The Issue Whether Respondent's insurance agent's license and eligibility of licensure should be disciplined for alleged violations, set forth hereinafter in detail, as contained in the Administrative Complaint.
Findings Of Fact Based on my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record compiled herein, I hereby make the following relevant factual findings: Respondent, Robert Phillip Wolf, is currently licensed and has been eligible for licensure in Florida as a life and health insurance agent and as a general lines insurance agent during times relevant to these proceedings. On or about January 17, 1989, Church Insurance Program (CIP), an incorporated general lines insurance agency, was organized under the laws of Florida. Respondent was vice president of CIP at all times relevant. During times material, an agency agreement was in effect between CIP (herein Respondent or CIP) and North Atlantic Speciality Insurance Company (NAS) whereby CIP agreed to solicit insurance products on behalf of NAS. Respondent executed the agency agreement on behalf of CIP. That agreement provides, in relevant part: SECTION I. AGENT'S AUTHORITY. 3. Agent shall have authority to collect and receive premiums on insurance contracts placed with the company by or through the agent and to retain out of the premiums so collected commissions as provided in Section III of this Agreement on all contracts of insurance, except those subject to procedures specified in Section IV of this Agreement. SECTION II. PREMIUM COLLECTION AND REMITTANCE. 2. Agency billed policies. a. Agent assumes full responsibility for prompt payment to the company of all premiums, less commissions, on all contracts of insurance placed with the company, by or through the agent, whether or not such premiums are collected from the insured. However, the agent shall be relieved of responsibility to pay premiums with respect to an insurance contract which is legally terminated and agent furnishes the company proper evidence of such termination along with a written statement that the agency cannot collect the premium. The evidence and statement must be received within 30 days following the original inception date of the contract. Policies so termin- ated shall not be subject to commission. Failure of the agent to give the company such written notice of his inability to collect such premium shall constitute acceptance by the agent of responsibility to pay such premiums. c. The agent agrees to remit any premium balance to the company so as to reach the company's office no later than 45 days after the end of the month for which the account or statement is rendered. All premiums collected or received by the agent shall be held by him as a fiduciary in trust for the company until paid to the company, and the privilege of retaining commissions as authorized else- where in this agreement shall not be construed as changing such fiduciary relationship. III. COMMISSION 1. The agent is authorized to retain commissions out of premiums collected on agency billed policies as full compen- sation on business placed with the company. Pursuant to the agency agreement, CIP and Respondent were due twenty percent (20 percent)of net written premiums (NWP) as commission. Respondent was agent of record for NAS at CIP during times material. During 1993, NAS became increasingly aware of and concerned about (1) Respondent's failure to notify the company of coverages it had solicited and bound and to timely remit premiums due NAS on policies issued, and (2) the subsequently increasing debt balances on the agency's account current. Demands by NAS for payment of premiums were unheeded by Respondent. On or about March 31, 1993, NAS terminated its agency agreement with CIP for, inter alia, CIP's failure to remit premiums. After several communications and two termination letters, CIP accepted NAS's termination as of April 30, 1993. Thereafter, NAS demanded that CIP provide an accounting which was done. As of April 30, 1993, Respondent owed NAS total premiums of $130,966.03. This sum represented premiums received by CIP and due NAS after retention of the 20 percent commission on approximately 140 policies previously issued but which premiums remained unremitted (by CIP). NAS demanded that CIP remit the premiums that were due. Respondent failed to remit the premium funds as demanded by NAS. In an attempt to recover the premium funds, NAS filed a civil suit in Pinellas County against Respondent. CIP admitted to NAS at the time that it was withholding at least $109,661.91 in premium funds but would not make any payment to NAS in light of a counter-claim that it filed. During the pendency of the civil suit and following settlement negotiations, a settlement was reached between Respondent and NAS. Pursuant to the settlement, Respondent agreed to pay to NAS $130,931.25. This amount constituted the total amount of premiums billed and collected by Respondent for NAS policies or binders of coverage less commissions which represented 20 percent of the premiums billed ($273,579.50) as per an accounting attached to the stipulation less any amount previously paid. In return, NAS agreed to pay Respondent $42,000 in consideration for Respondent withdrawing any counter-claim it may have had against NAS. The upshot of the settlement was that Respondent would pay, and in fact paid, an approximate amount of $88,431, to