recommended Order as to this issue is found in paragraph 35 wherein Petitioner simply restates that Respondent “failed to properly account for the Langers’ need for a monthly income and, as a result, the Old Mutual 02 and Old Mutual 03 contracts had to be reissued thereby altering the initial premiums” paid by the Langers. It is unclear from the evidence why the referenced contracts had to be reissued. Petitioner’s allegations imply that the “altering [of] the initial premiums” resulted in the Langers incurring additional expense as a result of the error, but the evidence is inconclusive as to whether the premium amounts increased or decreased. Petitioner failed to meet its burden of proof with respect to this issue. Paragraph 71(c) of the Administrative Complaint alleges that Respondent “never explained to the [Langers] that all three annuities had huge surrender charge rates and periods, starting at 17.5% for the first year of ownership and diminishing thereafter until the penalty percentage reached 4.5% in the fourteenth year of ownership.” Remarkably, Petitioner’s Proposed Recommended Order as to this allegation simply restates, verbatim, the allegation from the Administrative Complaint and only cites to the annuity contracts themselves as record support for the allegation.5/ This allegation is not sufficiently supported by the evidence, given that Mrs. Langer testified that Respondent explained to them, with respect to the issue of surrender charges associated with the annuities, that they “had to remain in [the annuities] for a period of years.” Paragraph 71(d) of the Administrative Complaint alleges that Respondent “knew that the Langers wanted to be done with the risks associated with the stock market and yet [he] pegged all three Old Mutual annuities to S&P 500 indices in determining their income returns.” Once again, Petitioner merely restates in its Proposed Recommended Order the allegation from the Administrative Complaint and only cites to the annuity contracts themselves as record support for the allegation. Nevertheless, Mrs. Langer testified that “at the seminar, [Respondent] went over the benefits [of the] annuities and went into detailed explanations of his annuity plans being tied to the S&P 500, and he did quite a bit of explaining at the seminar.” The Langers knew that the annuity products that Respondent was selling were tied to the S&P 500 well in advance of purchasing the products. The evidence clearly establishes that the Langers knew what Respondent was selling and that they made a conscientious and informed decision when they ultimately decided to purchase the three Old Mutual annuities. Paragraph 71(e) of the Administrative Complaint alleges that Respondent “checked a box on the Old Mutual suitability forms indicating that Mr. and Mrs. Langer declined to answer the questions propounded on the form, which was false.” Respondent explained that he discussed with the Langers the nature of their assets, but because the totality of their assets consisted of the money in their brokerage account, there was no purpose in completing the "Customer Profile" section of the suitability forms, and so he checked the line on the OM forms indicating that the Langers were declining to answer the questions. Mr. Langer testified that they “explained to [Respondent] that [they] had no other assets to consider” besides their mutual funds. Given this, it is inconsequential that Respondent checked the box signifying that the Langers declined to answer the "Customer Profile" questions. Paragraph 71(g) of the Administrative Complaint alleges that Respondent “refused to respond to the Langers’ inquiries once they discovered the financial losses they suffered [due to] his recommendations.” Respondent generally denies this allegation but offers no specific defense in response thereto. Mrs. Langer credibly testified that Respondent “would not return her calls” after she and her husband realized that there was a problem with the application of IRS rule 72(t) to their Old Mutual annuities. The evidence does not quantify the number of calls or the length of the time period during which the Langers made calls to Respondent. Respondent’s failure to return Mrs. Langer’s phone calls is, under the facts present, inconsequential given that the evidence is not clear and convincing regarding any culpability on Respondent’s part with respect to Old Mutual’s processing of the Langer’s IRS rule 72(t) paperwork. Paragraph 71(h) of the Administrative Complaint alleges that Respondent “never explained the ‘free look’ provision of the three Old Mutual contracts.” As to this allegation, Petitioner, in its Proposed Recommended Order, offers as its only proposed finding of fact that Respondent “nullified the free look option by pre-dating the delivery receipt so as to eliminate the Langer’s option to cancel the contracts.” Alleged actions of “pre-dating” a delivery receipt are substantively different from actions related to the alleged “failure to explain” a contractual provision. Respondent had no pre-hearing notice of the allegation that Respondent “pre-dated” the delivery receipt and therefore this allegation, even if true, is irrelevant to the allegation that Respondent never explained the free look provision of the three Old Mutual annuities. Petitioner has failed to satisfy its burden of proof with respect to the allegation that Respondent “never explained the ‘free look’ provision of the three Old Mutual contracts.” Petitioner has failed to prove by clear and convincing evidence any violations by Respondent with respect to his dealings with the Langers. Count VI – Gail Shane On February 16, 2012, Gail Shane, who was 65 years old at the time (born June 17, 1946) and an unmarried woman, attended a luncheon seminar conducted by Respondent in Sebring, Florida. At the luncheon, Respondent shared with Ms. Shane information that convinced her that Respondent could place her in an investment product suitable for her needs. Ms. Shane met with Respondent in his Sebring office on March 6, 2012. During this meeting, Ms. Shane explained to Respondent that she was looking for an investment product where she could simply park $5,000 and let it “grow,” and that she was not looking for the investment product to provide her with income. In other words, Ms. Shane wanted an annuity product that would guarantee growth and not reduce her principal investment amount. Per Respondent’s recommendation, Ms. Shane purchased a $5,000 annuity issued by National Western Insurance Company (National Western). Respondent’s commission for this transaction was $500. During the meeting with Ms. Shane on March 6, 2012, Respondent did not explain to Ms. Shane that the National Western annuity contained a yearly withdrawal benefit rider that cost $40.95 per year. According to the annuity contract, the withdrawal benefit rider “provides guaranteed minimum withdrawal benefits . . . in an amount selected by [Ms. Shane on a] semi-annual, quarterly, or monthly payment” basis. At the time of purchase, Ms. Shane did not bother to read the terms and conditions of the annuity product and her omission, coupled with Respondent’s failure to explain to her the inclusion in the policy of the yearly withdrawal benefit rider, resulted in Ms. Shane not knowing that the annuity contained the rider. It was only after Ms. Shane received a statement from National Western that she realized that her annuity contained a rider that she did not need and that was otherwise inconsistent with her investment goals of “growth without principal reduction.” Ms. Shane, upon learning of the existence of the yearly withdrawal benefit rider, immediately notified National Western and directed the company to remove the rider from her annuity. Per Ms. Shane’s request, National Western removed the rider from her annuity policy. Respondent did not have an objectively reasonable basis for believing that Ms. Shane desired to have the yearly withdrawal benefit rider as part of her annuity contract. Paragraph 79(d) of the Administrative Complaint alleges that Respondent never explained to Ms. Shane that the National Western annuity “had huge surrender charge rates and periods, starting at 15% for the first year of ownership and diminishing thereafter until the penalty percentage reached 2% in the thirteenth year of ownership.” As previously mentioned, Ms. Shane’s investment objectives were such that she wanted to park her $5,000 initial investment and let it grow. It is true that Respondent did not explain the surrender charge rates to Ms. Shane. However, his failure to do so is not of legal significance given her stated investment strategy. Paragraph 79 of the Administrative Complaint also alleges that Respondent had Ms. Shane to sign suitability forms that were in many respects blank and that Respondent “completed the forms outside [Ms. Shane’s] presence . . . [and] failed to provide a copy to Ms. S[hane] for her review so that she could discover the falsehoods that were being forwarded to National Western [for] its underwriter’s review.” Specifically, paragraph 79(e) of the Administrative Complaint alleges that “after obtaining Ms. S[hane]’s signature on the annuity suitability form, [Respondent] completed the form outside her presence and indicated therein that she had a net worth of $1,000,000 knowing that [this representation] was completely, utterly, and absurdly false.” Ms. Shane credibly testified that when she met with Respondent on March 6, 2012, her net worth was somewhere in the neighborhood of $258,000; not anywhere near the $1,000,000 that Respondent noted on the suitability form. Petitioner’s Hearing Exhibit 261, p. 803, is the Accredited Investor Acknowledgment Form (Acknowledgment Form) signed by Ms. Shane on March 6, 2012. The first sentence of the Acknowledgment Form provides that “National Western Life Insurance Company is prohibited by Florida Law from selling the annuity for which you have applied to any senior consumer (a purchaser 65 years of age or older) unless that senior consumer is an “Accredited Investor.” The Acknowledgment Form also states the following: Florida law defines an “Accredited Investor” as any person who comes within any of the following categories at the time of the sale of an annuity to that person: The person’s net worth or joint net worth with his or her spouse, at the time of purchase, exceeds $1 million; or The person had an individual income in excess of $200,000 in each of the 2 most recent years, or joint income with his or her spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year. The Acknowledgment Form then requires the proposed annuitant to check the appropriate box, sign, and date the form. Respondent checked the box after Ms. Shane signed the form and noted thereon that Ms. Shane’s net worth “exceeds $1 million.” Paragraph 79, subparts (f), (g) and (h), of the Administrative Complaint allege, collectively, that “after obtaining Ms. S[hane]’s signature on the annuity suitability form, [Respondent] completed the form outside her presence and indicated therein that she had an annual income of $50,000.00, . . . liquid assets amounting to $80,000.00, . . . [and] that she owned her own home and that she owned real estate worth $500,000.00, knowing that such information was false.” Ms. Shane credibly testified that in March 2012, her annual income was “closer to $30,000.00,” her liquid assets were “$8,000.00,” she rented and did not own a home, and that her undeveloped real estate was “worth about $50,000.00.” The Acknowledgement Form makes it abundantly clear that the only way that Respondent could sell the National Western annuity product to Ms. Shane was to qualify her as an “Accredited Investor.” In the absence of Ms. Shane being qualified as such, Respondent would not earn a commission. The evidence clearly and convincingly establishes that Respondent willfully misrepresented Ms. Shane’s annual income, net worth, liquid assets, residential status, and real estate holdings so that he could receive a commission for the sale of the National Western annuity.6/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Insurance Agents and Agency Services, enter a Final Order finding that Respondent violated sections 626.611(5), (7) and (9), 626.9541(1)(e)1., and 627.4554(4)(a), Florida Statutes. It is further recommended that the Department revoke his Florida licenses to act as an insurance agent in this state and impose against him a fine in the amount of $140,000. DONE AND ENTERED this 29th day of October, 2014, in Tallahassee, Leon County, Florida. S LINZIE F. BOGAN 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 29th day of October, 2014.
