Findings Of Fact The Respondent, Albert Lawrence Alfano, was licensed by the Florida Department of Insurance as an Ordinary Life including Disability and an Ordinary-Variable Annuity including Disability Insurance Agent during the period of time delineated in the Administrative Complaint. With respect to Counts II through VII of the Administrative Complaint, the following findings are made: COUNT II Danny Hostutler discussed purchasing a $100,000 Metropolitan Life Insurance Company life insurance policy with Respondent on or about February 27, 1979, but told Respondent that he could not buy the insurance because he could not afford it, and did not pay any premium. Hostutler did sign an application for a policy and took a medical exam so that the information would be on file in case he eventually might buy the policy. Respondent submitted the application without Mr. Hostutler's knowledge or consent to the insurer, which issued Policy #794239558PR. Mr. Hostutler never received the policy because Respondent failed to deliver it. Respondent forged Mr. Hostutler's signature to a Request for Policy Loan form and took out a loan to pay the premium on the policy without the insured's knowledge or consent. Respondent also submitted to the insurer a Request for Change in Frequency of Premium Payment form on the same date without Mr. Hostutler's knowledge or consent. Respondent received commissions on the sale of this policy. COUNT III Thomas E. Clement discussed a $100,000 Metropolitan Life Insurance Company life insurance policy with Respondent on or about August 28, 1978. Respondent had Mr. Clement sign an application, falsely representing to Mr. Clement that the application was for a new type of policy for businessmen and that his signing it was for the sole purpose of submitting the application to the insurer as a test case for Respondent's own personal knowledge without having any legal effect. Mr. Clement did not want to purchase insurance, which fact was impressed upon Respondent, and did not pay any premium for a policy. Respondent submitted the application without Mr. Clement's knowledge or consent to the insurer, which issued Policy #784935889A. Mr. Clement never received the policy because Respondent failed to deliver it. Respondent forged Mr. Clement's signature to a Request for Change in Frequency of Premium Payment form and submitted it to the Insurer without the insured's knowledge or consent. Respondent received commissions on the sale of this policy. COUNT IV Eric Bylock on or about January 1978, requested and received a policy loan check on his Metropolitan Life Insurance Company Policy #600303436A from the insurer. Thereafter, Mr. Bylock decided he did not want the loan and delivered the unendorsed policy loan check to Respondent with express instructions to return it to the insurer. Respondent forged Mr. Bylock's endorsement signature on the check, cashed it, and kept the proceeds without the insured's knowledge or consent. COUNT V Respondent forged Leslie E. Swenson's signature to a Policy Loan Request form on Metropolitan Life Insurance Company Policy #1019058SC and submitted it to the insurer without the insured's knowledge or consent. In or about July 1978 the insurer issued a policy loan check payable to Leslie E. Swenson which was sent to Respondent for delivery to Mr. Swenson. Respondent forged Mr. Swenson's endorsement to the policy loan check, deposited the check in his own bank account, and kept the proceeds without Mr. Swenson's knowledge or consent. COUNT VI Respondent forged Edwin H. Mathis' signature to two Request for Policy Loan forms on Metropolitan Life Insurance Company policies and submitted them to the insurer without the insured's knowledge or consent. In or about May 1979 the insurer issued two policy loan checks payable to Edwin Mathis which were sent to Respondent for delivery to Mr. Mathis. Respondent forged Mr. Mathis' endorsement on each policy loan check, cashed or deposited the checks in his own account, and kept the proceeds without Mr. Mathis' knowledge or consent. COUNT VII In Count VII, Petitioner alleges that the Respondent in the conduct of business under his license violated various provisions of the Insurance Code. Count VII calls for legal conclusions which will be discussed in the Conclusions of Law section of this Recommended Order.
Recommendation It is therefore recommended upon consideration as contained in the Findings of Fact and Conclusions of Law that: All licenses of the Respondent, Albert Lawrence Alfano, to engage in the business of insurance and eligibility to hold the licenses be revoked. An order revoking Respondent's licenses and eligibility to hold licenses be issued by the Insurance Commissioner. ENTERED this 5th of March, 1982, in Tallahassee, Florida. WILLIAM E. WILLIAMS Hearing Officer Division of Administrative Hearings Department of Administration 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of March, 1982. COPIES FURNISHED: Richard P. Harris, Esquire Department of Insurance 428-A Larson Building Tallahassee, Florida 32301 Harold Mendelow, Esquire 4299 N.W. 36th Street Suite 324 Miami Springs, Florida 33166 The Honorable Bill Gunter Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issue is whether the petitioner's applications for qualification and for examination as an insurance agent should be granted.
Findings Of Fact Wallace F. Sharrett applied on or about May 14, 1987, for qualification as a general lines agent or solicitor for insurance, and also applied for examination as a life and health insurance agent. On or about July 30, 1987, he filed another application for examination as a life and health agent. On all these applications he listed his social security number as 113- 20-3677. His social security number is actually 113-30-2677. All three applications contain the same question #6, which asks: Have you ever held an insurance license in this or any other state? On all applications Mr. Sharrett answered "no." All three applications also contain question #11: Does any insurer or general agent claim that you are indebted under any agency contract or otherwise? If so, state name of claimant, nature of claim, and your defense thereto. To all three questions, Mr. Sharrett checked the box labeled "no." On all three applications, in response to question 14(b), asking, "What insurance experience have you had?", Mr. Sharrett answered "none." Mr. Sharrett previously had sought and had been issued licenses and qualifications by the Florida Department of Insurance to represent insurance companies as follows: Security Life Insurance Company of Georgia, issued August 26, 1977. Conger Life Insurance Company, issued October 20, 1977. Security Life Insurance Company of Georgia, issued January 31, 1979. Coastal States Life Insurance Company, issued July 12, 1979. Hartford Life and Accident Insurance Company, issued June 26, 1981. Mr. Sharrett has held no Florida licenses or qualifications for licensure for any insurers since 1984. From October 3, 1977, through December 27, 1978, Mr. Sharrett had been employed by Conger Life Insurance Company of Miami, Florida. After his termination, an internal audit of Mr. Sharrett's accounts at Conger Life was performed. The internal audit dated January 31, 1979, showed that Mr. Sharrett owed the company $707.66. Thereafter, Mr. Sharrett made payments of $510.14, and Conger Life's records show that as of March 31, 1979, based on total payments, and additional shortages allocated to Mr. Sharrett's account, he owed Conger Life $388.74. After Mr. Sharrett's termination of employment with Conger Life, he applied to become a salesman with Security Life Insurance Company of Georgia. On February 7, 1979, the agency vice president for that company, J. H. Phillips, wrote to Conger Life for information about Mr. Sharrett, and said: We particularly would be interested in, did he leave your company without a deficiency. On February 12, 1979, Mr. Henry J. Spaman of Conger Life wrote to Mr. Phillips stating He was employed by [us] from 10/3/77 to 12/22/78. He left our employment with a shortage of considerable amount which we are in the process of taking legal action [sic]. We also have reported to the State Department of Insurance the shortage and have been assured that it will be investigated. Nevertheless, Mr. Sharrett thereafter was hired as a salesman by Security Life Insurance Company of Georgia. Apparently the payment which Mr. Sharrett made of $510.14 settled his account with Conger Life Insurance Company to the satisfaction of Security Life Insurance Company of Georgia. Conger Insurance Company still maintains, however, that Mr. Sharrett is indebted to it in the amount of $388.74. No legal action to collect that amount from Mr. Sharrett has ever been taken, nor is there any evidence of a demand for payment being directed to him since his payment of $510.14 to Conger Life during the first quarter of 1979. Mr. Sharrett did not list his prior licenses to sell insurance on his recent applications because he had discussed his applications with a retired insurance agent, Mr. Morrelle, who had been an agent with Independent Life Insurance Company for 27 years, Mr. Morrelle told Mr. Sharrett that it was not necessary to list jobs with insurance companies which were more than five years old. Mr. Morrelle had not looked at the applications themselves, and did not know that the question about whether the applicant ever had been licensed in Florida or any other state has no time limit. Mr. Raines, the district sales manager for Independent Life Insurance Company, the company for which Mr. Sharrett will work if licensed, stated that he did not know that Mr. Sharrett had been employed by five different insurance companies. Independent Life's own background check of Salespeople through Equifax only goes back five years. Mr. Sharrett was employed by Independent Life from May 4, 1987, to January 22, 1988, and was a good employee. After this case began, Mr. Sharrett filed an amended application with the Department, dated February 17, 1988. In that application Mr. Sharrett listed his correct social security number, but with regard to question number 6 (concerning other insurance licenses) he listed only Conger Life Insurance Company, Security Life Insurance Company, and New England Life Insurance Company. He neglected to mention his licensure with Coastal States Life Insurance Company and Hartford Life and Accident Insurance Company. The Department has no record that Mr. Sharrett was qualified to represent New England Life Insurance Company. With respect to question number 11 (concerning whether any insurer or general agent claimed that Sharrett was indebted under any agency contract) on the amended application, he again answered "no." On question 14(b), Mr. Sharrett acknowledged 2 years experience in the insurance business in the amended application. The Hearing Officer finds no material misrepresentation with respect to question number 11 (claims of indebtedness by insurance companies) on any of the applications Mr. Sharrett filed. He had no reason to believe that Conger Life Insurance Company continued to maintain that he was indebted to it. Conger Life has never taken any action to collect the $388.74 it maintains Mr. Sharrett owes it. His payment of $514.14 during the first quarter of 1979, shortly after his termination with Conger Life settled the dispute between Conger Life and Mr. Sharrett. In making this finding, the Hearing Officer is persuaded that the dispute between Mr. Sharrett and Conger Life Insurance Company was made known to Security Life Insurance Company in February 1979, and it is more likely than not that both Security Life Insurance Company of Georgia and Mr. Sharrett were satisfied that an agreement had been reached with Conger Life about Mr. Sharrett's indebtedness to Conger Life before he would have been employed by Security Life. Mr. Sharrett did, however, make material misrepresentations in his applications for licensure. While the transposition of numbers on the portion of the application asking or a social security number would not, by itself, be sufficient proof of an intentional misrepresentation, although it would impede investigation into the applicant's background, the error in the social security number in the three original applications is highly significant in conjunction with two other facts: Mr. Sharrett did not reveal in answer to question 6 that he had been licensed to sell insurance in Florida before. Even crediting Mr. Morrelle's testimony that he told Mr. Sharrett it was not necessary to list insurance licenses more than five years old, a plain reading of the form would show that question 6 has no time limit on it, whereas question 10 asks for a record of employment "for the past five years" and is time limited. Minimal attention to the questions asked on the form would have put Mr. Sharrett on notice that he was required to disclose all past insurance licenses. This would have brought to light Mr. Sharrett's dispute with his prior employer, Conger Life, which he would be required to explain. Mr. Sharrett stated that he had no insurance experience in answer to question number 14(b). All these answers were simply untrue. The error in the social security number, the failure to list past licenses Mr. Sharrett held in Florida on three applications, the failure to correctly list past licenses on the fourth (amended) application, and the failure to acknowledge any past insurance experience, leads the Hearing Officer to find purposeful misrepresentation of Mr. Sharrett's past. These misrepresentations raise questions about Mr. Sharrett's trustworthiness. Although the dispute Mr. Sharrett had with Conger Life in 1979 can be explained and would not, in itself, disqualify him from licensure, several of the items of misinformation on his licensure applications apparently were designed to impede the Department from learning of the settled dispute with Conger Life. This misrepresentation is disqualifying.