NAS. During times material, an agency agreement was in effect between Respondent and Atlantic Mutual Insurance Company (herein AMI) whereby Respondent agreed to solicit insurance products on behalf of AMI. That agency agreement provided in relevant part: The agency agrees: To render monthly accounts of money due to the company on business placed by the agent with the company, other than customer-billed business so as to reach the company's office no later than the 15th day of the following month and to pay to the company the balance therein shown to be due to the company not later than the 15th day of the second month following the month for which the account is rendered. To be responsible for any additional premiums developed by audit or by report of values, or any renewal premiums on non- cancelable bonds unless the agent notifies the company within sixty (60) days of company billing date of such additional premiums that such item has not been collected and cannot be collected by the agent. The company agrees: b. On commissions: The agent shall receive or retain commissions on net paid premiums at the rate set forth in the company's commission schedule. It is mutually agreed that: a. This agreement supersedes all previous agreements, whether oral or written, between the company and the agent, and shall continue until terminated by ninety (90) days written notice of cancellation by either party to the other. Pursuant to the agency agreement with AMI, Respondent was due, as commission, seventeen and one-half percent (17-1/2 percent) of net paid premiums. During times material, Respondent was agent of record for AMI. On August 1, 1992, the agency agreement between AMI and CIP was terminated by mutual agreement. After the termination of the agency agreement, AMI became aware of and became increasingly concerned about Respondent's failure to notify it of coverages Respondent had previously solicited and bound and to timely remit premiums due on policies issued by Respondent and the subsequently increasing debit balance on the company's account current. Demands by AMI for payment of premiums due were unheeded by Respondent. As of October, 1992, the amount owed to AMI totalled $92,781.61. This sum represented insurance premiums, after retention of commission, due on insurance policies previously issued by Respondent and for which it had received $120,486 in premiums, and not remitted to AMI. As noted, despite AMI's demand that Respondent remit the premiums, they were not remitted either in whole or in part. However, Respondent admitted to AMI that it had received, as of September 4, 1992, $103,421.33 in premium funds. After termination of the agreement with AMI, Respondent claimed that it was entitled to retain $86,111.86 from premium funds received from the AMI policies, as annualized commissions or as commissions received in advance on premiums that had not been paid by the insured. Prior to the termination, CIP had attempted to gain authorization from AMI to withhold commissions, on an annualized basis. AMI refused to authorize these deductions and was steadfast in keeping consistent with its policy of allowing deduction of commissions when premiums were actually received. AMI does not allow agents to retain annualized commissions or to take advance commissions on policies. Despite Respondent's contention to the contrary, this has always been AMI's policy and that policy was communicated to Respondent in writing when Respondent attempted to initiate the policy of annualizing or deducting commissions in advance. Additionally, the agency agreement clearly provides that commissions were to be retained from paid premiums. Countersignature fees, if required, were paid by the insurance company and were thereafter deducted from the agent's commission. Respondent expended a great deal of money and time in start-up costs on items such as office equipment, supplies, preparation of forms, institution of office policies and procedures, to commence writing insurance business on behalf of AMI. Respondent knew, or should have known, that certain start-up costs were expected in order to commence writing insurance on behalf of AMI. Respondent was not authorized to deduct up-front expenditures or related start-up costs from premiums which were not collected. As of the date of hearing, the funds which represented premiums due AMI remain unaccounted for and were not paid (to AMI) by Respondent. When Respondent collected premiums for companies, those funds were fiduciary funds. Respondent's policy of spending "operating expenses" as a set off or charge against uncollected premiums was not permissible pursuant to the agency agreement in effect between the parties. The Am South Bank account which Respondent utilized to maintain his banking account for AMI had a balance, as of August 30, 1992, of $74,894.58; as of March 31, 1993, of $12,702.05; and as of April 30, 1993, of $8,561.13. The account was closed on December 2, 1993.