The Issue The issue is whether Interamerican Financial Corporation is guilty of six types of violations of the Florida Retail Installment Sales Act alleged in the Department's Administrative Complaint of June 23, 1992, and, if so, what penalty should be imposed.
Findings Of Fact Interamerican Financial Corporation (Interamerican) is a Florida corporation with its sole place of business at 2600 S.W. 3rd Avenue, Suite 730, Miami, Florida. Interamerican is registered with the Department as a Retail Installment Seller, under license number HI-0004299/SF-592236293 000. The Department is authorized by the Florida Retail Installment Sales Act (Chapter 520, Florida Statutes) to examine licensees engaged in the retail installment financing business. Interamerican is in the business of financing automobile loans. Most of its loans are ones banks will not make because of the age of the automobile or because of the borrower's lack of a credit history. Borrowers are often first time retail installment purchasers. The purchase price of the vehicles financed ranges from about $2,000.00 to $5,000.00. Interamerican is owned by Raul Lopez and his wife. Mr. Lopez is President of the corporation. Its affairs are conducted on a day to day basis by Ms. Iris Hernandorena, who has been an employee of Interamerican since its inception twelve years ago in December 1980. There are 3 employees other than Ms. Hernandorena, two of whom are full time employees. Interamerican has flexible criteria for reviewing applications when deciding whether to make loans. Interamerican weighs the length of the applicant's employment, the length of residence at the applicant's present address, personal references, and the applicant's salary. Applicants often speak little or no English. They depend on Ms. Hernandorena to explain each element of the transaction to them. They are highly dependent on the good faith of Ms. Hernandorena, and their limited fluency in English leaves most of them ill-equipped to protect their own interests in the financing transaction. The Department conducted an examination of Interamerican on February 10 and February 27, 1992. This examination covered the period from November 1, 1990, through January 31, 1992. The examining officer examined 7.6 percent of Interamerican's 314 financing contracts for the examination period. Ms. Iris Hernandorena is a single mother with three children, is a naturalized American citizen and a native of Argentina. As a practical matter, Ms. Hernandorena runs the affairs of Interamerican for Mr. Lopez with little supervision. Ms. Hernandorena reviews and approves applications for credit using the criteria set out in Finding 4, pays the automobile dealers when an application has been approved, and handles face-to-face dealings with the borrowers. Before the time period covered by the examination, Interamerican was an authorized agent for Bankers Insurance Group to issue credit life insurance certificates to Interamerican borrowers who elected to purchase credit life insurance. It was Interamerican's practice to include credit life insurance on the retail installment contracts at the time they were initially presented for a borrower's consideration. Credit life insurance was always explained to the customer by Ms. Hernandorena. Whenever a borrower requested it, the credit life insurance and the premiums were deleted from the retail installment contract. Fewer than 4% of Interamerican's borrowers declined credit life insurance. When the loan documents were signed, the borrowers signed Franchise Creditor Insurance Certificate applications which disclosed credit life insurance premiums. These premiums were also disclosed on the face of the retail installment contracts. If a borrower elected credit life insurance, a certificate of insurance was issued and Interamerican forwarded one half of the premium disclosed on the financing contract to Bankers Insurance Group. Because the premium was included in the total amount financed by borrowers, this payment to Bankers was an additional cash outlay by Interamerican. Over the life of the loan, the borrower repaid the full amount financed and Interamerican recovered pro rata in each payment its cash outlay to Bankers (the first 1/2 of the insurance premium financed), and its commission (the second 1/2 of the premium financed). During its examination, the Department made its random sampling of 314 Interamerican customer files. It found four which contain the following information concerning charges for credit life insurance: Bankers Credit Life Amount of Credit Insur. Account Buyer's Date of Life Insurance Certif. Number Name Contract Premium Charged Number TA 388 Maria E. Arias 12-24-91 $60.22 FLO 44341 VE 165 Juan A. DelVilla 11-25-91 $74.38 FLO 43482 BEN 603 Julio C. Figueroa 05-06-91 $32.52 FLO 43378 HON 178 Darryl D. Pride 02-27-91 $70.38 FLO 43018 (Administrative Complaint, Paragraph 6) The monies received from these customers for credit life insurance policies were never remitted to Bankers Insurance Group. Bankers Insurance Group had no record of franchise creditor insurance certificates issued on behalf of these borrowers, or of any payments from Interamerican to Bankers for the period January 1, 1991, to February 26, 1992. Franchise credit life insurance certificates on the borrowers were not submitted to Bankers Insurance Group, nor do any of the certificate numbers match any series of numbers issued by Bankers during the past five years. The standard credit life insurance policies which had been issued through Bankers Insurance Group before the credit period had provided that Interamerican was named as beneficiary in the event of the borrower's death. The amount of the insurance coverage automatically reduced during the life of the loan so that the benefits due under the policy in the event of the death of the borrower equaled the amount of the loan balance at all times. Before the period covered by the Department's examination, Interamerican had two occasions when a borrower died and Interamerican had to make application to Bankers Insurance Group for payment of the proceeds due on the credit life insurance the borrower had purchased. In both instances, Interamerican had a difficult time collecting the remaining portion of the loan from Bankers Insurance Group. As a result of these experiences, before the audit period at issue here, Ms. Hernandorena decided on her own that Interamerican should become "self-insured," rather than send Bankers Insurance Group fifty percent of the credit life insurance premium financed by the borrower at the signing of the retail installment contract. After Interamerican ceased sending credit life insurance premiums to Bankers Insurance Group, it was the intention of Ms. Hernandorena to use the funds collected for credit life insurance premiums as a sort of reserve for bad debts out of which to pay the uncollected loan balances of borrowers who died, after having paid for credit life on their retail installment contracts. No specific escrow or reserve account was established with the funds, however. Because so few borrowers decline credit life insurance (see Finding 7), for about 96% of the 314 financing contracts entered into during the credit period, borrowers were charged for credit life insurance which was never put in force. Ms. Hernandorena reasoned that borrowers were not harmed by this arrangement. Borrowers never would have received any payment from Bankers Insurance Group if the credit life insurance became payable--Interamerican was the only beneficiary of the insurance, which would pay only the outstanding loan balance. They received a substitute of equal value in her eyes, the waiver by Interamerican of any claim for the remaining balance due on the loan if the borrower died after having paid for what appeared to be "credit life" insurance issued through Bankers Insurance Group. The Department examined the following four Interamerican customers' files which disclosed that these customers were charged premiums for credit life insurance on their retail installment contracts apparently placed with Bankers Insurance Group after August 31, 1991 in excess of the uniform rate permitted by the Department of Insurance for credit life insurance contracts: Credit Life Uniform Account Buyer's Date of Insurance Rate Amount of Number Name Contract Premm Chrgd Permitted Ovrchrge VE 163 Early H. Wims 11-21-91 $57.66 $48.05 $ 9.61 TA 395 Reyna I. Boyd 01-27-92 $64.60 $53.84 $10.76 HON 236 A. Sarrantos 01-08-92 $58.93 $49.10 $ 9.83 TA 388 Maria E. Arias 12-24-92 $60.22 $50.19 $10.03 & Mario F. Carrion (Administrative Complaint, Paragraph 7) How these overcharges came about were not explained at the hearing. The Department submitted no evidence that these overcharges were part of a scheme to intentionally overcharge customers. There was no evidence that these four instances of overcharge in the sample of contracts audited equate to any specific likely percentage of overcharges in contracts not selected for audit. Contrast Finding 13, above. Interamerican failed to journal payment for and to affix documentary stamps to the following three customer contracts: Interamerican Account Buyer's Number Name Date of Charge Amount of Documentary Stamps Charged on Contract TA 395 Reyna I. Boyd 01-27-92 $6.15 TA 388 Maria E. Arias 12-24-91 $5.70 VE 159 Maria A. Reyes 10-25-91 $8.40 (Administrative Complaint, Paragraph 8) Interamerican did purchase the requisite amount of documentary stamps from the Florida Department of Revenue. The explanation given for the error in not affixing the stamps was that stamps of small denomination were not always on hand. Since the examination was in February 1992, this reason is not persuasive. Two of the contracts involved were ones from October and December of 1991. There had been adequate time to exchange larger stamps for smaller ones or to purchase more small denomination stamps. The amount involved, however, is trivial ($20.25). Interamerican negligently failed to maintain credit insurance acknowledgment forms, since it was not actually