Recommendation It is recommended that the applications of Mr. Sharrett for qualification and for examination as an insurance agent be denied. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 27th day of June, 1988. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9765 Filed with the Clerk of the Division of Administrative Hearings this 27th day of June, 1988. APPENDIX The following are my rulings on the proposed findings of fact submitted by the petitioner pursuant to Section 120.59(2), Florida Statutes (1987). Covered in finding of fact 5. General covered in finding 6-9, whether the indebtedness was on the payment bond or is general indebtedness is not relevant. Covered in finding of fact 12. [Introduction] The content of the original applications are recounted in findings of fact 1-4. 4(a). Rejected as unnecessary. 4(b). Sentence 1 covered in finding of fact 1, the remainder rejected for the reason stated in findings of facts 17 and 18. 4(c). Rejected for the reason stated in finding of fact 17(a). 4(d). Accepted in finding of fact 16. Rejected as unnecessary. Covered in finding of fact 13. The following are my rulings on the proposed findings of fact submitted by the respondent pursuant to Section 120.59(2), Florida Statues (1987). Covered in finding of fact 5. Covered in finding of fact 6. Covered in finding of fact 8. 4(a). The name used on the application is not a problem. Concerning the social security, see finding of fact 1. 4(b). See finding of fact 1. 4(c). See finding of fact 1. [Appears to be misnumbering] Rejected as unnecessary. Rejected as unnecessary. Covered in finding of fact 11. Covered in finding of fact 12. Covered in findings of facts 1, 2, 3, 4, and 5. Same as previous ruling. Same as previous ruling. Covered in findings of facts 16, 17, and 18. COPIES FURNISHED: Mr. Wallace F. Sharrett 109 Southwest Third Avenue Hallendale, Florida 33009 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Don Dowdell General Counsel State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, what action should be taken.
Findings Of Fact At all times material hereto, Joseph Datchko (Respondent) was licensed by the Department of Insurance (Petitioner) as a life and variable annuity agent; life, health and variable annuity agent; life agent; health agent; and general lines insurance agent. Respondent holds the professional designations of Chartered Life Underwriter (CLU) and Chartered Financial Consultant (CFC). At all times material hereto, Respondent was a sales manager agent for Prudential Life Insurance Company (Prudential). In January 1996, Respondent visited Fred Lowery, Jr. to review Mr. Lowery's life insurance program and investments. Mr. Lowery owned Prudential life insurance policies on himself and owned a Prudential annuity. Mr. Lowery was 68 years old and was living with his son, Paul Lowery (P. Lowery), in an in-law apartment at Mr. P. Lowery's residence. Mr. P. Lowery was present during the meeting with Respondent. Donald Coleman, a financial service representative, agent-in-training with Prudential, accompanied Respondent to the meeting with Mr. Lowery. Respondent did most of the talking at the meeting. At all times material hereto, Respondent supervised Mr. Coleman who was a relatively new agent, having been employed with Prudential approximately 14 months at the time of the meeting with Mr. Lowery. Mr. Coleman had no insurance background prior to becoming employed with Prudential. Respondent's review of Mr. Lowery's insurance policies revealed that, in addition to the Prudential policies, Mr. Lowery owned five John Hancock Life Insurance (Hancock) policies, which were "economatic whole-life policies," in which his children, who were now adults, were the insureds. The Hancock policies consisted of one policy on each of Mr. Lowery's five children; had been owned by Mr. Lowery for approximately 17 years; and had a face value of $10,000 each, with death benefits of at least $25,000 each. The premiums for the Hancock policies totaled approximately $100 a month or $1,200 a year, which was paid through an allotment from Mr. Lowery's military retirement pay. Mr. Lowery was satisfied with the Hancock policies. He wanted life insurance on each of his children and wanted life insurance that he could pass-on to them. The Hancock policies served this purpose for Mr. Lowery. During the meeting, Respondent initiated a discussion regarding the purchase of Prudential variable life insurance policies to replace the Hancock policies. Respondent suggested to Mr. Lowery that he cash-surrender the Hancock policies and use the proceeds from surrendering the Hancock policies to purchase four new Prudential policies insuring his children. Respondent represented that the new Prudential policies would have a death benefit of $25,000 each and would be "paid-up," with no premiums due. The reason for four, instead of five, Prudential policies was that one of Mr. Lowery's children had already purchased and owned a Prudential policy. Mr. Lowery was very interested in Respondent's proposal. Mr. Lowery informed Respondent that a policy that was paid-up and a policy that he could leave for his children to have as owners was a policy in which he (Mr. Lowery) would be very interested. However, Mr. Lowery was skeptical that the premiums would be paid-up and that he would not have to make any premium payments. Mr. Lowery wanted time to consider the proposal and agreed to Respondent's returning to present an illustration of the new Prudential variable policies. At a subsequent meeting, Respondent, accompanied by Mr. Coleman, presented an illustration of the Prudential variable policies. Respondent again did virtually all of the talking. The illustration showed, among other things, a gross rate of return of 12 percent for the Prudential policies, which was directly contradictory to Prudential's instructions to agents to show a maximum gross rate of return of 10 percent. Mr. Coleman was aware that the rate of return was incorrect but he did not reveal it to Mr. Lowery or to Mr. Lowery's children. On January 25, 1996, Mr. P. Lowery signed a document entitled "Understanding Policy Values and Premiums," and Mr. Coleman signed the document as Prudential's representative. Mr. Lowery neither reviewed nor was shown the document. The document indicates an acknowledgement that the policy illustration was reviewed with Prudential's representative. The document also indicates in the "Premium Payments" section that the payment of premiums is required for the policy, and the section states in pertinent part: Premiums are required to be paid for the term specified in the policy. Use of the Abbreviated Payment Plan or the payment flexibility provided by certain policies may limit the number of out-of- pocket payments as they become due. . . . Neither the Abbreviated Payment Plan, nor payment flexibility, makes a policy paid-up. Additional out-of-pocket payments may be needed if actual dividends or investment results decrease, or if charges increase. Mr. P. Lowery also acknowledges in the document that he reviewed a policy illustration with the Prudential representative, Mr. Coleman. Among other things, the illustration indicates in the "Flexible Payment Alternative" section that paying the proposed yearly payments will not make the policy paid-up. No evidence was presented that Mr. P. Lowery questioned Respondent, regarding the payment of premiums, after reading the document; that Mr. P. Lowery signed the document without reading it; or that Mr. P. Lowery did anything, regarding the document, other than sign it. After several meetings, Mr. Lowery decided to surrender his Hancock policies and use the proceeds to purchase the Prudential variable policies insuring his children. Mr. Coleman was present at all of the meetings. Mr. Lowery relied heavily upon Respondent's representation that the Prudential policies would be "paid-up"; he came to trust Respondent. Mr. Lowery would not have purchased the Prudential policies but for Respondent's representation that the policies would be "paid-up." It is clear that Mr. Lowery interpreted "paid-up" to mean that no more premium payments would ever be required on the policies. The signing of the necessary paperwork to purchase the Prudential variable policies took place at the residence of one of Mr. Lowery's daughters, Shirley Dover. Mr. Coleman was also present at this meeting, and Respondent again did virtually all of the talking. Ms. Dover inquired, among other things, about the Prudential variable policies. Respondent informed her, among other things, that the policies would be "paid-up," with no premiums due. Mr. Lowery executed the necessary documents to purchase the Prudential variable policies. Mr. Lowery completed a check dated January 22, 1996, in the amount of $189.43, made payable to Prudential Insurance. Respondent advised Mr. Lowery that the money from the Hancock policies had not been received by Prudential and the check would be applied toward activating the policies. The check was given to Respondent. No evidence was presented to show that Respondent did not handle Mr. Lowery's check in a proper and appropriate manner. In a letter dated January 29, 1996, to an individual in Prudential's "Home Office Underwriting," Respondent used the term "paid-up" in referring to the Prudential variable policies purchased by Mr. Lowery. The purpose of Respondent's letter was to attempt to convince the underwriter to issue Mr. P. Lowery's policy without a rating. Mr. Lowery completed another check dated March 19, 1996, in the amount of $208.75, made payable to Prudential for the Prudential policies. The check was given to Respondent. No evidence was presented to show that Respondent did not handle Mr. Lowery's check in a proper and appropriate manner. Mr. Coleman was shown as servicing agent of record on the Prudential variable policies. He received the commission on the purchasing of the policies by Mr. Lowery. Soon after purchasing the four Prudential policies, Mr. Lowery received premium payment notices. He called Mr. Coleman and indicated that no premiums should be due on the policies. Mr. Coleman informed Mr. Lowery that the notices pertained only to additional insurance if Mr. Lowery wanted to purchase any additional insurance. Mr. Lowery informed Mr. Coleman that he did not want to purchase any additional insurance so Mr. Coleman told him to ignore the premiums and throw them away, which Mr. Lowery did. Subsequently, Mr. Lowery received an annual premium due notice for each of the Prudential policies. One of his daughters, who was not one of the four insureds and who was not present at any of Mr. Lowery's meetings with Respondent or Mr. Coleman, was able to obtain some information regarding the paid-up aspect of the