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law it is RECOMMENDED that: Petitioner enter a final order finding that the Respondent, ROBERT PHILIP WOLF, be found guilty of violations set forth in the Conclusions of Law portion of this Order, and that his licenses and eligibility for licensure be SUSPENDED for a period of eighteen (18) months pursuant to Rule 4-231.080, Florida Administrative Code, and that, pursuant to Section 626.641(1), Florida Statutes, the Respondent be required to pay satisfactory restitution to Atlantic Mutual Insurance Company prior to the reinstatement of any insurance license. DONE and ORDERED this 2nd day of June, 1994, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1994. APPENDIX Rulings on Petitioner's Proposed Findings of Fact: Paragraph 27 - rejected - argument and conclusions. Rulings on Respondent's Proposed Findings of Fact: Paragraph 1 - adopted as relevant, paragraph 5, recommended order. The remainder is rejected as contrary to the greater weight of evidence, paragraph 4, section III entitled commission is dispositive. Paragraphs 2 and 3 - rejected as argument. Paragraph 4 - rejected, irrelevant and subordinate. Paragraph 5 - rejected, contrary to the greater weight of evidence. Paragraph 6 - adopted as modified, paragraph 30 recommended order. Paragraph 7 - rejected, irrelevant. Paragraphs 8-10 - rejected, argument. Paragraph 11 - rejected, irrelevant. COPIES FURNISHED: Commissioner Tom Gallagher Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300 James A. Bossart, Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Elihu H. Berman, Esquire Post Office Box 6801 Clearwater, Florida 32618-6801
The Issue Should discipline be imposed by Petitioner against Respondent's license as a life, health, and variable annuity agent (2-15), general lines agent (2-20), and a legal expense agent (2-56), held pursuant to Chapter 626, Florida Statutes (2003)?
Findings Of Fact Facts Established by the Answer Pursuant to Chapter 626, Florida Statutes, you, Brian Whitney McDaniel (Respondent), currently are licensed in this state as a life, health, and variable annuity (2-15), general lines (2-20) and legal expense (2-56) agent, and were so licensed at all times relevant to the dates and occurrences referenced herein. Respondent's license identification no. is A171563. Pursuant to Chapter 626, Florida Statutes, Petitioner has jurisdiction over your (Respondent's) license and appointments. At all times relevant to the dates and occurrences referenced herein Respondent, was employed with Cash Register. Respondent's Duties at Cash Register Respondent was employed at the Cash Register agency in Gainesville, Florida from March 1998 through September 2002. He began his employment as a limited customer service representative (4-40). Respondent became the designated primary agent at the location in June 2000, at which time he was licensed as a general lines agent (2-20). He continued in the capacity as a designated primary agent until his departure from the agency. As the primary agent at Cash Register, Respondent was expected to make sure that the customer service representatives employed at the agency were properly trained and the customers were taken care of in a manner that they were expecting as consumers. Respondent also took care of paper work such as payroll, keeping the lights on, and similar activities. In addition to his supervisory duties Respondent dealt with the public, to include selling insurance to members of the public. The principal form of insurance sold at Cash Register was automobile insurance. Cash Register also sold boat insurance, insurance for motorcycles, and ancillary products, such as towing and rental. Cash Register sold legal insurance underwritten by Southern Legal Services (Southern Legal). Other products sold were hospital indemnity and accidental death benefits policies. The products such as hospital indemnity and legal service plans, were insurance products that could be financed for the balance of the amount due following a down-payment. The towing and rental contracts were not insurance products and not subject to financing. Hypothetically, and the hypothetical pertains to the experiences that customers in this case would typically be exposed to when the customer came into the agency, the customer took a seat and Respondent began to collect necessary information. That information pertained to name, address, phone number, age, driving record, and vehicle information. Then the discussion would turn to the nature of the automobile insurance that the customer was interested in purchasing. That issue concerned whether the customer wanted only property damage liability, and personal injury protection (PIP), as required by the State of Florida to maintain their tag registration or desired greater coverage. Other offerings included bodily injury liability, uninsured motorists, comprehensive and collision. Comprehensive and collision was explained to the customer as being a necessary coverage where automobiles have been financed. The information that had been gathered would be entered into a computer program which Cash Register used. That program was known as "Quick Quote." The quotation method was designed to select the better price from among a number of insurance companies. This process that has been described concerning the quote would pertain equally when quotations were provided over the telephone. Cash Register is affiliated with LR3 Enterprises, Inc. (LR3), its parent company. The parent company insisted that its employees who sold automobile insurance at Cash Register agencies during the time in question follow a script in selling the insurance. This involved the offer of several options to purchase. The first option was to pay the full price of the insurance. The second