placing credit life insurance in force. See Findings 13 through 14, above. Contrary to the allegations of Paragraph 9 of the Administrative Complaint, Interamerican did not charge finance charges in excess of the legal maximum permitted by law. The contracts for the borrowers set forth below contained an "amount charged" on the face of the contract which is slightly in excess of the legal maximum charge. This came about because the machine used to calculate the amount placed on the contact had a limited number of decimal places. Each of these borrowers was later furnished with a payment coupon book by Interamerican which contained an amount charged within the maximum rate. These payment books were prepared with computer programs using more decimal places, and the payment books are what borrowers used in repaying their loans. No additional notification was given to the borrowers calling attention to the small differences, indicating that the payment books, rather than the contracts, stated the correct amount due. The payment books served as a notice of correction to the borrowers. No Interamerican customer has paid any finance charges in excess of the legal maximum (Tr. 23). The customer contracts examined contained the following information: Account Number Buyer's Name Total Amount Charged Per Contract Legal Maximum Differences VE 178 Sonia E. Vanturyl $2,152.86 $2,147.84 $5.02 VE 173 Monique D. Jordan $1,715.13 $1,711.16 $3.97 VE 165 Juan A. Delvilla $1,481.37 $1,477.99 $3.38 VE 152 Edward Mantilla $1,712,56 $1,708.56 $4.40 Jannette S. Williams $1,347.97 $1,344.84 $3.13 The Department conducts an examination of Interamerican and other retail installment sellers on a periodic basis. The prior examinations by the Department revealed no violations by Interamerican before the examination that is the subject of this proceeding. Throughout this examination by the Department, Interamerican furnished the Department with all the information and documents requested, made no attempt to conceal anything from the examiner, and was cooperative throughout the examination. This is consistent with Ms. Hernandorena's belief that on the credit life insurance charges, Interamerican had done nothing wrong.
Recommendation A final order should be entered finding Interamerican guilty of violations of Sections 520.995(1)(a), (b) and (c) and 520.07(4), Florida Statutes (1990 Supp.) as alleged in Paragraphs 11 and 12 of the Administrative Complaint, and dismissing the charges made in Paragraphs 13, 14 and 15 of the Administrative Complaint. The Department has suggested that the appropriate penalty in this case is to find Interamerican guilty of all allegations made in the Administrative Complaint and impose a cease and desist order enjoining Interamerican from future violations of the Retail Installment Sales Act, and to impose an administrative fine of $1,000 for each violation. It is difficult to determine whether the Department suggest a fine of $6,000.00, one for each paragraph in the Conclusions of Law in its Administrative Complaint (Paragraphs 11-15), or whether a separate fine of $1,000.00 is meant to be imposed for each violation alleged in each contract containing a violation, which would be a fine of approximately $16,000.00. Based on the belief that Interamerican was guilty of all the violations alleged, the Department also recommended that the retail installment sellers license of Interamerican be revoked. It seems pointless to enter an order that Interamerican desist from future violations of the act, and at the same time revoke its authority to engage in business under the act. The penalty of revocation is too draconian. Revocation is certainly a penalty available under the statute, but revocation is appropriate where there is a pattern of misconduct which indicates that the licensee will not conform to applicable rules and statutes in the future, or that the misconduct is so egregious that, without consideration of the likelihood of future misconduct, severe discipline is warranted. This is not such a case. Moving from the less serious to more serious charges, the three instances of failure to attach documentary stamps to contracts is only proof of lack of attention to detail, since a sufficient supply of stamps had been purchased from the Department of Revenue. There was no violation of the disclosure requirements of Section 520.07(3)(e), Florida Statutes (1990 Supp.). With respect to charging, in four instances, credit life insurance premiums in excess of those permitted by the uniform rates filed with the Department of Insurance, in those four cases the amount of each overcharge was approximately $10.00. Interamerican should be required to refund the excess amounts due to the borrowers, with interest at the legal rate from the date of the contract. Due to the small amounts involved, for each instance Interamerican also should be assessed a fine of $250.00, for a total fine of $1,000.00 for that class of violations. No penalty can be imposed on the allegation that Interamerican charged excess finance charges, because it did not do so. Neither can a penalty be imposed for failure to maintain credit insurance acknowledgment forms, since no insurance was placed to be acknowledged by an insurer. Although it is true that those forms were not maintained, the real violation, which is the most serious violation, is the failure to have purchased the insurance at all. The Administrative Complaint alleges in Paragraph 7 four instances where charges were made for credit life insurance where no insurance was actually purchased. Ms. Hernandorena had mistakenly decided that by charging the amount permitted for credit life insurance, without purchasing it, and waiving the right of Interamerican to obtain payment from any borrower who died after paying for credit life insurance, the borrowers were receiving what they paid for. In a rough sense, this was true, but the transaction documents simply were not structured that way. Had the evidence been convincing that borrowers were being charged for credit life insurance as a ruse to obtain additional money from them, when they were receiving nothing in return, I would not hesitate to recommend that the Department revoke the license of Interamerican, especially when the evidence demonstrates that the overcharge occurred not only in the four cases alleged, but in 96% of all contracts Interamerican entered into. On the other hand, Interamerican's evidence was persuasive that the borrowers were receiving something of value for the credit life insurance premiums, even though the insurance was never purchased. The testimony of Ms. Hernandorena was sincere, and I simply do not believe that her explanation of what was done was an after-the-fact justification concocted in an attempt to excuse Interamerican's misconduct. Ms. Hernandorena made a serious error in doing what she did, but she did not engage in a scheme to defraud borrowers. On this charge, Interamerican should be required to repay the amount of credit life insurance premiums plus interest at the legal rate to the four borrowers listed in Paragraph 6 of the Administrative Complaint, and to review its records and make similar refunds to all borrowers who paid for credit life insurance, plus interest at the legal rate from the date of each contract. An administrative fine in the amount of $4,000.00 should also be imposed, the maximum fine for the four instances of overcharge alleged and proven. Had the Department undertaken to allege and prove additional instances of overcharges, the fine would be larger, but that is not how the complaint was drafted. Although the conduct proven does not rise to the level of an intentional scheme to defraud, the misconduct is sufficiently serious that a significant penalty, less severe than revocation, ought to be imposed. That Interamerican has otherwise conducted its affairs over the years in conformity with the law weighs in its favor. The appropriate penalty here is to suspend the licensure of Interamerican for 30 days, to place its licensure on probation for the following 11 months, and to restrict its licensure to prohibit the "waiver of liability" plan created by Ms. Hernandorena and to require submission of all credit life insurance premiums to an appropriate insurer. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st day of December, 1992. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN DOAH CASE NO. 92-4404 The following are my rulings on findings proposed by the parties: Findings proposed by the Department: 1.-4. Adopted in Findings of Fact (FOF)1. 5. Adopted in FOF 5. 6.-7. Rejected as unnecessary. 8.-9. Adopted in FOF 5. 10.-11. Rejected as recitations of testimony, not findings of fact. Adopted in FOF 6. Implicit in FOF 6. Adopted in FOF 3. Adopted in FOF 6. Rejected as unnecessary. Adopted in FOF 4. Adopted in FOF 8. Adopted in FOF 13 and 14. Adopted in FOF 7. Adopted in FOF 4. Adopted in FOF 13. Rejected as unnecessary-Interamerican never contended it was an insurance company. Findings proposed by Respondent: Adopted in FOF 1. Adopted in FOF 2 and 4. Adopted in FOF 5. Adopted in FOF 3, 4 and 6. Adopted in FOF 7. Adopted in FOF 9. Adopted in FOF 10. Adopted in FOF 12. Adopted in FOF 13 and 14. The Borrower was the insured, Interamerican was the beneficiary. Adopted in FOF 11. Adopted in FOF 13. Adopted in FOF 15. Adopted in FOF 16. Adopted in FOF 17. Adopted in FOF 18. Adopted in FOF 19. COPIES FURNISHED: Steven R. Walker, Esquire Office of Comptroller Suite 708-N 401 N.W. 2nd Avenue Miami, Florida 33128 Ted Bartlestone, Esquire Suite 1550, 1 Biscayne Tower 2 South Biscayne Boulevard Miami, Florida 33131 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William G. Reeves, General Counsel Department of Banking and Finance The Capitol, Room 1302 Tallahassee, Florida 32399-0350
The Issue Whether Petitioner is entitled to a refund of state group life insurance premiums retroactive to the date she became disabled and continuing through the date of approval of a waiver of premium based on disability.