policies. She informed her father that the policies were not paid-up and that he would have to continue to pay premiums to keep the policies in effect. Mr. Lowery was upset by this information. An inference is made, and a finding of fact is made, that Mr. Lowery received a notice for the annual premium due for the year 1997. Mr. Lowery did not pay the premium for any of the Prudential policies. After being informed by his daughter that the Prudential policies were not paid-up, Mr. Lowery decided that he wanted to re-instate his Hancock policies. Mr. Lowery contacted Hancock, but Hancock refused to re-instate the policies. Mr. Lowery received a notice for the annual premium due on each of the Prudential policies for the year 1998. The due date for each premium was January 25, 1998. The total of the premiums was $2,139.18, which was more than the total annual premiums for the Hancock policies. Mr. Lowery did not pay the premium for any of the Prudential policies. Mr. Lowery received a notice for the annual premium due on each of the Prudential policies for the year 1999. The due date for each premium was January 22, 1999. The total of the premiums was $2,139.18. Mr. Lowery did not pay the premium for any of the Prudential policies. After having received the first notice for the annual premium on each Prudential policy, after having been informed by his daughter that the Prudential policies were not paid-up, and after having been unable to re-instate his Hancock policies, Mr. Lowery complained to Petitioner. Sometime thereafter, a representative of Prudential reviewed Mr. Lowery's situation. Prudential's representative concluded in a letter dated January 23, 1998, that no improper actions were committed by any of Prudential's agents or Prudential. The conclusion was based upon, among other things, the insureds' signing of the "Understanding Policy Values and Premiums" document and signing of an acknowledgment that a current prospectus on the policies was received. As to the "Understanding Policy Values and Premiums" document, no evidence was presented that Mr. Lowery's children questioned Respondent, regarding the payment of premiums, after reading the document; that his children signed the document without reading it; or that his children did anything, regarding the document, other than sign it. The evidence presented establishes that Respondent is very knowledgeable regarding life insurance policies. According to Respondent, Hancock, as well as Prudential, had stopped offering the type of policies that Mr. Lowery purchased from Hancock due to better policies being subsequently developed. Respondent determined that Mr. Lowery's Hancock policies were inferior to the Prudential variable policies. Even though Respondent does not know when the Hancock policies would have been paid-up, based on the type of policy that the Hancock policies were, Respondent estimated that it would have taken many years for them to be paid-up and determined that the Prudential policies presented a better situation for Mr. Lowery. Respondent admits that the Prudential policies were not paid-up. However, Respondent points out that, due to the monies from the Hancock policies being placed into the Prudential policies and to the investments being made by Prudential associated with the policies, no premium payment need be made on the policies by Mr. Lowery. Respondent points out further that, if the insureds (Mr. Lowery's children) decided to retain the policies, premium payments would have to be paid at some point in time, but Respondent could not say when that time would be. It is evident that the meaning Mr. Lowery applied to paid-up was not the same meaning applied by Respondent. Respondent failed to explain what he meant by paid-up to Mr. Lowery; and, if Respondent had done so, it is evident that Mr. Lowery would not have purchased the Prudential policies. With the Hancock policies, Mr. Lowery was not the risk- taker, the insurance company was. However, with the Prudential variable policies, Mr. Lowery was the risk-taker, not the insurance company. It is evident that Mr. Lowery did not have this understanding of the Prudential policies and, if he had, he would not have purchased the Prudential policies. Respondent contends that Mr. Lowery is better off financially with the Prudential policies than with the Hancock policies because Mr. Lowery does not have to make premium payments, because Mr. Lowery is receiving a better return on his money, and because the coverage (death benefit) is better. Even assuming that what Respondent is contending is correct, it is not what Mr. Lowery wanted, which was "paid-up" policies where no premiums would ever be due. Respondent failed to give Mr. Lowery what he wanted, and Respondent knew it. No evidence was presented that Petitioner has taken any prior disciplinary action against Respondent. An inference is made, and a finding of fact is made, that Respondent has had no prior disciplinary action taken against him by Petitioner.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order suspending the license of Joseph Datchko for 15 months. DONE AND ENTERED this 11th day of June, 1999, in Tallahassee, Leon County, Florida. ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (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 11th day of June, 1999.
Findings Of Fact Petitioner, Marcus Paul, was employed part-time as a dentist by the State of Florida, Department of Health and Rehabilitative Services, Pensacola, Florida. As part of his employment Dr. Paul was enrolled in the State's Employee Health Insurance Plan. The State's Health Plan is a self-insurance plan. Blue Cross and Blue Shield (BCBS) of Florida is the State's agent for administering the Health Plan and is initially responsible for timely and promptly investigating and paying legitimate health claims. Under the State's Health Plan an employee is responsible for the first $1,000 of covered expenses. The Plan pays the balance of any covered expenses incurred by the employee. Covered expenses are defined in the plan. Such expenses are basically limited to reasonably necessary medical treatment or care of some kind. Dr. Paul also carried a direct pay health insurance policy with Blue Cross and Blue Shield of Philadelphia, Pennsylvania. The Pennsylvania policy was a non-coordinating policy with the State's Health Plan. In essence, the Pennsylvania policy paid directly to its insured, Dr. Paul, regardless of the benefits paid by the State's Plan and the State's Plan benefits are not reduced by the Pennsylvania policy's payment of health benefits. Around September 15, 1984, Dr. Paul suffered a pulmonary embolism. He was hospitalized for his condition from September 15, 1984 to September 30, 1984. On admission, the hospital obtained Dr. Paul's health insurance information and had him sign the usual authorizations to allow the hospital to file his insurance claim. The total hospital charge resulting from Petitioner's hospitalization was $10,873.01 of which $10,582.30 was eligible for payment under the State Plan. The hospital filed a claim on both of Dr. Paul's contracts of insurance. Both contracts of insurance paid benefits to the hospital. BCBS of Pennsylvania paid approximately $9,500 and BCBS of Florida paid $9,582.00. The amount paid by BCBS of Florida represents the total covered expenses less the $1,000 the insured is responsible for. Because of the double payment the hospital told Dr. Paul that he was entitled to a refund from it. However, before the hospital refunded the money to Dr. Paul, BCBS of Florida discovered the double payment. No evidence was presented as to how BCBS of Florida discovered the other insurance company's co-payment. BCBS of Florida immediately demanded the hospital refund its payment. The hospital did so. BCBS of Florida mistakenly took the position that it was not the primary payor on the claim and refused to pay the claim. The hospital thereafter looked to the Pennsylvania proceeds for its payment. Dr. Paul was thereby prevented from receiving the monies due him under his Pennsylvania policy at a time when his need for funds was high since, due to his illness, he could not conduct a regular practice. For approximately one year Dr. Paul attempted to correct BCBS of Florida's mistake. However, he ran into a brick wall. Finally, after Dr. Paul retained an attorney to deal with BCBS, BCBS admitted its mistake and paid the hospital as the primary payor of Dr. Paul's claim. BCBS' failure to pay Dr. Paul's claim for over one year was a breach of his contract of insurance and negligent. BCBS' actions caused Dr. Paul not to be able to receive other monies that were rightfully his and at a minimum caused Dr. Paul to incur damages in the amount of attorney's fee he was forced to pay to rectify BCBS' mistake. When BCBS paid the claim the second time the company paid $10,281.93 to the hospital. Dr. Paul's $1,000 deductible was not subtracted from the amount BCBS paid. The hospital then refunded $10,105.70 to Dr. Paul. The discrepancy between the original `84 payment and the second `85 payment is $300.17. Therefore, only $699.83 could be attributable to Dr. Paul. Additionally Dr. Paul did not receive the full BCBS payment from the hospital. The amount he received was $176.23 less than the amount paid by BCBS. Therefore, the amount owed by Dr. Paul, if any, is $523.60. The hospital has possession of the other $176.23. BCBS later discovered its error and attempted to collect the full $1,000 deductible from Dr. Paul. He refused to pay since he had incurred and paid more than $3,000 in attorney's fees when he was forced to hire an attorney to obtain proper payment of his insurance claim. Since Dr. Paul refused to pay, BCBS turned his name over to DOA, its principal, for further collection action. DOA terminated further payment of Dr. Paul's ongoing insurance claims. 1/ Additionally, DOA unsuccessfully attempted to have the comptroller garnish Dr. Paul's wages. These actions were taken even in light of the breach of contract and negligent failure of DOA's agent to properly pay Dr. Paul's claim.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is Recommended: That the Department enter a final order determining that Dr. Paul is liable to it for the $523.60. DONE and ENTERED this 25th day of April, 1989, in Tallahassee, Leon County, Florida. DIANE CLEAVINGER 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 25th day of April, 1989.
The Issue The issue is whether Respondent committed the offenses alleged in the Administrative Complaint and, if so, what disciplinary action should be imposed on his licenses and appointments as a life and variable annuity contracts agent, a life, health and variable annuities contracts agent, health agent, and general lines agent.