option was a standard down-payment, which was a greater amount down than the third option. The second option with the greater down-payment carried a smaller monthly payment in the part financed and saved money for the customer over time compared to the remaining option. The third option was a lower down-payment with a larger monthly payment that included necessarily, among other mandatory alternatives, in accordance with the management policy from LR3, the purchase of a legal service plan in relation to traffic violations to include DUIs, accidents, and child support. The legal service plan that is at issue here is legal insurance underwritten by Southern Legal. The value of this required purchase was that if any of the legal services were needed, the insurance plan that was required under option three would help defray the cost for those legal services. Respondent emphasized that the employees within the Cash Register agency must follow the script concerning the three options, failing which the employee would be "fired on the spot." Respondent described how this requirement was the first thing he had been told when he was hired. Having considered this explanation concerning the three options, it leaves the impression that a customer might come to believe that the legal insurance plan was an integral part of the automobile insurance that the customer sought to purchase. This impression could be created notwithstanding the documents that might be produced beyond that point, where careful review might lead one to a different conclusion as to the necessity to purchase the ancillary product. It is a significant issue in that most customers who purchased automobile insurance wanted the lowest down-payment available when transacting business with Cash Register. In this connection, the majority of customers who were served by Cash Register were interested in obtaining "tag insurance," referring to the basic coverage necessary to comply with Florida law. Those are the customers who almost always wanted a low down-payment. Returning to the several options that were explained by Respondent, option two carried a 35 percent down-payment with no necessity to purchase an ancillary product in addition to the automobile insurance. By contrast the third option carried an 18 percent down-payment and the Cash Register agency through its employees, to include Respondent, would require that the customer buy a legal services plan to warrant the low down- payment. Alternatively, the 18 percent down-payment under option three would be available in the instance where a customer bought a motor club contract, towing and rental. In this setting, unlike the legal plan, the towing and rental contract could not be financed. More specifically, Respondent explained that when customers called for a quotation on automobile insurance, he routinely, that is taken to include those instances described in this case, would say to the customer, "There's three different ways of paying for this. You can pay for it all at once, paid in full, the cash price is this, or we have two different payment options. The standard down-payment option is more out of your pocket, but it keeps your monthly low and saves you money in the long run, and it is this. We also have a low down- payment, which is the other way around, it's less money out of your pocket, but your monthly payment goes up and it includes an additional coverage for legal fees for traffic violations, DUIs, accidents. If you need an attorney it helps to pay his fee and that price is this." The same script was followed with customers who came to the office, as opposed to calling on the telephone. Respondent described how the application involved with the purchase of auto insurance was printed and brought to the desk where the customer was located. The application was not the only document involved in the transaction. Among the papers with the insurance application, was a confirmation of coverages, a premium finance agreement, where applicable; and a disclosure form, and a new business receipt, where applicable. All these documents were printed through a computer program. The documents were presented to the customer so that the customer could read it. As Respondent explains, it was not necessary for the employee to read it because the employee was familiar with the information that is established by the documents. A pen would be used to direct attention to documents, the first document pointed out, the confirmation of coverages. An example of the discussion with the customer would be, "You are buying property damage liability with a $10,000.00 limit, personal injury protection with a $10,000.00 limit, with a $2,000.00 deductible. You are rejecting bodily injury liability. You are rejecting uninsured motorists. You are purchasing comprehensive and collision with a $500.00 deductible. You chose the low down-payment option so you are purchasing the legal protection plan which goes with the low down-payment option. Please sign both of these signatures and date it for me." The arrangement was one in which the low down-payment option necessarily committed the customer to purchasing a legal protection plan as Respondent describes the arrangement. The next document in the series was in relation to the automobile insurance application per se. By using a pen the Respondent would show the purchaser what they were