Findings Of Fact During her entire career with the State, Petitioner was employed by the Department of Corrections (DOC). At all times material, DOC, like all State governmental agencies, had its own personnel office. At all times material, the Division of Retirement (Retirement) handled all governmental agencies’ employees’ retirement issues. At all times material, the State has provided its employees, including Petitioner at DOC, with various types of insurance through Respondent Department of Management Services (DMS), Division of State Group Insurance (DSGI), the Respondent herein. For more than 20 years, ending January 1, 2007, the State of Florida provided state officials, employees and retirees basic life insurance coverage through Prudential Insurance Company of America (Prudential). Although Petitioner retired on full disability in mid- 2000, at all times relevant to these proceedings, Petitioner has continuously participated in the State Group Insurance Program’s (Program’s), life insurance plan (Plan). The Program is authorized by Section 110.123, Florida Statutes. Because of enhanced benefits, employees were required to complete a new life insurance enrollment form during “open enrollment,” conducted in 1999, for coverage beginning January 1, 2000. Petitioner completed the life insurance enrollment form and dated it "10/04/99." Directly below Petitioner's signature on this enrollment form, the following statement appears: Waiver of Premium for Disability If you are totally disabled for a continuous 9 months and are less than 60 years of age at the time disability begins, Prudential will continue your coverage with no premium due, provided you report your disability within 12 months of its start and submit any required proof to Prudential. The second page, last paragraph of the 1999, enrollment form provided an address and a toll-free telephone number for Prudential, and advised participants that the form was intended to provide a summary of benefits, as more completely set out in the certificate. Petitioner produced the enrollment form in response to Respondent's request for production of documents. She identified her signature thereon at hearing, and had the enrollment form admitted in evidence as Exhibit P-1. She also admits in her Proposed Recommended Order that she signed it. Although her testimony waffled in some respects, on the whole, she testified to the effect that she had retained a copy of this form where she had access to it at all times material. She is, therefore, found to have had knowledge of its contents since 1999. Petitioner testified that she never received either a life insurance policy nor a certificate of insurance, from Prudential or from any entity of Florida State Government, and that neither her DOC Personnel Office, Retirement, Florida First,1/ or DMS/DSGI advised her at the time of her retirement in mid-2000, that she could apply to Prudential for a life insurance premium waiver. However, Petitioner also had admitted in evidence as Exhibit P-2, a “Continuation/Termination Form” which she signed on “4-11-00,” stating a retirement date of “3- 10-00.” That form specifies that “. . . the amount of life insurance shall be $10,000 . . .” with a footnote reading, “This [referring to the $10,000, amount] would only apply if Waiver of Premium is not approved.” (Bracketed material supplied.) Also, the credible testimony of Respondent’s witnesses and of exhibits in evidence show that a complete certificate of life insurance was mailed to Petitioner in a timely manner. There is no proof that the insurance certificate varied the substance of the enrollment form as quoted in Finding of Fact 7. Indeed, the certificate provided, in pertinent part: The Policyholder will continue the full premium for continuance of insurance in accordance with item 8 above, [referring to “Total disability commencing before age 60— Unlimited for Employee Term Life Insurance”] provided the employee furnishes written proof of such total disability when and as required by the Policyholder. * * * Period of Extension Protection for a Disabled Employee— one year after receipt by Prudential’s Home Office of written proof that his total disability has existed continuously for at least nine months, provided the employee furnishes such proof no later than one year after the later of (1) the date premium payments for the employee’s insurance under the Group Policy are discontinued or (2) the cessation of any extended death benefit under the provisions for “Extended Death Benefit for Total Disability” above, and successive periods of one year each after the year of extension under (1), provided the employee furnishes written proof of the continuance of the employee’s total disability when and as required by Prudential once each year. Only employees disabled before retirement and under 60 years of age were eligible for the premium waiver. Employees who became disabled during retirement were not eligible for the waiver. By the terms of her enrollment form and certificate, if Petitioner did not notify Prudential before the twelfth month, she could not receive the waiver. When, precisely, Petitioner became “totally disabled” for purposes of her State life insurance certificate’s definition is debatable, because for some time prior to her actual retirement date, she was working off and on while pursuing a “permanent total disability” determination, pursuant to the definition of that term as expressed in Chapter 440, Florida Statutes, The Florida Workers’ Compensation Law. Petitioner ultimately received the workers’ compensation ruling she sought, possibly before March 10, 2000. Petitioner’s last day of work was March 10, 2000, when, she testified, a superior had her forcibly removed from DOC property. Despite her assertion that she was not approved for in-line-of-duty retirement until September 1, 2000, Petitioner also testified that the State granted her retirement upon disability, effective April 1, 2000, and April 1, 2000, is the date put forth by Respondent as Petitioner's disability retirement date, as well. Upon that concurrence, it is found that Petitioner qualified for total disability for State life insurance purposes before retirement and that she qualified for the waiver by age at retirement. When Petitioner retired on disability in 2000, employees of both DOC and of Retirement knew that she was retiring on disability. Retirement provided Petitioner with printed materials referring her to the insurance company and/or DMS/DSGI for insurance questions and stating that Retirement did not administer any insurance programs. There is no evidence Petitioner asked anyone about the waiver in 2000. From her retirement date in mid-2000, until Prudential ultimately granted her a premium waiver in 2007, Petitioner paid the full life insurance premiums to the State Life Trust, either via deduction from her retirement or directly by her own check. From the date of her retirement through December 2006, Petitioner paid $4.20, per month for life insurance, and beginning January 1, 2007, through November 2007, she paid $35.79, per month. According to Petitioner, she only became aware of the availability of the potential waiver of premiums when she received a booklet during open enrollment in October 2007, advising her that beginning January 1, 2008, the State life insurance coverage would be provided through Minnesota Life Insurance. The specific language that caught her eye was: No premium to pay if you become disabled --- If you become totally disabled or as defined in your policy, premiums are waived. Petitioner conceded that there is no substantive difference between the foregoing instruction and the statement on her 1999, enrollment form for Prudential. (See Finding of Fact 7.) Petitioner applied for the Minnesota life insurance, with premium waiver, triggering a series of bureaucratic decisions that maintained her continuous life insurance coverage by Prudential and permitted Petitioner to apply to Prudential for waiver of the life insurance premium as described in her 1999, enrollment form. Although bureaucratic delays occurred through DOC’s personnel office, Prudential accepted Petitioner’s proof of age, disability, etc., and granted the waiver of premiums based on disability. The monthly premiums of $35.79, that Petitioner paid in October and November 2007, were retroactively reimbursed to her by the State, based upon Prudential's receipt of Petitioner's waiver package on October 3, 2007. Beginning in December 2007, Prudential activated the waiver of premium, so that Petitioner has not had to pay any premium since. Adrienne Bowen, a DSGI manager of Prudential contracts for twenty years, testified that, in 1999-2000, Prudential’s waiver did not apply until after nine months of continuous disability and after the participant had reported the disability to Prudential, and after Prudential had approved the waiver of premiums. She further testified that she believed that there was no provision for the waiver to apply retroactively. For this testimony, Ms. Bowen relied upon Exhibit R-11, a “Group Life Administration Manual,” which had been devised so that the State life insurance plan would be consistently administered. On the foregoing issues, The Group Life Administration Manual states, in pertinent part: WAIVER OF PREMIUM When an employee becomes disabled and is unable to work because of a disability, the employee may be eligible to extend the group life coverage without premium payments. In order to extend coverage, the employee must submit proof of disability within the period shown on the Group Contract (generally at least 9 months but less than 12 months after the total disability starts). If the proof is accepted, you may stop the premium on behalf of the employee’s group coverage. We recommend that premium payments continue for that employee until a decision is made regarding the claim. (Emphasis in original.) However, Ms. Bowen also testified that DSGI and Prudential now allow an insured to request the waiver at any time after nine months of continuous disability, without automatic denial if the employee’s first request is not made within 12 months after she first becomes disabled. This was done in Petitioner's situation in 2007. Prudential did not refuse to waive premiums because Petitioner’s application was not made within 12 months of total disability. However, the premiums refunded related back only to the first day of the month in which she made application for waiver. Petitioner seeks a reimbursement for overpayment of premiums from April 1, 2000, to September 30, 2007. Her first request to Respondent for an administrative hearing appears to have been made on or about May 12, 2008. After several levels of internal agency “appeals,” the cause was referred to the Division of Administrative Hearings on or about August 28, 2008.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Group Insurance, enter a final order which calculates the State group life insurance premiums Petitioner paid between May 12, 2006, and October 1, 2007, and orders payment to Petitioner of that amount within 30 days of the final order. DONE AND ENTERED this 23rd day of December, 2008, 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 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of December, 2008.