Findings Of Fact Respondent received a Bachelor's degree in business administration from the University of Florida in 1969. From the time of his graduation until 1985, he worked in the contracting business, both for himself and others. For nine years, including the years of his employment with Prudential, Respondent taught courses designed to prepare candidates for the Florida contractor's examination requirements. Respondent began work for Prudential in April 1985; this was his first employment in the insurance industry. Respondent worked continuously for Prudential until 1994, when he resigned. Respondent's resignation was prompted by Prudential's decision to exit the property and casualty market in Florida after Hurricane Andrew affected the scope of insurance products that could be provided. Currently, Respondent is an independent insurance agent and the major part of his business now involves group health insurance and working with employers and employee groups. Immediately upon his employment with Prudential in 1985, Respondent attended a Department-required 40-hour training course administered by Prudential, after which he took the required examination, and received his Department license to sell life and health insurance. He received other licenses within the next year, including property and casualty, and the federal licenses necessary to sell investment-based insurance products. At all times material and relevant to this matter, Respondent was a duly licensed life and health, life and variable annuity, and property and casualty insurance agent in the State of Florida, having been first licensed by the Department in June 1985. After receiving his initial license, Prudential required that Respondent, as a new agent, to undergo approximately six months of training. During this training period, Respondent was assigned to work with a more experienced agent, Mr. Herb Wagner, whom he accompanied on sales calls. Generally, Respondent and Mr. Wagner split any commissions earned on sales that they made together. Also, Respondent was paid for service calls made to his assigned Prudential clients. The Walter Richards, Ronald Richards, and Ann Munkittrick sales discussed below were made during this time. Although Respondent was the newly assigned servicing agent for each of these three policyholders, Mr. Wagner either made or participated in each of the sale presentations. Respondent's intent with regard to each sale he made, including those at issue in this proceeding, was to benefit the customer. Respondent approached the business of insurance sales as a teacher; he tried to make each person he talked to about insurance aware of the things that he would want to know if he were in the position of the customer, both in servicing and in sales. During sales presentations, Respondent habitually informed customers to whom he offered a financed insurance option that loans were the mechanism by which cash values could be taken from the old policy by a statement to the effect that, "There are only three ways to take values from an insurance policy: the first is to die, which you don't want to do; the second is to cash surrender the policy, which you don't want to do; and the third is to take a loan against the policy, and that is the way we will get the money to pay the premium on the new policy." This statement was made as part of each of the sales at issue here. Respondent's presentation included: (1) a review of existing coverage and an update of existing policies, using the Ordinary Policy Service Record (OPSR) cards; (2) a review of the insured's other assets and policies; (3) a discussion of insurance needs; (4) a discussion of the cost of insurance that would meet their needs; (5) a determination that the older policies were held for their death benefit, not for a lifetime or savings need, if the policyholder expressed an unwillingness or inability to pay the premium cost; (6) a statement of the option to use values from the old policy to pay the premiums on a new policy; and (7) an explanation of how a financed insurance program could work, if the policyholder was interested. The OPSR cards used by Respondent during presentations summarized an insured's policy and was provided by Prudential to the agent responsible for servicing the customer. The OPSR cards contain such information as: the face amount of the policy; the guaranteed cash value of the policy; the dividend option; the amount of accumulated dividends; the cash value of paid-up additional insurance (if the paid-up additional insurance dividend option had been chosen); the most recent dividend; the amount of any paid-up additions; the beneficiary; the amount of the premium; the frequency of premium payment; any outstanding loan balances; and the loan interest rate contained in the insurance contract. When Respondent presented an option for financed insurance, to aid in explaining the proposal, he started with the guaranteed cash value block and the dividend value block on the OPSR card to show the customer the values available in the old policy. In each of the six sales presentations at issue in this proceeding, and in all of Respondent's 1985-1986 presentations, Respondent used Prudential's computer-generated illustrations to show how the proposed policy would perform based on certain assumptions. The illustration included a statement that the illustration was based upon the assumption that the then current dividend scales would remain the same; that dividends were not guaranteed; and that a decline in dividend scales would result in the necessity to pay premiums for a longer period of time before dividends would reach the point where the dividends would fully fund the policy's own premiums. With respect to each sale Mr. Ricketts reviewed orally with the customer the disclosures relating to dividend fluctuations. With respect to each sale in this case, Respondent, using the illustration, would explain the various columns, including an oral review of the fact (a) that dividends can change; (b) that the columns on the illustration marked with an asterisk were affected by dividends; (c) that values in the old policy would support an additional policy in the face amount suggested for a specific number of years, based on current dividends; (d) that if the abbreviated payment option were elected, there is a point at which the past, current and future dividends will take care of remaining premiums; and (e) that because dividends are not guaranteed, the abbreviation point could be a greater or lesser number of years depending on whether dividend scales rose or fell. "Dividend scales" in connection with mutual life insurance policies refer to the entire list of dividends paid on a class or type of policy. The term does not refer to a rate or a formula, but to the dollar results within classes of policies of the division of company profits in a mutual insurance company. The illustrations used by Respondent during his presentations were usually left with the insured and when the policy as issued differed from the illustration, Mr. Ricketts would deliver a new illustration with the policy. If after the presentation described in paragraph 9, the policyholder was interested, the presentation would continue with a description of the mechanics of the financed insurance plan: (a) using the OPSR cards again, the values, both dividends and cash values, would be explained; (b) the recitation of the ways to access the values (to die, to surrender, or to take loans); (c) a statement that the old policies were valuable and should never be surrendered; (d) an explanation that when the annual premium due notice came, the policyholder should call Respondent, who would prepare a loan form or request a loan check; and (e) an offer to re-explain the plan at the anniversary date if requested. In each of the instances involved in this case, Respondent used the same presentation. In those cases where Mr. Wagner made the sales presentations, the substance of the presentations was also the same. When a policy was issued, it was sent to the agent for delivery, and Respondent (or in the case of the sales with Herb Wagner, Respondent and Mr. Wagner) personally delivered the policy, repeated the foregoing explanation, and reviewed the policy itself. Respondent offered the option of financed insurance to each of the complainants only when he determined they met certain criteria: (a) the customer had need for increased death benefits; (b) the customer held his old policy not for any lifetime or "savings" need, but for its death benefit; (c) the customer was unwilling or unable fully to pay the premiums of the new policy out of pocket; and, (d) the ability of the existing policy or policies to carry the new policy for a finite number of years, at which time there was a viable plan to pick up the premium at the end of the financing period. During interviews with clients, if a person otherwise a candidate for financed insurance told Respondent that his or her old policy was intended or held to provide funds for a lifetime or savings need, Respondent did not suggest or offer the financed insurance option. In July 1985, Walter Richards had a life insurance policy with Prudential which was issued in 1965 or 1966, with a face value of $5,000. This policy was purchased by his mother when he was 19 or 20 years old. On or about July 15, 1985, Respondent and Herb Wagner, met with Walter Richards, his wife, his brother and mother. The meeting included the standard presentation by Respondent, resulting in a determination that Walter Richards was an appropriate client who might benefit from financed insurance. Respondent explained how such a policy would work as detailed in paragraph 9 above. After Respondent's standard presentation, Walter Richards believed that he could purchase a $30,000 policy with the premiums on the new policy being paid for by the $5,000 policy. Moreover, Walter Richards believed that at the end of seven years the $5,000 policy would “fade away” or “lapse,” and the $30,000 would make enough to pay its own premiums. At the conclusion of the presentation, and based on Walter Richards' interpretation of Respondent's presentation, Walter Richards signed an application for the $30,000 policy. Respondent received a first-year commission of approximately $146.26 from the sale of the $30,000 policy issued to Walter Richards. At hearing, Walter Richards testified that Respondent did not discuss the fact that loans would be taken from the $5000 policy to pay the premium on the $30,000 policy or that there was the possibility that there would not be enough money in the $5,000 to pay off the $30,000 policy in the projected seven-year period. Also, Walter Richards testified that he never requested loans on either of the insurance policies and was never told that checks he received from Prudential were loans against the old or new policies. Walter Richards' memory is taxed about some details of the transaction. For example, Walter Richards did not remember which of the agents did most of the talking at the meeting. Herb Wagner's name was familiar, but he could not remember whether Mr. Wagner was the other agent at the initial meeting even after being informed that Mr. Wagner had signed his brother's application at that time. While he had in his possession a 1989 illustration of the $30,000 policy, Walter Richards does not know how it came into his possession. He remembers tables and charts from the first meeting with Respondent, but he could not recall what they were or any specifics about them. During the initial year following the purchase of the $30,000 policy, premium payments for the policy were made from loans taken against Mr. Walter Richards' $5,000 policy. In 1990, 1991, and 1992, the funds in the $5,000 policy were insufficient to pay for the $30,000 policy. As a result, values from the $30,000 policy were used to pay the premium during those years. These loans were authorized by the Disbursement Request Forms used by Prudential. The signature of the policyholder on the Disbursement Request Form was not required for a loan check to be disbursed. Agents of Prudential were allowed to request such disbursements. However, all checks disbursed pursuant to these forms were mailed directly to the owner of the policy. Printed on the back each check immediately above the line designated for the endorsee’s signature was the following or similar language: This check is for the net proceeds of the LOAN made under the contract and described on the statement of loan attached to the check. By endorsing this check, YOU, the payee(s) (1) confirm the payee(s) application for the LOAN; (2) agree to pay interest on the LOAN at the contract rate; (3) agree that INTEREST NOT PAID when due will be added to the LOAN amount and the INTEREST charged on it will be the same rate(s) as the LOAN itself; (4) assign to The Prudential the contract and all benefits due or to become due or granted under it in order to secure payment of the LOAN with INTEREST; (5) certify that no proceeding in bankruptcy or on account of insolvency are filed or pending, and that the contract is free and clear of any encumbrance or other assignment. Walter Richards received notices from Prudential documenting the loans as well as checks with notices attached thereto. During the time relevant to this proceeding, Walter Richards endorsed several “loan checks.” Sharon Richards, wife of Walter Richards, acknowledged that checks from Prudential were mailed to her home and that after she or her husband endorsed the checks, she would deposit the checks and write checks to Prudential for the premium payment on the $30,000 policy. Prior to depositing the checks, Ms. Richards did not read the language on the checks nor the language on the notice attached to the checks. The plan submitted to Walter Richards resulting in the sale of the $30,000 policy to him was that his existing $5000 policy's values would support an approximately $500 annual premium on a $30,000 policy for 7 years, after which the dividends on the additional policy would be sufficient to cover its own premiums. Because of the reduced dividend scales beginning in 1990, the plan did not work as contemplated, and two and part of a third premium payment were financed from the values that were building up in the $30,000 policy rather than being fully funded by the old policy. Notwithstanding the reduced dividend scale in 1990, 1991, and 1992, Mr. Walter Richards has continuously achieved at least $36,000 in net death benefits with no additional out-of- pocket payment for ten years, demonstrating that the plan proposed in 1985 was a conservative and reasonable plan. Walter Richards filed a complaint with the Department and instituted legal action against Prudential after he read an article in the Tampa Tribune which stated that Prudential had been sued for "churning." Mr. Walter Richards then concluded that what was described in the article was the plan he was using to fund his $30,000 policy. Notwithstanding his filing a complaint, Walter Richards stated at hearing. "My policy was working the way it was supposed to. But my brother's policy had not come out at all the way it was supposed to." At all times relevant to this proceeding, Ronald Richards had a life insurance policy with the Prudential which was issued in 1966 with a face value of $5,000. On or about July 15, 1985, the Respondent and Herb Wagner visited the home of Ronald Richards in Valrico, Florida, for the purpose of servicing Ronald Richards' existing Prudential life insurance policies. The appointment was set up by an agent for Prudential as Respondent had only recently began working for Prudential. Present at the meeting were Ronald Richards; his brother, Walter Richards; their mother; and Sharon Richards, Walter’s wife. After Respondent reviewed Ronald Richard’s insurance policy and inquired as to Mr. Richard’s needs relative to insurance, Respondent made the standard presentation detailed in paragraph 9, Ronald