Findings Of Fact The Respondent, Emory Daniel Jones, was not involved or engaged in the insurance business prior to August, 1977. (Tr. 177.) In approximately August of 1977, United Sun Life Insurance Company (USL) hired Respondent as an agent. (Tr. 176, 177.) Respondent passed the insurance test administered by the State of Florida in August, 1977, and was scheduled for a seminar given by USL. (Tr. 178.) In late August, 1977, Respondent attended a three-day seminar established by USL for all its new agents. (Tr. 178.) At this seminar, USL taught the agents about a policy known as T.O.P. This was the only policy taught to the agents even though USL had other policies available. (Tr. 128.) The T.O.P. contract is a life insurance policy. This policy has two primary benefits. (Tr. 230, 231.) The first is the death benefit provided by all life insurance policies. Under the death benefit provision, the owner of the T.O.P. pays a premium to USL. When the insured dies, USL will pay the death benefit (money) to the beneficiary listed on the policy. (Tr. 128, 251.) The second major benefit provided by the T.O.P. is the life benefit feature. (Tr. 251.) The T.O.P. is an insurance policy which provides for the payment of dividends to the owner of the policy. The T.O.P contract states that the owner will share in the divisible surplus earnings of USL as determined by the Board of Directors. (Tr. 120; contract page 5, Exhibit #3.) The dividends were to be paid after the second year. (Tr. 129, 130.) The owner would participate in the divisible surplus earnings of USL through the payment of a dividend. (Tr. 129, 188.) As long as the T.O.P. was in effect, the owner would receive these dividends. USL developed a presentation to be given by the agents to prospective customers. This presentation was taught in the training session by USL. (Tr. 183, 249, 260, 270.) The agents were to memorize the presentation and were not to vary from the wording when they were attempting to sell the T.O.P. to prospective customers. (Tr. 185, 249.) The presentation taught by USL stressed the life benefit feature of the T.O.P. contract. (Tr. 251, 271.) The death benefit was only minimally covered because of the relatively high cost for the life insurance portion of the contract. This presentation further explained several features which made the T.O.P. contract life benefit provisions attractive to future customers: The T.O.P. contract owner was to participate in the divisible surplus earnings of USL. The only other persons that would also participate in the divisible earned surplus were the shareholders. (Tr. 196.) The T.O.P. contract was to be sold only to a limited number of people. After an undisclosed number of T.O.P. contracts were sold, the T.O.P. contract was to be taken off the market. (Tr. 234, 261, 276.) USL was not going to sell or issue any other policies which would participate in the divisible earned surplus of USL. (Tr. 234, 255, 261, 276.) USL would grow (increase its divisible earned surplus) by selling policies other than the T.O.P. contract. The more policies that were sold, the greater the divisible surplus earnings that would be available to the T.O.P. contract owners for dividends. (Tr. 196, 276.) Since the T.O.P. owners were limited and no other participating policies were to be issued, the T.O.P. owners would share in any increases in the divisible surplus earnings of USL. The greater the number of policies sold, the greater the dividends. The T.O.P. owners were then solicited to help the agents sell insurance policies of USL to their friends. This help would reduce the cost of advertising and increase the sales of insurance. The lower expenses and greater volume would mean more divisible surplus earnings in USL and greater dividends available to the T.O.P. owners. (Tr. 201.) To illustrate these points, USL taught the agents to draw circles representing other insurance policy owners. Lines were then drawn from these circles to the T.O.P. owner's circle. The lines between the circles represented the premiums paid on the other policies, which would increase divisible surplus earnings that would increase the dividends of the T.O.P. owners. (Tr. 196, 232, 263, 270.) USL taught the agents to illustrate the features of the life benefit by dollar signs. As the agent would talk about the other policies increasing the dividends to the T.O.P. owners, he was to increase the size of the dollar sign. (Tr. 233.) The whole emphasis of this presentation was on the participating feature. Another feature emphasized in the USL presentation was that the T.O.P. owner would participate in the divisible surplus earnings of USL as long as he was alive. Therefore, the agents were to stress that the T.O.P. owner should be a younger person in the family. If that person lived 70 years, then USL would pay dividends for 69 of those 70 years. This feature of the policy was stressed in the memorized presentation. (Tr. 204, 205, 232, 233, 252, 264, 270.) In late August of 1977, Respondent attended the training session and memorized the presentation. (Tr. 181, 184, 185.) At the end of the training session, USL reviewed the Respondent's presentation and found nothing wrong. (Tr. 187.) In late August of 1977, Respondent went into the field to sell the T.O.P. contract to potential customers. (Tr. 187.) Count I On September 7, 1977, Respondent met with Louis Charles Morrison and made the USL presentation on the T.O.P. policy to Morrison. Respondent made the presentation in the way he had been taught. Morrison was aware that he was purchasing an insurance policy. He was led to believe through USL's sales presentation as given by Respondent that the participating feature of the T.O.P. policy made this policy a good investment. Morrison concluded it was not a good investment because the dividends were not as great as he had anticipated they would be. Respondent's representations to Morrison with regard to the T.O.P. policy were not false. Count II On September 12, 1977, Respondent met with Fred Menk and gave to him the USL presentation on the T.O.P. policy. Respondent gave the presentation as he had been taught. Menk was aware that he was purchasing insurance. (Tr. 51.) Respondent made no representation about future dividends. (Tr. 59.) The interest rate was represented to increase as USL grew, which it did. (Tr. 59.) Menk was dissatisfied and felt the policy was misrepresented because he did not get the rate of return he had anticipated. (Tr. 59.) According to Menk, Respondent's representations made with regard to interest rate increases were accurate, and Respondent made no representations regarding future dividends. Count III Respondent met with Paul Loudin in September of 1978, and gave him the USL presentation on the T.O.P. policy as Respondent had been taught. Loudin was aware he was purchasing insurance. (Tr. 21, 26, 27, 31.) His interest was in life insurance and retirement compensation. (Tr. 36.) In part, Loudin's dissatisfaction was the belief he had lost his money because he did not receive a dividend on his first year's premium. The policy reflects that no dividends are payable in the first year. (Respondent's Exhibit #7.) A copy of the policy was provided to Loudin by Respondent. (Tr. 45.) Loudin also anticipated a dividend of 12 to 18 percent on his premiums based upon Respondent's general comments. However, he did not remember the exact conversation with Respondent. (Tr. 31, 32, 38, 39.) Loudin received a letter from USL which reflects a dividend history based upon an 18-year-old insured with an annual premium of $1,000 as follows: End of 2nd year $100.35 End of 3rd year 130.66 End of 4th year 162.86 The rate of return in the fourth year would be 11.6 percent on the fourth year's premium. The representations made to Loudin by Respondent were substantially true, or the relevant information was made available to Loudin by the Respondent. Count IV On November 30, 1977, Respondent met with Gayle Mason and gave the USL presentation on the T.O.P. policy as he had been taught. Mason knew she was purchasing insurance. (Tr. 107.) Respondent represented that the number of participants in the T.O.P. policy would be limited. (Tr. 108.) The current rate of return was taken by Respondent to be 11 percent, and it was represented that the return could be more. (Tr. 109.) Dividends were to be paid from surplus earnings. (Tr. 114.) Mason called the Better Business Bureau and the State Insurance Commissioner's office, and she was aware that USL was an insurance company and she was engaged in an insurance transaction. (Tr. 115.) Respondent represented that as USL grew, the dividends would increase. (Tr. 118.) Mason received a dividend in the second year in accordance with the policy. The representations made to Mason by Respondent were true or thought by Respondent to be true.
Recommendation Having found the Respondent, Emory Daniel Jones, not guilty of violating any of the statutes or rules as alleged, it is recommended that the Administrative Complaint against Respondent be dismissed. DONE and RECOMMENDED this 17th day of January, 1983, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of January, 1981. COPIES FURNISHED: David A. Yon, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 Paul H. Bowen, Esquire 600 Courtland Street, Suite 600 Post Office Box 7838 Orlando, Florida 32854 The Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32301
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following facts are found: At all times relevant to this proceeding, the respondent Frank Cimino, Jr. was licensed as an ordinary life, ordinary life including disability and dental health plan insurance agent. Respondent was also the president and incorporator of National Consumer Investment Counselors, Inc., a Florida corporation doing business at Post Office Box 1520, Brandon, Florida. Charles R. Ritzi is an insurance salesman employed at National Consumer Investment Counselors, Inc., and respondent is his supervisor. On or about November 2, 1979, Mr. Ritzi went to the home of Edward Kimball for the purpose of discussing insurance with him. He received from Mr. Kimball his other existing insurance policies and took them back to his office to analyze and compare their benefits, costs and terms with a policy which could be provided by respondent's corporation. Among the policies taken was Mr. Kimball's State Farm Insurance Company "IRA" annuity policy number 4,664,836. Several days later, Mr. Ritzi and respondent returned to Mr. Kimball's residence. Mr. Kimball made a decision to purchase an insurance Policy from respondent and numerous forms were signed by Mr. Kimball. These forms were then taken back to respondent's office and processed. Mr. Kimball did not sign a cash surrender form for his State Farm "IRA" annuity policy and he did not intend for that policy to be cancelled. On December 6, 1979, the offices of State Farm Life Insurance Company received in the mail a cash surrender request form on Edward Kimball' s "IRA" annuity policy number 4,664,836. Mr. Kimball's name appeared on the signature line of the form. The form also contained a change of mailing address section in which had been written the respondent's business address. The form constitutes a request for a withdrawal of dividends and surrender of the policy. By the terms of the policy, only the owner of the policy may make such a request. The "IRA" annuity policy funds a retirement plan. If the request form had been processed, there would have been a penalty imposed by the Internal Revenue Service for a premature distribution of funds and the funds distributed would have been treated as ordinary income for tax purposes. State Farm sent a service agent to Mr. Kimball's residence and it was discovered that Mr. Kimball did not desire to give up his "IRA" policy number 4,664,836, and that he did not sign the cash surrender request form. A handwriting expert confirmed that the handwriting appearing on the line entitled "Signature of Policyowner" was not the signature of Mr. Kimball. It is concluded as an ultimate finding of fact that respondent or an employee acting under his supervision signed the name of Edward Kimball, Jr. appearing on the State Farm cash surrender form and transmitted sold form to State Farm without the knowledge or consent of Mr. Kimball, the policy owner. In February of 1980, respondent placed an advertisement in the East Hillsborough Edition of The Tampa Tribune, a newspaper with a circulation of approximately 36,000. The advertisement guaranteed the reader that: "...if you are insurable and own any personal, ordinary life insurance, regardless of the company, we can show you a method of rearranging your program in a way that will: Increase the amount of money which would be paid to your beneficiary in the event of your death. 2. Increase the amount of cash available for retirement [sic], 3. Retain all of your existing guarantees and benefits and 4. We can do all this with no increase in premium." The four guarantees mentioned in the advertisement may not be capable of performance in all life insurance policies. However, it is possible for a qualified agent to accomplish the four guarantees in personal ordinary cash value life insurance policies. The guarantees are made to those persons who are insurable and who own personal, ordinary life insurance.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED THAT: The charges in the Administrative Complaint relating to a Penn Mutual Life Insurance Whole Life Policy be dismissed; Count II of the Administrative Complaint relating to an advertisement appearing in The Tampa Tribune be dismissed; Respondent be found guilty of violating Florida Statutes, Sections 626.611(4),(5),(7),(9), and (13) and 626.9541(1)(f); and Pursuant to Section 626.611, Florida Statutes, the insurance licenses presently held by the respondent be suspended for a period of one (1) year. Respectfully submitted and entered this 6th day of February, 1981, in Tallahassee, Florida. DIANE D. TERMOR Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of February, 1981. COPIES FURNISHED: Richard P. Harris, Esquire Department of Insurance 428-A Larson Building Tallahassee, Florida 32301 Frank Cimino, Jr. Post Office Box 1520 Brandon, Florida 33511 Honorable Bill Gunter Office of Treasurer Insurance Commissioner The Capitol Tallahassee, Florida 32301
Findings Of Fact The Respondent was licensed as a General Lines Insurance Agent at all times material hereto. He generally wrote insurance for the various insurance companies he represented through General Agents such as Frank MacNeill and Son, Inc. and Amalex, Inc. The Respondent operated his insurance agency under the corporate name Pennington Insurance Agency, Inc. The Respondent was owner and President of Pennington Insurance Agency, Inc. and exercised supervision and control over its employees, and in particular the employee Earnest L. Middleton. All funds collected from insured pertinent to this proceeding were premium payments and represented trust funds held by the Respondent in a fiduciary capacity on behalf of his General Agent or the insurance companies whose policy contracts generated the premiums. From August through December, 1981, the Respondent engaged in negotiations with representatives of Amalex, Inc. and specifically, Mr. Walter Gibson, President of Amalex, Inc. and Mr. Larry Durham of Durham and Company Insurance Agency. These negotiations ultimately led, in November of 1981, to the Respondent becoming an employee-agent of Amalex, Inc. The Respondent was to be paid a salary which was to be an advance upon commissions earned at the rate of 75% on new policies and 60% on "renewals." This commission-salary arrangement was entered into pursuant to an oral agreement between the Respondent and Walter Gibson of Amalex. There was never any written contract between the Respondent and Amalex, Inc. delineating the employment arrangement or the compensation which Respondent was to be provided by Amalex, Inc. in return for his "brokering" business for Amalex, Inc. There was never any written contract concerning the method of forwarding of premium payments to Amalex, Inc. This oral agreement was modified at the behest of Amalex, Inc. on or about March 19, 1982, so as to reduce the compensation of the Respondent. The Respondent's new compensation under the modified arrangement provided for a 60% draw against commissions for new business and a 50% draw against commissions on renewal business. The Respondent received payments from Amalex, Inc., totaling $5,980 as advances on commissions for times pertinent to the allegations in the Complaints. The regular course of business practice established by Amalex, Inc. with the Respondent, required the Respondent to forward premium collections within 45 days of receiving a statement or bill from Amalex, Inc. During the period August, 1981, until December, 1981, numerous discussions and negotiations were had between the Respondent and Mr. Gibson in an effort to work out the details of the employment terms between Respondent and Amalex, Inc. Additionally, these negotiations hinged somewhat upon a proposed merger of Durham and Company and Amalex, Inc., which never occurred. In any event, the Respondent held the good faith belief that during the period of time from August, 1981, through December, 1981, until their business relationship got successfully started, that he had been authorized by Mr. Gibson to retain all premiums on commercial lines policies written by his office. In his testimony, Mr. Gibson disagreed with the Respondent's version of their arrangement concerning business insurance premiums. There was clearly a disagreement between Gibson and Respondent as to what the terms of the Respondent's compensation were to be. In fact, the Respondent received notice no later than March 19, 1982, in a letter from Gibson to the Respondent, that indeed there was a dispute as to his compensation arrangement and the manner in which he was to remit premium payments to Amalex, Inc. In a letter to Mr. Gibson of May 27, 1982, the Respondent reveals his