Richards was offered and expressed an interest in purchasing a $30,000 policy. This appeared to be a reasonable plan to assist Ronald Richards to achieve a recognized need for additional death benefits. Ronald Richard’s understanding of Respondent's presentation was that $500 a year would come out of the old policy for seven years; at the end of the seven years, no additional premiums would be due on the $30,000 policy; and that after the seven years, the $5,000 policy would “disappear.” Both Ronald and Walter Richards' understanding that their $5,000 policies would disappear or lapse as a result of their financed insurance program was erroneous. At the conclusion of the July 15, 1985, meeting and presentation, Ronald Richards decided to purchase the $30,000 policy. The new policy was issued on October 2, 1985. The Respondent received a first-year commission of approximately $254.79 from the sale of the $30,000 policy to Ronald Richards. At the time of the application, there was no indication that there would be any problems with Ronald Richards' policy. However, Prudential's underwriting department refused to issue the policy as applied for at standard rates because of Ronald Richards' health history. Because the policy was rated and issued at Prudential's highest risk category, when Ronald Richards' policy was issued by Prudential, it was offered at an increased premium of about $900 per year, rather than the approximate $500 standard rate. In 1985, when Ronald Richards' policy was returned rated with a higher annual premium, Respondent and Mr. Wagner delivered the policy and, at that time, told Ronald that the proposed program of insurance payments would not work for him. Respondent and Mr. Wagner also informed Ronald Richards that an additional policy with a face amount of $10,000 could be supported by the values in the 1966 policy if he would like to reduce the face value. Ronald refused this alternate plan, insisted that his documented blood pressure problem did not exist, and further insisted on obtaining $30,000 coverage like his brother, Walter. In reaction to the fact that the old policy would not support the $900 premium for more than two or three years, Mr. Ronald Richards responded that he would "cross that bridge when I get there." Ronald Richards claims that he was unaware that loans from the value of the old policy were used to pay the new policy. However, during the time period relevant to this proceeding, Ronald Richards received routine loan notices as well as "loan" checks. These checks, which contained the language clearly indicating that the proceeds were loans, were endorsed by Ronald Richards. In or about December 1985 Prudential mailed a "loan" check to Mr. Ronald Richards from the old policy in the amount of $926.50, representing the first year's premium. Mr. Richards endorsed the "loan" check from Prudential, deposited the check in his bank in Tampa, and wrote a check from his own account to pay the $926 first year's premium on the $30,000 policy. In October 1986, Ronald Richards, unsuccessfully sought a reduction of his rating, on the grounds of a weight loss, addressing one of the reasons for the special rating of his policy. This application was suggested to Mr. Richards by Respondent in an attempt to reduce the premium payment to the $30,000 policy. Respondent and Mr. Wagner, again, suggested at the next two anniversary dates that the policy be reduced to $10,000, but Mr. Richards refused. In the third year of the policy being in force, Ronald Richards was informed by the Respondent that he would have to pay a premium of $900 for the $30,000 policy because the values in the $5,000 policy had been used up. In 1987, Mr. Ronald Richards allowed the $30,000 policy to lapse. As expected, the values in the old policy were insufficient to finance another year's premium. In 1989, two years after the policy lapsed, Respondent prepared for Mr. Richards an application for reinstatement of the policy at a reduced $10,000 face amount. Ronald Richards signed the application for reinstatement at the reduced amount and Respondent was successful in getting Prudential's approval for the reinstatement. However, Mr. Ronald Richards did not pay the necessary premium and the reinstatement was not accomplished. Ronald Richards testified that he did not remember receiving the information that his policy was rated and that the old policy would not support a new policy in the amount of $30,000. He further stated that he only realized his policy required a $900 payment in the third year, when the value in the old policy would not sustain the third $900 premium. These statements conflict with accounts given by Respondent as well as those of Walter Richards who was present when Ronald's policy came back with a higher risk rating because of health problems and when the problems with Ronald's policy were explained to him by Respondent and Mr. Wagner. Also, a letter was mailed to Ronald Richards' home notifying him of the special rating required because of his elevated blood pressure and weight. This letter required the signature of Ronald Richards acknowledging that he was aware that the proposed policy could not be issued as initially presented due to the special rating. Ronald Richards acknowledged that Respondent and Mr. Wagner "probably explained the details" and "how the program would work". Nonetheless, Mr. Ronald Richards testified that he filed a complaint with the Department DOI after seeing television reports in about 1995, involving a lawsuit against Prudential for the "churning." In October 1997, Ronald Richard's $5,000 policy was reinstated and all loans against it were canceled by Prudential. In August 1985, Ann M. Munkittrick had a life insurance policy with Prudential, which was issued November 11, 1964, with a face value of $2,000. On or about August 5, 1985, Respondent and another Prudential agent, Herb Wagner, met with Mrs. Munkittrick. This meeting took place during Respondent's initial training period. Also present at the hour-long meeting was Mrs. Munkittrick's husband. During the hour-long meeting, Respondent made the standard presentation as described in paragraph 9. During the meeting, Respondent or Mr. Wagner explained to Ms. Munkittrick that she could purchase an additional $6,000 policy at no out-of- pocket costs to her. This offer was made based on Mrs. Munkittrick's responses to Respondent's inquiries after which Respondent determined that Mrs. Munkittrick was an appropriate candidate for financed insurance and was interested in such policy. Based on the standard presentation made to her during the August 5, 1985, meeting, Mrs. Munkittrick understood that the new policy was not free but rather would come from values in her old policy's value and dividends. After Respondent's standard presentation, Mrs. Munkittrick signed an application for the $6,000 policy, which was issued on August 24, 1985. Respondent received a first-year commission of approximately $91.26 from the sale of the Mrs. Munkittrick's $6000 policy. The premium payments for Mrs. Munkitrrick's new policy were paid by loans taken against her old policy. To accomplish this, Prudential routinely provided Mrs. Munkittrick with Disbursement Request Forms which she signed, and notices which reported (1) that loan(s) had been taken against her old policy; (2) that the loan(s) paid the premium on her new policy; (3) the rate of interest; (4) the interest accrued; and (5) the total outstanding loan principal. In addition to the Prudential notices concerning loans and interest on such loans, Mrs. Munkittrick received "loan" checks from Prudential which she endorsed, and sent back to Prudential. The acknowledgment on the back of the checks endorsed by Mrs. Munkittrick clearly stated that the funds were the proceeds of a "loan" and also indicated the corresponding conditions. At hearing, Mrs. Munkittrik admitted that she received the notices attached to the checks, but was unsure if she read the notices. According to Mrs. MunKittrick, if she read the notices, she did not "absorb" the fact that the loans were taken against her policy. As to the actual sales presentation, Mrs. Munkittrick acknowledged in her testimony at hearing that the events occurred "a long time ago" and, consequently, she could not recall many of the details of the meeting with Respondent. Specifically, Mrs. Munkittrick could not recall or simply doubted: whether Respondent reviewed her old policy with her during the August 1985 meeting; whether Respondent used an illustration; whether Respondent told her how much value was available from her old policy; whether Disbursement Request Forms were filled out when she signed them; and whether she read the print on the back of Prudential loan checks she endorsed. In September 1986, John Anderson Jr., then a resident of Plant City, Florida, had three life insurance policies with Prudential. These policies were issued November 17, 1961, November 6, 1969, and June 6, 1979, with face values of $5,000, $3,000, and $6,000, respectively. In September 1986, Betty Anderson, wife of John Anderson Jr., then a resident of Plant City, Florida, had a life insurance policy with Prudential. The value of the policy, issued on June 6, 1979, was approximately $6,920.00. On or about September 18, 1986, the Respondent met with John Jr., and Betty Anderson (Andersons), at their home in Plant City, Florida. Respondent was the Anderson's assigned Prudential agent and was meeting with them for the purpose of servicing their existing Prudential life insurance policies. During this meeting, Mr. Anderson, who was 59 years old at that time, advised Respondent that he planned to retire in a few years and did not have any minor children. Mr. Anderson further indicated that Mrs. Anderson had no source of income independent of him. Respondent made the standard presentation described in paragraph 9 and provided the Andersons with illustrations. Mr. Anderson was concerned about providing additional financial resources for Mrs. Anderson in the event he predeceased her; he believed that this could be accomplished by securing additional life insurance. However, the Andersons informed Respondent that they couldn't afford another policy if they had to pay out of pocket. Respondent addressed the Andersons' concerns and, again, explained to them that loans against the old policy would be used to pay the premium payments on the proposed $25,000 policy. Based on the Respondent's standard presentation, on or about September 18, 1996, the Andersons signed an application for the $25,000 Prudential life insurance policy recommended by the Respondent. Respondent received a first-year commission of approximately $630.00 from the sale of the additional $25,000 policy. From 1987 through 1992, Disbursement Request Forms were prepared by the Respondent requesting loans on each of the four old policies held by Mr. Anderson. One Disbursement Request Form had the signature of Mr. Anderson. Consistent with Prudential's procedures, when Disbursement Request Forms were completed by the agent, the checks generated by such requests were sent directly to the insured, Mr. Anderson. The standard language regarding loans was printed on the back of the check. When the annual loan checks came from Prudential, Mr. and Mrs. Anderson endorsed the checks, deposited them in the bank account, and then wrote a check to Prudential for the premium payment. Mr. Anderson also received coupon books annually, which provided information regarding the loan status; the interest on loan; a description of dividends; and current loans and interest rate. This notice, along with the loan checks and the notice attached thereto, plainly shows that loans were used to make the premium payments on the new policy. In 1991 and 1992 loans were taken out against the $25,000 policy due to a reduction in the dividend scales. Because of the reduced dividend scales, the 1986 policy would not abbreviate until after the September 2000 premium payment was made. In 1995, Mr. Anderson received notice that the $25,000 policy was going to lapse. However, when the Andersons contacted Prudential, they agreed to "fix everything back, which they did." Mrs. Anderson stated that, "[Prudential] put everything back the way it was." However, in May 1995, Mr. Anderson authorized Prudential to cancel his $25,000 policy and simply refund all premium payments. In 1995, about the time the Andersons received the lapse notice, Mrs. Anderson heard a news telecast related to Prudential and told her husband. "They're talking about our situation." The television broadcast included a telephone number to call regarding complaints. Thereafter, the Andersons called the Department to file a complaint against Prudential. On or about May of 1986, Harold E. Welch of Hillsborough County, Florida, had three life insurance policies with Prudential including one issued in 1957 with a face value of $5,000, and a second issued in 1976, with a face value of $5,000. Harold Welch first met the Respondent at his office at the Tampa Port Authority after Mr. Welch moved to Tampa. Respondent was Mr. Welch's assigned agent, and Mr. Welch had requested his help in changing beneficiaries on his existing insurance policies. On or about April 22, 1986, Mr. Welch again met with the Respondent at the Tampa Port Authority Office. After making his standard presentation and determining that Mr. Welch might be a person who could benefit from financed insurance, Respondent talked to him about purchasing a $10,000 policy. Using his standard presentation, the Respondent told Mr. Welch that the premiums on the new policy would be paid out of the values of the older policies, and that they would pay the premiums for a period of nine years, after which the new policy would pay for itself. During the presentation, the Respondent used a printed illustration to explain the nine-year payment plan. Copies of the same was given to Mr. Welch. Mr. Welch testified that the Respondent gave him a print-out with a lot of numbers on it. Mr. Welch further stated that the only part he understood was the bracketed part on the first page that showed nine payments and then "zeros after that." Mr. Welch understood the 1986 policy premiums would be paid with the accrued values of his existing policies over nine years, after which time the new policy would pay for itself and values could be returned to the older policies. The following language appeared on the illustration: Dividend amounts are scheduled on basis of current Prudential scale and are not guarantees or estimates for the future. Illustrated dividends on permanent policies assure current rate of investment earnings on funds attributable to policies since January 1, 1989, and will continue each year into the future. Based upon the Respondent's representations, Harold Welch signed an application for the $10,000 Prudential life insurance policy on or about April 20, 1986. The Respondent received a first-year commission of approximately $255.75, from the sale of the $10,000 additional life insurance policy to Mr. Welch. Mr. Welch admitted that he could not recall whether or not Respondent discussed the dividend scale disclaimer and likewise could not remember whether he read the disclaimer. Although Mr. Welch testified that he did not recall Respondent's talking about loans, he admitted he had understood that the "values" would be taken from his policies, and that at the time he did not "particularly care" how the values were obtained. Mr. Welch admitted signing Disbursement Request Forms authorizing loans against his policy, but that he "didn't really pay any attention to those things.” According to Mr. Welch, “All I wanted to do was get the premium paid." In fact, Mr. Welch signed Disbursement Request Forms in 1987, 1988, 1991, 1992, 1993, and 1994, authorizing loans, including one to pay for the very first 1986 premium. On or about April 20, 1989, Mr. Welch received and endorsed a check from Prudential which represented a loan from the