recollection of the oral agreement and states it to be his belief that he was authorized to retain commercial account premiums only from September 1, 1981, through December, 1981. The letter reveals, by its content, that he was aware that Amalex, Inc. opposed his retention of commercial policy premiums, at least after December, 1981 (Respondent's Exhibit 5, in evidence). The Respondent was clearly not permitted by Amalex to retain all premiums collected on commercial policies sold by him during the entire period of their business relationship. Indeed, many of the commercial accounts were, in fact, paid when collected, in whole or in part, by the Respondent during the business relationship with Amalex which extended through most of 1982. One account, the American Legion Policy Account, eventually was paid in full by Respondent to Amalex. The Respondent's testimony and that of his former employee, Ernest Middleton, is at odds with that of Mr. Gibson, the president of Amalex and the Respondent's own testimony, in different portions of the record, is to some extent, inconsistent. At one point the Respondent indicated that he was authorized to retain all commercial premiums for coverage of his office operating expenses. At another point, both he and Middleton testified there was an allowance of $1,200 a week from Amalex for expenses to run the office. At still another point, by way of an exhibit (Petitioner's Exhibit No. 13 in evidence), the Respondent appeared to be of the belief that the expense allowance from Amalex was to be $400 per week for operating his office. In any event, by his letter of May 27, 1982, to Amalex and Mr. Gibson, the Respondent clearly reveals it to be his belief that the authorization to retain all commercial account premiums did not extend beyond December, 1981, which arrangement is more logical since it was, in the Respondent's own words, an arrangement to cover expenses until the business "got rolling." Thus the Respondent knew no later than May 27, 1982, by his own admission, that he was expected, after December, 1981, to forward all premium payments, both on personal lines and commercial lines policies to Amalex or the policies would be cancelled. This letter, the letter of March 19, 1982, from Mr. Gibson to the Respondent, portions of the Respondent's testimony, as well as the testimony of Mr. Gibson and his employee Mary Stratton, taken together, belies the Respondent's assertion that he could retain the commercial premiums to cover his own office expenses without accounting for them and forwarding them to Amalex. Such was clearly not the case after December 31, 1981, at the very latest. The Respondent additionally had agency contracts with Frank MacNeill and Son, Inc., a General Agent, for which concern the Respondent wrote insurance policies. These contracts required him to forward premium collections within 30 days of receipt of them from the insured. On or about March 20, 1984, the Respondent sold to Ollie Rodgers an automobile insurance policy and collected $211 from Mr. Rodgers as a down payment and also received $428 from National Premium Budget Plan for financing the balance of the premium payment over time. Count 1 of the Administrative Complaint involves solely the Ollie Rodgers policy. That policy was brokered through Frank MacNeill and Son, Inc. This only count concerning the MacNeill business arrangement with the Respondent does not charge a general failure to remit premiums to MacNeill in violation of the agency agreements and Chapter 626, Florida Statutes. Thus, although evidence is of record concerning the Ollie Rodgers incident and several thousand dollars in disputed other premium amounts MacNeill maintains the Respondent owes it, the charge in the Administrative Complaint concerning MacNeilles and the Respondent's business arrangement, and the question concerning the withholding of premiums due MacNeill, only concerns the Ollie Rodgers' policy and account. The alleged failure of the Respondent to remit several thousand dollars in premiums owed to Frank MacNeill contained in the testimony of Petitioner's witnesses at hearing, specifically Joe McCurdy, the secretary- treasurer of Frank MacNeill and Son, Inc., is not the subject matter of any charge or allegation in the Administrative Complaint. Mr. McCurdy testified that the Respondent had ultimately paid all monies due Frank MacNeill except for $734.23 in court costs and attorneys fees. He was the only witness testifying concerning the Frank MacNeill business arrangement and none of his testimony linked the premiums paid by Ollie Rodgers to the Respondent with any delinquent premium amount actually owed Frank MacNeill and Son, Inc. There was no testimony tying the account balance which Pennington ultimately paid MacNeill, after litigation ensued, with the Ollie Rodgers account and premium amount paid to the Respondent by Rodgers. There is no specific proof that the Ollie Rodgers account itself was unpaid by the Respondent. From March 4, 1982, to November 9, 1982, the Respondent received premium payments from one Irving Herman in the amount of $7,161 on a commercial insurance premium account. The Respondent forwarded some of these funds to Amalex, Inc., but an outstanding balance of $2,353 remains which has not been paid by the Respondent to Amalex. The Respondent has asserted that he could lawfully retain this balance because it was a commercial account and he was authorized to keep all premiums for commercial insurance to pay his office expenses. For the reasons found above, the Respondent was not authorized to retain any commercial premium funds in his own account and in his own business after December, 1981, as he admits himself in his letter of May 27, 1982, to Gibson of Amalex, Inc. The Respondent was required to forward all the premium payments attributable to the Herman policy, and in this instance, he forwarded only some of them, without accounting to Amalex as to why he retained the balance of the Herman premiums. The Respondent also collected $799 in premium payments from Irving Herman on an individual insurance policy. The Respondent forwarded most of this premium to Amalex, Inc. but retained $95 of it. The business practice of Amalex was to send a monthly statement to the Respondent detailing amounts payable on new business. When a policy was sent to the Respondent for coverage he had written, an invoice was included. Additionally, Amalex and its president, Mr. Gibson, sent numerous letters to the Respondent requesting payment of the large amount of past due accounts. The premium amounts paid by Mr. Herman for his individual policy and his commercial policy to Respondent was received on behalf of his General Agent, Amalex, a substantial amount of which he failed to remit. Since the above amounts were not remitted to Amalex, Inc. by the Respondent, it can only be inferred that he used the unremitted funds for his own purposes. On September 23, 1982, or thereafter, the Respondent collected premium payments from Joseph S. Middleton on behalf of his company, Florida Lamps, Inc., in the amount of $1,467. The Respondent remitted a portion of this to Amalex, but retained $917.55. This premium, for insurance for that business, was collected for insurance written well after the Respondent was on notice from Amalex that he was not authorized to retain premiums collected on commercial lines or business insurance, as found above. A monthly statement, invoice, as well as numerous letters were directed from Amalex to the Respondent requesting payment of this past due amount, to no avail. Thus, the above- referenced balance of the premiums related to the Florida Lamps, Inc. insurance policy and account were retained by the Respondent for his and his agency's own benefit and use rather than remitted to Amalex, the entity entitled to them. The Respondent failed to properly account to Amalex regarding the use of or the whereabouts of these funds. On or about October 20, 1982, the Respondent received from Eric Gunderson, on behalf of Eric's Garage, $182, which represented the premium down payment on a garage liability policy, a type of commercial-lines insurance. About the same time, the Respondent also received $438 as the remaining balance., on the premium on this policy from the Capitol Premium Plan, Inc., a premium financing company. This premium payment was received by the Respondent well after notice by Amalex, his General Agent, that it was not acceptable for the Respondent to retain commercial account premiums on policies written for companies for whom Amalex was General Agent. None of this premium payment was ever forwarded to Amalex, even after repeated demands for it. Rather, the premium funds were retained by the Respondent and used for other purposes. On March 3, 1982, the Respondent sold to Citiweld Welding Supply, a package business policy including workers' compensation coverage issued by the Insurance Company of North America through Amalex, Inc., as its General Agent. The Respondent collected a total of $2,162.62 in premium payments from Citiweld. He collected those payments in six monthly installments following a down payment of $500. The Respondent made monthly payments of $163 to Amalex, Inc., and then later monthly payments of $153. The Respondent collected a total of $2,162.62 which was $80.62 in excess of the actual premium due on the policy. This policy was not financed by a financing agreement, which might be characterized by an additional financing fee, thus the Respondent collected $80.62 in excess of the amount of premium due on the policy. The Respondent ultimately remitted to Amalex a total of $1,275. Thus, $807 is still due and owing to Amalex by the Respondent. The Respondent, according to his own former employee, Earnest Middleton, was collecting an additional $20 a month service charge on the Citiweld account. There is no evidence that he was authorized to collect the additional $20 per month service charge, and no portion of that service charge was ever forwarded to Amalex. It was retained by the Respondent. The fact that the Respondent was making periodic monthly payments to Amalex during this period, without the existence of a financing agreement with the insured, corroborates the position of Amalex, established by Mr. Gibson and Ms. Stratton, that there was no authority to withhold commercial account premium payments at this time, and that premiums due Amalex from the Respondent were to be paid pursuant to monthly statements or billings sent to the Respondent. Ms. Stratton's and Mr. Gibson's testimony in this regard is corroborated by the letter of March 19, 1982, to the Respondent from Gibson (in evidence), wherein he was informed that such commercial insurance business and related premiums should be billed and paid for on a monthly basis. On or about August 31, 1981, Respondent sold a package workman's compensation policy to B & L Groceries, Inc. to be issued through Amalex, Inc., who represented the insurance company for whom the policy was written. The Respondent received approximately $3,350 from B & L Groceries, which represented the premium on the above policies. The premium payments were not forwarded in the regular course of business to Amalex, the General Agent. On or about December 17, 1981, the Respondent sold to B & L Seafood Restaurant, Inc., a package commercial insurance policy and endorsement also issued through Amalex. The Respondent collected $2,112 premium on that policy. That premium was not forwarded in the regular course of business to Amalex. On September 1, 1981, the Respondent sold to Parker's Septic Tank Company, a general liability and business automobile insurance policy, also issued through the General Agent, Amalex, Inc. He collected from that business approximately $2,542 as premium payment on the insurance policies. The automobile policy was cancelled thereafter, such that a total net premium of $1,056 remained due and owing to Amalex, which the Respondent failed to forward in the regular course of business. These policies sold to B & L Groceries, B & L Seafood Restaurant and Parker's Septic Tank Company, were sold during the time when the Respondent believed that he was authorized by Amalex, Inc., and its president, Mr. Gibson, to retain premiums on all such commercial or business insurance policies to cover his office expenses, and thus it cannot be found that he willfully retained and misappropriated those premiums, although Amalex's entitlement to those premiums was later the subject of a civil action between the Respondent and Amalex, Inc., such that Amalex did demand payment of those premiums, which the Respondent failed to do. On or about March 4, 1982, the Respondent sold to The Cypress Gallery a package business insurance policy and endorsement issued through Amalex, Inc. The Respondent collected at least $883 from The Cypress Gallery, representing the earned premium on that policy which was cancelled on July 22, 1982. He failed to forward the earned premium in the regular course of business to Amalex, the General Agent. On March 16, 1982, Respondent sold to Eurohouse Custom Builders, Inc., fire, general liability, automobile and builder's risk policies together with several endorsements issued through Amalex, Inc. He collected premium payments on those policies in the earned amount of $1,197, although the policies were later cancelled after that amount of premium was earned by the insurance company and Amalex. He failed to forward the $1,197 earned premium to Amalex in the regular course of business. On July 9, 1982, the Respondent sold to Byron Hood, a package commercial insurance policy and automobile policies issued through Amalex, Inc., on which the Respondent collected a total premium amount of $1,430 from IMAC, a premium finance company. The Respondent failed to forward this premium amount in the regular course of business to Amalex, Inc. On May 14, 1982, the Respondent sold to Jeanes Swap Shop, a package commercial insurance policy with an endorsement which was issued through Amalex, Inc., and upon which the Respondent collected and received a $314 premium. The Respondent forwarded most of the premium to Amalex, but failed to forward $39 of it. On or about March 31, 1982, the Respondent sold to Lawns Unlimited a commercial policy issued through Amalex, Inc. The Respondent collected and received from Lawns Unlimited $816, which represented the premium payment for that policy. This premium payment was never forwarded to Amalex in its entirety and an earned premium of $242 is still due Amalex as General Agent. On or about July 2, 1982, the Respondent sold to Robert Lewis a package commercial insurance policy issued through Amalex. The Respondent received $500 from Lewis as a premium payment for that policy. The Respondent failed to forward $150 of that premium to Amalex. On or about April 1, 1982, the Respondent sold to Joe Strickland a homeowners and boat insurance policy issued through Amalex, Inc. He collected a premium from Mr. Strickland in the amount of $353 which he failed to forward in the regular course of business to Amalex, the General Agent. This was a personal homeowners and marine insurance policy issued to Mr. Strickland, and the $353 premium could not possibly have been the subject of any misunderstanding concerning Respondent's retention of it for coverage of office expenses. On April 30, 1982, the Respondent sold to "Pop-a Top Lounge" a general liability and fire insurance policy issued through Amalex, Inc. The Respondent collected a premium of $647 on that policy and failed to forward it in the regular course of business to Amalex, the party entitled to it as General Agent. Near the end of 1982, the Respondent sold to Arnold Construction Company various endorsements on its existing business insurance coverage so as to add coverage for additional motor vehicles. That policy and the endorsements were issued through Amalex, Inc. The Respondent collected from Arnold Construction Company a premium payment in the amount of $1,302 and failed to forward it in the regular course of business to Amalex, the General Agent. Numerous requests were made of the Respondent by Amalex, Inc. for the payment of the delinquent premiums the Respondent owed it on all outstanding accounts beginning in March, 1982. In October, 1982, Amalex began requiring cash remissions with applications for insurance written by the Respondent. The Respondent has failed to pay the outstanding account balances representing premium trust fund payments due to Amalex, Inc., such that in excess of $18,000 in outstanding premium payments have not been remitted to that firm. It is true that two of the amounts billed and depicted on Exhibit No. 12 as constituting that approximate $18,000 outstanding premium payment amount, represent $1,368 and $174 for business written in November and December of 1981, during which time the Respondent was under the genuine belief that he had an agreement with Amalex, Inc., to retain in his office all business insurance premium payments. Even though that is the case, and the B & L Groceries, B & L Seafood and Parker Septic Tank Co. premiums are attributable to this time period, the fact remains that the greater portion of the disputed approximate $18,000 amount remains outstanding and has never been paid by the Respondent to Amalex, Inc., the entity entitled to the funds. The amounts collected and not remitted by the Respondent on the insurance accounts delineated above constitute trust funds held in a fiduciary capacity by the Respondent on behalf of the General Agent, Amalex, Inc., who is General Agent for the insurance companies for whom the Respondent wrote the policies.1 The Respondent thus misappropriated these trust funds by failing to remit them in a timely fashion to the General Agent, Amalex, Inc., in the regular course of business. Although the Respondent clearly failed to properly account for and deliver the subject funds, there is no evidence to show that the Respondent was guilty of faulty record keeping in his own agency. In fact, Petitioner did not adduce any competent, substantial evidence to indicate what manner of record keeping the Respondent engaged in, good, bad or indifferent.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the Respondent, John Wayne Pennington's General Lines Insurance Agent's license be suspended for a period of two years, in accordance with Section 626.641, Florida Statutes. DONE and RECOMMENDED this 3rd day of March, 1986 in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1986.