value of his older policies to pay the premium for the new policy. Printed on the back of the check just above the line on which the endorser was to sign, was the language quoted in paragraph 27. Mr. Welch acknowledged receipt of various documents between 1986 and 1994 providing information that loans were taken against his policies to pay premiums on the additional policy, admitted that he made no inquires about the loans and raised no objections about the loans. As to the 1986 policy, Mr. Welch stated that the notices caused him no concern. Respondent was taking care of the payment on the new policy and this "was just part of the whole plan." Mr. Welch admits that he has a fundamental understanding of dividend usage and related insurance terminology. This is evidenced on several insurance transactions initiated by Mr. Welch prior to Respondent's 1986 presentation regarding the $10,000 policy. In 1985, Mr. Welch wrote a letter to Prudential requesting that the premium be paid with the policy dividends and that any balance be forwarded to him. Also, prior to meeting Respondent, Mr. Welch took two loans against one of his policies which he knew based on "common sense" would reduce the death benefit if not repaid. Finally, Mr. Welch understood how dividends and loans may work together. In response to a 1994 notice of loan interest payment due, Mr. Welch wrote on the payment coupon "please take care of this interest payment through policy dividend." Mr. and Mrs. Welch qualified much of their testimony with comments concerning their inability to remember. Specifically, when questioned about the details of Respondent's presentation, Mr. Welch testified that "sometimes I forget these things. . ." Nonetheless, and although inconsistent with relevant documentation, Mr. Welch stated that in 1986 he was not aware that loans were being taken against his policies. Moreover, Mrs. Welch acknowledged that she did not attend the meeting and therefore, didn't hear Respondent's presentation of the 1986 policy to Mr. Welch. Due to a decline in the dividend scale, Mr. Welch had to make an out-of-pocket interest payment of $142.40, and a loan was taken out on his $10,000 policy to pay the premium in 1996. This exceeded the nine years that Respondent told Mr. Welch premium payments would have to come from the values in the old policies. However, Mr. Welch had no reason to believe that Respondent "knew at all" at the time of the sale that the abbreviated payment plan would not work. Only after Mr. Welch heard media reports involving Prudential did he question the 1986 transaction in which he purchased the 1986 policy. According to Mr. Welch, "I saw an article in the local newspaper about the 'churning' at Prudential; and when I read it, I thought . . . 'It applies to me perfectly.'" Thereafter, he contacted the a law firm through the newspaper, and filed suit. By the time he read the news account, Mr. Welch had had cancer surgery and considered himself uninsurable, and he was afraid his old policies had been depleted and that he was going to lose all his insurance. However, this was not the case. On or about May 1986, John Evenson, then of Valrico, Florida, had several life insurance policies with Prudential, including a policy issued June 7, 1955, with a face amount of $5,000; a policy issued June 1960, with a face amount of $3,000; a policy issued February 11, 1969, with a face amount of $2,500; a policy issued July 11, 1981, with a face amount of $2,000; and a policy issued February 11, 1983, with a face amount of $6,000. His wife, Doreen Evenson, also had a Prudential policy issued January 24, 1972, with a face amount of $2,000. In late 1985, Respondent contacted Mr. Evenson with respect to the above described policies. Mr. Evenson worked in the same business complex as Respondent, and meetings concerning Mr. Evenson's life insurance matters occurred at Mr. Evenson's office. Mrs. Evenson was not present at these meetings. In 1986, Respondent met with Mr. Evenson at least three times concerning a proposed $10,000 policy. The application for a $10,000 policy was signed at the second meeting, on April 18, 1986, after Respondent made his standard presentation described in paragraph 9. Prior to purchasing the $10,000 policy in 1986, Mr. Evenson possessed at least a fundamental knowledge of dividend and loan concepts in the context of his insurance policies. For example, prior to Mr. Evenson's 1986 purchase, he had taken approximately $3,200 in loans against his policies for his son's tuition and for a down payment on a home. Mr. Evenson knew that dividends from his policies could be used to reduce the loans. Also, Mr. Evenson understood dividends; options; the use of dividends, that dividends are not guaranteed; cash value; accessing cash value through loans; and that loans reduce death benefits. Mr. Evenson participated in the payment plan for the 1986 policy, through receipt, endorsement, and deposit of loan checks to pay premiums, and signed disbursement requests consistent with the safeguards established by Prudential. Also, Mr. Evenson received notices of loan interest due from Prudential which specified the amount and source of the loans. Mr. Evenson endorsed several of the "loan" checks. These Prudential loan checks were accompanied by an attached statement plainly stating that the funds were to be loan proceeds and directed the payee to the conditions on the back of the check which further advised that the checks were loan proceeds, and the effect of the loan on the subject policy. Each of the loan checks contained such language immediately above the Evensons' endorsements. The Evensons knew the checks were to be used to pay of the 1985 policy premium, and thus, they deposited the "loan" checks into their own account and wrote checks in the corresponding amounts to Prudential to pay the annual premium. The Evensons also received dividend checks during the relevant period of time which are distinguishable from loan proceeds checks in that no acknowledgment or conditions are printed on the back of the checks. Consistent with Prudential safeguards to prevent imposition of loans against policies without knowledge and participation of the insured, Respondent and Prudential rejected the Evensons' requests to consolidate or simplify the annual premium payment process by having Prudential automatically apply the funds. During his testimony, Mr. Evenson repeatedly stated that his memory was vague concerning certain details of the purchase because it occurred "so long ago." However, Mr. Evenson understood that the 1986 policy was not "free," but that a premium would need to be paid annually. Second, Mr. Evenson testified that during Respondent's presentation and prior to the sale of the new policy, Respondent had a list of Mr. Evensons's policies which included information concerning outstanding loans against some policies. Third, Mr. Evenson acknowledged his need for death benefits, indicating that if he passed away, his wife would need the money to help pay for the mortgage. Finally, Mr. Evenson understood dividends are not guaranteed. The notices, check statements, and checks reflecting loans against his policies did not cause Mr. Evenson to make inquiries about the loans or about the loan proceeds checks. Other than asking that the process occur automatically, the Evensons did not question the payment plan until learning through newspaper and television about churning allegations against Prudential. The Evensons contacted the author of the Tampa Tribune newspaper article, who referred them to James, Hoyer and Newcomer law firm. The Evensons thereafter hired James, Hoyer and Newcomer to sue Prudential. There was no replacement or intent by Respondent to replace any policy in connection with any of the sales in issue. In fact, there was no replacement on any of these sales. Respondent's intent was only to use values in the old policy to leverage an increase in death benefits for the policy holder by financing the new policy for a period of time. Each year the decision to finance the premium or to pay out-of-pocket is a fresh one, and while the option to use financed insurance for a number of years may be the basis on which the insured decided he could afford the program, there was no commitment to use old policy values for more than one premium at a time. All the sales transactions relevant to this proceeding occurred during Respondent's first year and a-half as a licensed insurance agent. The fist six (6) months of this time period Respondent was being trained by Prudential and was usually accompanied by a more experienced agent. Respondent has worked continuously in the insurance industry since 1985, and except for the instant case, Respondent has not been the subject of disciplinary proceedings related to his licenses issued pursuant to Chapter 626, Florida Statutes. Internal policies and requirements respecting loan disbursements for the purpose of paying premiums on the same or another policy required the insured's signature on the disbursement forms, or a signature below a loan agreement on the reverse of a loan check, and were accompanied by a series of notices, all to the policy holder's home address of record, thus bypassing the agent. These were followed by annual status reports and interest billings. Respondent was fully aware of the foregoing safeguards with respect to policy loans at all times. In each of sales at issue in this case, there was an objective need for more insurance to provide additional death benefits, and in most cases a subjective need as well. In each case, the insured held his old policy for death benefits, and not for lifetime cash or savings need. Also, in each case, with one exception, the values in the preexisting policy were sufficient to finance premiums on the proposed additional policy until the point the dividends on the new policy could pay its own premiums, assuming dividend scales remained constant. The exception is Mr. Anderson's sale, as he agreed that a portion of his pension was to be dedicated to premium payments. In each of the cases, beginning in 1990, dividend scales declined for the first time in many years. The reduction in dividend scales necessitated alteration of any plan to use funds from the old policy as the only source for payment of premiums on the new policy until the abbreviation point which was now extended farther into the future than it would have been had the 1985 or 1986 dividend scales continued. In most instances, where there was an insufficient amount in the old policy to pay for the next annual premium, the policyholders in this case requested Respondent to arrange for payment from other sources, such as the cash values in the new policy itself. By 1990, these values were sufficient to pay or contribute toward payment of annual premiums. In each case herein, the insured understood from the outset that the new policy was not "free" but that there were values in the old policy which could be used as a source of payments for the new policy. Similarly, in each of the six sales in issue, the analysis made and communicated at the time of sale was that, assuming dividend scales remained the same, the dividends on the new policy would reach a point when its dividends would be sufficient to pay its own premiums at a time varying between seven years. Each of the policyholders in this case became convinced they had been wronged after reading or watching newspaper and/or television reports about "churning." In the insurance industry, "churning" is considered an improper insurance sales practice involving financed insurance which requires that the sale or transaction is not in the best interest of the insured; it involves misrepresentation or deception; and is motivated by the salesman's desire for a commission, not the welfare of the insured. The sale of financed insurance without more does not constitute churning. Nonetheless, based on their interpretation of the various news accounts about "churning" by Prudential agents which they saw and/or read, each complainant except Mr. Welch contacted the Department to file complaints. Mr. Welch instead contacted an attorney.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that all counts of the Administrative Complaint filed on April 22, 1996, be DISMISSED. DONE AND ENTERED this 10th day of June, 1998, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD 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 Filed with the Clerk of the Division of Administrative Hearings this 10th day of June, 1998. COPIES FURNISHED: Stephen C. Fredickson, Esquire Michael H. Davidson, Esquire Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0300 Peter Winders, Esquire Stephanie J. Young, Esquire Carlton Fields, P.A. One Harbor Place 777 South Harbor Island Boulevard Tampa, Florida 33602 Daniel Y. Sumner General Counsel The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Findings Of Fact Joseph Henton Pelt is qualified as an Ordinary Combination Life, including disability insurance (2-10) and a Disability Insurance Agent (2-40). From 1978 until March 15, 1980 he was licensed by the Florida Insurance Department. In 1979 an Administrative Complaint (Exhibit 2) was filed against Pelt charging numerous violations of Chapter 626, Florida Statutes. A Consent Agreement (Exhibit 3) was entered into between Pelt and the department and, pursuant to that Consent Agreement, the Commissioner of Insurance by Order entered 15 March 1980 (Exhibit 4) suspended Pelt's license for a period of one year from the date of that Order. Paragraph five of Exhibit 4 provided that Respondent shall not, during the period of suspension, engage, directly or indirectly, in any insurance activities in the State of Florida which require a license issued by the department. On June 27, 1980 Respondent called upon Mr. and Mrs. Bronson, who had responded to an advertisement purporting to make insurance policies more beneficial. After discussing the policies Respondent completed the application forms (Exhibits 7 and 8) which Bronson signed, and collected the premium on these policies (Exhibit 9) in the amount of $224.80. On June 24, 1980 Respondent called on Mr. and Mrs. Bryant to discuss insurance. Woodrow Bryant signed an application for insurance and Avie Bryant signed two such applications (Exhibit 11), all filled out by Respondent. They gave Respondent a check for the premiums in the amount of $332.80. These applications were accepted July 9, 1980. On July 1, 1980 Respondent sold a medical insurance policy to John Morris (Exhibit 12) . The application form was completed by Respondent and signed by Morris. The premium payment in the amount of $120.36 was paid by Pinkie Stephens (Morris' wife) to Respondent. The receipt for this $120.36 was signed by William Giles as were all of the other applications. Some checks were endorsed "William Giles Insurance Agency." On August 15, 1980 Respondent met with Ono B. Coons to discuss insurance matters. She was interested in a policy providing for custodial care which Respondent told her could be provided. Respondent prepared applications for three policies subsequently issued by Union Fidelity Life Insurance Company and Ms. Coons gave him a check payable to Union Fidelity Life Insurance Co. in the amount of $679.75. Upon arrival the policies did not cover custodial care. This check was endorsed "Union Fidelity Life Ins. Co." followed by "William Giles" and "Joe H. Pelt" and deposited in Columbia County Bank, Lake City, Florida. Respondent was also charged with having signed William Giles' name on Ms. Coons' applications but no evidence was presented that the signature on those documents was that of Giles. It is noted that Giles' name is signed to all applications admitted into evidence, but only on the applications for Ms. Coons was Respondent charged with placing Giles' signature on the applications without Giles' knowledge or consent.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and if so, what penalty should be imposed.
Findings Of Fact At all times material to this case, Respondent is licensed as a life insurance agent and as a life and health insurance agent. Respondent operated through his agency listed as Tax Saving Concepts, Inc., 1003 10th Lane, Lake Worth, Florida 33463-4354. Petitioner is the agency of the State of Florida vested with the statutory authority to administer the disciplinary provisions of Chapter 626. This case was initiated by an anonymous complaint submitted by fax on August 23, 1999, to a Department office. The anonymous complainer faxed a copy of a newspaper ad from that day's edition of The Palm Beach Post. The ad reads as follows: “85% OFF TERM LIFE INSUANCE COMMISSIONS! LEGAL SAVINGS per Florida Statute 626.572 PERSAVE (sic) $1,000’s. Call 800-2-save-75. www.lifeinsurancediscounts .com Tax Saving Concepts Since 1986” The web page advertisement reads: 90% OFF 2ND-TO-DIE LIFE INSURANCE COMMISSIONS LEGALLY! YOU CAN SAVE $100,000+ IN YOUR POCKET! Save 90% off your 2nd-to-die life insurance commission costs legally when you sign your application in Florida with Tax Saving Concepts, Inc., a registered legal rebating broker since 1986. Our tax-free rebates can save you $100,000+. References from our happy clients will prove to you that you too will save thousands of dollars on your 2nd-to-die life insurance commission costs. We also offer deep discounts on term life insurance. Tax Saving Concepts, Inc. Of Florida America’s Oldest & Deepest Discount Life Insurance Broker Since 1986™ Registered Legal Rebating Broker Since 1986 We have never had a consumer complaint Email us: since 86@gate.net 561-439-6974 “Palm Beach agent Barry H. Small offers a 90% commission rebate. ” The Wall Street Journal March 25, 1993 By letter dated August 31, 1999, the Department, through an authorized representative, requested that Respondent get in touch to discuss the newspaper ad and website. Respondent answered by letter dated September 9, 1999, wherein he stated, “ABSOLUTELY NO life insurance companies are mentioned at my seminar.” He further stated, “I have not and do not intend to run this Palm Beach Post listing again.” After receiving this non-response, the case was referred to William Darryl May (May) of the Department’s Bureau of Agent and Agency Investigations for follow-up. May initiated the Department's investigation with a call to Small on January 26, 2000. May was successful in making telephone contact, but the conversation was unproductive due to Small's distrust of the Department's staff and unwillingness to provide information. Small believes himself to be the victim of a conspiracy between the Commissioner of Insurance and insurance agents who do not rebate commissions; he therefore felt justified in refusing to cooperate with May in answering questions concerning whether and to whom he had rebated commissions to customers, saying only, “You know the companies I am licensed with.” More specifically, Small would not provide the names of any customers he had rebated commissions to. Small feared adverse impacts upon his relationship with any customers state investigators might choose to contact. Small elaborated on his fears in a letter to May dated October 15, 1999 which states in part: I am writing the following facts from a consciousness that I can be killed at any moment. There is a contract on my life to have me killed, taken out by business competitors. On 6 occasions in the last 3 years, mafia hitmen, paid for by these business competitors have tried to kill me. Taking Small up on his implicit suggestion that the state deal directly with companies with whom Small had contractual relationships, May sent identical letters to the insurance companies for which Small was then authorized, or appointed, to sell insurance. May later received responses from companies, as follows: Banner Life Insurance Company, responded on January 26, 2000, through its legal department, with a letter to Small, which stated in pertinent part: We are in receipt of the enclosed newspaper advertisement and Internet website advertisement from the Florida Department of Insurance. Since these advertisements could potentially result in the sale of Banner Life Insurance Company products, they should have been submitted to our company for prior approval. We have thoroughly reviewed our records and advertising logs, and have determined that you never received permission from us to use the enclosed advertisements. Furthermore, if these advertisements had been submitted, they would not have been approved for use. First Colony Life Insurance Company, through its law department, wrote to May on December 15, 1999, and stated that it did not approve of the newspaper and website advertisements; did not authorize Small to rebate commissions; and had no record of a rebate schedule filed by Small. Unum Life Insurance company, through its customer relations manager, wrote to May on December 14, 1999, and stated that it did not approve of the newspaper and website advertisements; did not authorize Small to rebate commissions, and had no record of a rebate schedule filed by Small. Lincoln Benefit Life Company, through its Vice President and Assistant General Counsel, by letter to May dated December 14, 1999, stated that it did not approve of the newspaper and website advertisements and did not authorize Small to rebate commissions. The letter also stated that Lincoln Benefit's file research revealed a letter from Small to a general agent for Lincoln Benefit detailing his rebating schedule, but did not supply any details regarding that document. Transamerica Life Companies, through a compliance officer, wrote to the Insurance Commissioner on December 7, 1999, stating that it had not approved the newspaper or web site advertisements, and further noting that ". . . when Mr. Small was recontracted as a producer in June 1999, the company had him sign a document acknowledging [its strict anti- rebating policy].” Midland National Life Insurance Company, through its Consumer Affairs Associate, wrote to May on February 2, 2000. The letter stated that Small had produced little business for the company and that the company was in the process of terminating Small's appointment. It further stated that the company had not approved either of the advertisements. Finally, the letter made reference to its cooperation in a prior investigation of Small arising out a 1993 advertisement, and noted that it had been informed by the Department in August 1996 that that investigation was being closed. Sun Life of Canada, through its markets [sic] compliance office, wrote to May on November 2, 1999, stating that the company affirmatively requires that ads "used to promote Sun Life products" are subject to review and approval, and that the company does not permit rebating. Hartford Life, through its legal office, addressed a December 17, 1999, letter to May which stated that neither Respondent individually, nor through the Tax Savings Concepts entity, ever sought permission to rebate commissions with that company and no such authorization was ever granted. At a minimum, the language of the advertisements published by Small to readers of The Palm Beach Post and to the entire world via the Internet, demonstrates that Small promotes his business by advertising to the public his willingness to grant rebates. Yet, he feels well justified in his unwillingness to cooperate with regulatory authorities by providing information which would facilitate a determination as to the bona fides of his advertisements, and the details of his rebating practices. Rather, Small insists that the regulators find out what they can from the companies with whom he is authorized. In this case, that procedure compels the conclusion that with the possible exception of Lincoln Benefit, Small has not filed rebate schedules at any time material to this case. AS TO THE COUNT I ALLEGATIONS Respondent’s newspaper advertisement is, when viewed in the light most generous to Small, unclear, ambiguous, and misleading. "85% off commissions" in the context of the entire advertisement doesn't tell the prospective purchasers what he is saving, if anything. Small's representation that the prospective customer will enjoy “Legal Savings per Florida Statute 626.572” is false with respect to at least eight of the companies he represented at all times material to this case. As to these companies, clear and convincing evidence establishes that he was not authorized to rebate pursuant to that statute. In his untimely and unauthorized Motion to Quash, Small asserts that the baffling expression “PERSAVE $1,000’s” is there due to an error by The Palm Beach Post. It should have read, he contends, "You Save $1,000's." Thus, by Small's own admission, the suggestion to readers was intended to be that they stood to realize thousands of dollars in savings by doing business with Small. AS TO THE COUNT II ALLEGATIONS The web site advertisement is similarly unclear to the point of being intentionally misleading. Small is not a "Palm Beach agent." His office is located within his home in Lake Worth, a municipality within the greater Palm Beaches area. Palm Beach is one of the best known playgrounds of some of the world's wealthiest people, and carries a cachet which the truth--that Small never leaves his home in Lake Worth--does not. It suggests to readers that Small's clientele includes the rich residents of Palm Beach, whom he makes richer. The "85% off insurance commissions" advertised in the newspaper is upped to 90% off for Internet readers, and again begs the question, “90% off of what?” In this advertisement, the phrase “$100,000+” of savings “in your pocket,” made without any factual predicate, convincingly suggests an intent to mislead. Beyond self-serving and often incoherent testimony, Respondent's only effort to rebut the Department's case was through testimony that he had once “discussed” with Richard Scalesse (Scalesse), a Hartford Life account executive, “a large insurance case of about $120,000 of annual premium.” Scalesse could not remember details of the case. Assuming the accuracy of Small's testimony, in particular the claim that this case was “a very, very large case,” it does not rebut any element of the administrative charges nor does it support any element of an affirmative defense. The last statement in the web page ad reads: “We also offer deep discounts on term life insurance.” What other type of insurance is being offered? Did the other discounts apply only to whole life? Annuities? Universal life? The advertisement offers no concrete information upon which a consumer could make a rational decision to consider doing business with the advertising agent. Respondent's claims that the newspaper advertisement was placed by mistake and will never be repeated is too little, too late. The advertisement is not benign in that it simply advertises a "seminar," as Small contends. The advertisement says nothing about a seminar, and even if it did, Small, when attempting to attract customers to his insurance business, is at all times bound by the statutes and rules governing the conduct and business practices of state- licensed insurance agents, no matter what he thinks of their constitutionality, or the people whose jobs it is to enforce those statutes and rules. Each of the false and misleading statements contained in The Palm Beach Post ad, as well as on Small's website, was, at all times material to this case, authorized by Small.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order finding the Respondent, Barry Howard Small, guilty of violating Subsections 626.572(1), 626.611(7); 626.611(9); 626.611(13); 626.621(2); 626.621(3); 626.621(6); 626.9541(1)(a)1., and 626.9541(1)(e)1., and Rules 4-150.101; 4-150.105(1)-(4); 4-150.107(1)(a); and 4-150.114(10), and suspending his license for a period of one year. DONE AND ENTERED this 9th day of September, 2002, in Tallahassee, Leon County, Florida. __________________________________ FLORENCE SNYDER RIVAS 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 9th day of September, 2002. COPIES FURNISHED: David J. Busch, Esquire Department of Insurance 200 East Gaines Street Tallahassee, Florida 32399-0333 Barry Howard Small 3200 South Ocean Boulevard Apartment 103D Palm Beach, Florida 33480 Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner, as beneficiary of her deceased father's State of Florida life insurance policy, is entitled to a benefit of $10,000 or $2,500, and is related to how notice of a change in coverage amount and premium was provided to the decedent.
Findings Of Fact At the time of his death on November 29, 2008, Maurice Adkins was covered by the state life insurance plan, as a retired employee of the State of Florida. The Petitioner, Justina Mullennix, is the daughter of Mr. Adkins and is the beneficiary of any life insurance benefits paid or payable from the state life insurance plan on account of the death of her father. Effective January 1, 2000, the coverage for retirees was increased to $10,000.00. The premium for this coverage was $4.20 per month. The DSGI prepared a letter dated July 31, 2006, to notify the retirees that effective January 1, 2007, the life insurance benefit options provided to retirees would change. The changes allowed retirees to elect one of the following options: $2,500 benefit for a monthly premium of $ 4.20. $10,000 benefit for a monthly premium of $35.79. Termination of coverage. The letter dated July 31, 2006, informed retirees that their life insurance premium would remain the same, but that their coverage would be reduced to $2,500, unless they elected coverage in the amount of $10,000 and elected to pay the higher premium. The letter advised the retirees they could change their election up to and including January 19, 2007. Mike Waller, an employee of the DSGI, maintains benefits data for the People First/Division of State Group Insurance. In July 2006, Mr. Waller was asked to prepare a file containing the names and mailing addresses of all retirees who were covered by life insurance. Mr. Waller created the file, prepared in July 2006, to use in a "mail merge," to send all retirees a copy of the letter dated July 31, 2006. In preparing the file containing the mailing addresses of retirees covered by life insurance, Mr. Waller used the addresses of record that he maintained. In July 2006, the address of record for Mr. Adkins was 2877 Belair Road E., Jacksonville, Florida 32207, and was included in the file. Mr. Waller prepared the file and on July 3, 2006, delivered it to Dick Barnum and Thomas Lockeridge. Thomas Lockeridge delivered the file to Laura Cutchen, another employee of the DSGI. The DSGI contracted with Pitney Bowes to mail the letter of July 31, 2006, to all retirees. After obtaining copies of the letter from the print shop of the DSGI, Ms. Cutchen delivered the letters and the file containing names and addresses of retirees to Pitney Bowes to assemble. The letters dated July 31, 2006, in envelopes addressed to each retiree who carried life insurance at the time, were delivered to the U.S. Post Office, accompanied by Ms. Cutchen. The State of Florida first class mailing permit had been applied to each envelope. The letter dated July 31, 2006, was mailed to Mr. Adkins at the Belair address. The return address on the envelope containing the letter was the Division of State Group Insurance, 4050 Esplanade Way, Ste. 215, Tallahassee, Florida, 32399-0949. The letter was not returned to the Division. The letters that were returned to the DSGI were processed by Janice Lowe, an employee of the DSGI. Each letter that was returned to the Division of State Group Insurance was handled in one of two ways: a) if the envelope showed a different address on a yellow sticker applied by the US Postal Service (USPS), the letter was re-mailed to that address; b) if the returned envelope did not provide a different address, a manual search of the database of the Division of Retirement was made, a copy of the print screen showing the address in the Retirement database was made, if different from that on the database of the Division of State Group Insurance, and the original envelope and letter were placed in another envelope and mailed to the address from the Division of Retirement database. A copy of each Retirement screen that was accessed by Ms. Lowe was printed and inserted in alphabetical order in a binder. For every person whose letter was returned, and for which there was not another address, there would have been a Retirement print screen. The absence of a Retirement print screen indicates that the initial letter was not returned. There is no retirement print screen for Mr. Adkins, indicating that the letter to him dated July 31, 2006, was not returned to the DSGI. DMS has contracted with Convergys, Inc., to provide human resources management services, including assisting in the administration of employee benefits. Convergys primarily performs these tasks through an on-line system known as “People First.” Prior to Convergys assuming responsibility for the administration of benefits, DSGI maintained benefits information in the Cooperative Personnel Employment System (COPES). When Convergys assumed responsibility for the management of benefits, the benefits information from COPES was imported into the Convergys People First System. People First became the system of record for the DSGI beginning January 1, 2005. People First and the Division of Retirement do not share databases and each maintains its own database of names and addresses. Once a year the DSGI must hold Open Enrollment for the health program. § 110.123(3)(h)5, Fla. Stat.; Fla. Admin. Code R. 60P-1.003(16). Open Enrollment is the period designated by the DMS during which time eligible persons may enroll or change coverage in any state insurance program. Prior to Open Enrollment each year, the DSGI provides employees and retirees a package that explains the benefits and options that are available for the next plan year. The 2006 Open Enrollment period, for the 2007 Plan Year, ran from September 19, 2006, through October 18, 2006. During open enrollment for Plan Year 2007, the People First Service Center was charged with the responsibility of sending open enrollment packages to State of Florida retirees and other employees. People First mailed Mr. Adkins’s Open Enrollment Package to the 2877 Belair Road E., Jacksonville, Florida 32207 address, on September 3, 2006. The Open Enrollment Package for Plan Year 2007 was mailed by People First through the U.S. Post Office, first class postage paid. The Open Enrollment Package mailed to Mr. Adkins, for 2006 Open Enrollment, was not returned to People First. The Open Enrollment Package mailed to Mr. Adkins on September 3, 2006, contained Mr. Adkins’s 2007 Benefits Statement; a letter from John Mathews, former Director of the DSGI; "Information of Note"; a Privacy Notice; Notice Regarding Prescription Coverage; and a 2007 Benefits Guide. The Information of Note included the following statement: Retiree Life Insurance For Plan Year 2007, those currently enrolled with retiree life insurance may elect to retain the current $4.20 premium for a benefit of $2,500, retain the current benefit of $10,000 for a premium of $35.79, or cancel coverage. If no change is made during open enrollment, participation will continue at the $4.20 premium level. Neither Mr. Adkins nor anyone on his behalf affirmatively elected to continue $10,000.00 in life insurance coverage during the enrollment period in 2006 and 2007. Because the election was not made, at the death of Mr. Adkins, the benefit paid to the Petitioner was $2,500.00. Prior to January 1, 2007, the Life Insurance Trust Fund was used to augment the premiums paid by retirees for life insurance. The premium paid by the retirees did not support a $10,000 coverage level. In year 2006, the DSGI determined that the money in the life insurance trust fund, used to augment the retiree’s benefits from years 2000 through 2007, would not be available after 2007. Beginning January 1, 2007, the change in life insurance coverage was made because the funds in the Life Insurance Trust Fund were no longer available to augment the premium payment required to maintain a benefit level of $10,000.00, for a payment of $4.20 per month by the retirees. In 2006, the DSGI determined that the then-current life insurance premium of $4.20 would support a benefit of $2,500, and that the $10,000 benefits would cost $35.79. The notices provided by the July 31, 2006, letter and the 2006 Open Enrollment Package were sufficient notices of the increase in premium in that they provided a reasonable opportunity within which to make a selection of the level of coverage. On December 30, 1997, the Division of Retirement received a written notice of change of address for Mr. Adkins. The new address was 217 Skye Dr. W, Jacksonville, Florida 32221. Although Mr. Adkins had changed his address with the Division of Retirement, he did not notify the DSGI. A change of address with one division does not automatically change addresses in the other. The two divisions have different databases. During no time relevant to these proceedings have the two divisions shared databases. The DSGI, through People First, used the database of the Division of Retirement to send the 2004 Benefits Statement as an experiment to determine whether DSGI undeliverable returns would decrease. The same database was also used for the mailing of the letter dated September 2, 2003. However, neither DSGI nor People First changed its database after the 2004 Benefits Statement was sent and subsequent information was mailed to the DSGI address of record, based upon the COPES system. Therefore, the letter dated July 31, 2006, and the 2006 Open Enrollment Package for the Plan Year 2007, were mailed to the same Belair address, the address of record. A change of address for Mr. Adkins was not made in the database of the DSGI until December 1, 2008, when People First was provided a change of address. The only change of address that the Petitioner has alleged, was the one provided by Mr. Adkins to the Division of Retirement (only) in 1997.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings of the parties, it is RECOMMENDED that a Final Order be entered by the Department of Management Services, Division of State Group Insurance, dismissing the petition in its entirety. DONE AND ENTERED this 22nd day of January, 2010, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF 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 22nd day of January, 2010. COPIES FURNISHED: Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florida 32399 Justina Mullennix 1217 Skye Drive West Jacksonville, Florida 32221 John Brenneis, General Counsel Division of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