obtaining in coverage and what they were not. Respondent would gain the signature from the customer. Next in series, depending on the nature of the option pursued by the customer, was the legal protection plan or motor club, if it was involved in the purchase; the finance agreement; and the disclosure form and receipt, as applicable. Copies of the documents that have been identified were provided to the customers. Other remarks concerning the legal protection plan, which Respondent would make to the customers, would be that it helps to pay legal fees such as, if you were given a ticket that is contested or an accident where the customer is being sued, or have issues concerning child support, the plan would help to pay for legal fees. Nothing in this explanation was designed to explain to the customer that the legal insurance was not part of the automobile insurance. Count I Beverly Akpo-Sani On November 27, 2001, Beverly Akpo-Sani went to the Cash Register in Gainesville and purchased automobile insurance. She was waited on by Respondent. Ms. Akpo-Sani intended only to purchase what the state required to maintain coverage for her 1988 Plymouth station wagon. She also discussed the requirement for an SR-22, which is a Florida financial responsibility form to provide proof of insurance. Respondent followed the script that has been set forth earlier in selling automobile insurance and legal insurance plan to Ms. Akpo-Sani, with the exception that additional discussion was held concerning the SR-22 Florida financial responsibility form. Respondent described to Ms. Akpo-Sani the three agency options for purchasing the automobile insurance. Her interest was to have a low down-payment. As a consequence, Respondent offered her option three. Ms. Akpo-Sani applied for automobile insurance from Direct General Insurance Company (Direct General Insurance). Petitioner's Exhibit numbered 1. Ms. Akpo-Sani also executed a document in relation to legal insurance, referred to as "Sav-Cash Traffic Protectors," for pre-paid traffic violation insurance. That insurance was underwritten by Southern Legal. A copy of the document supporting the purchase is Petitioner's Exhibit numbered 3. Ms. Akpo-Sani and Respondent signed the document. On its face it indicates that it was paid for through a premium finance agreement with Direct General Financial Services, Inc. (Direct General Financial), and an amount of $105.00 is stated. In pertinent part, the document related to the pre- paid traffic violation insurance stated: Cardholder acknowledges receipt of goods and/or services in the amount of the total shown hereon and agrees to perform the obligations set forth in the cardholder's agreement with the issuer. I hereby apply for participation in Southern Legal Services Plan, Inc. SL 210 Driver's Protection Legal Plan, and acknowledge coverage is conditioned by receipt and approval by the Company. I understand that legal services will be provided under the plan for certain legal proceedings and that I am responsible for all costs associated with any matter. I agree to abide by the provisions and rules of the plan. I agree and authorize that the premiums be paid as indicated above. I understand that my attorney-client relationship will be with the attorney providing legal services under the plan and not with Southern Legal Services Plan, Inc. I represent that to the best of my knowledge all of the information contained herein is correct and that no person to be insured under this policy is now involved in any litigation, court proceedings, or other matter which could result in legal action. Petitioner's Exhibit numbered 3, which is by way of an application, was to be mailed to Robinson Insurance Agency c/o CTA in Palm Coast, Florida. Other than the information which has been quoted from the application document, the exact nature of the coverage provided by the pre-paid traffic violation insurance has not been explained in this record. Although Ms. Akpo-Sani signed the document applying for the legal insurance as reflected in Petitioner's Exhibit numbered 3, she believed that she was purchasing automobile insurance and to the extent that the legal insurance was not part of the automobile insurance purchase she had no intent to buy it. Respondent did not explain adequately the legal insurance purchase. Instead Ms. Akpo-Sani was led to believe that it was part of the procedure necessary to get her automobile insurance policy. No oral explanation was made that the cost of the legal insurance was an additional charge. Ms. Akpo-Sani was provided additional documents that portrayed the legal insurance as a different cost item, mainly the Premium Finance Agreement with Direct General Financial. A copy of that finance agreement is Petitioner's Exhibit numbered 5, which was signed both by Ms. Akpo-Sani and Respondent. On its first page under the schedule of policies, it separately sets out that the auto coverage was for a premium of $688.00, with $124.10 down and the balance to be paid to Direct General Insurance on her behalf. The schedule of policies refers to the legal insurances as "LGL," totaling a $105.00 premium, with $18.90 down and $86.10 to be paid to Southern Legal on Ms. Akpo-Sani's behalf. But the document goes on to set out the total premium financed in the aggregate, without separately stating the amount related for Direct General Insurance and the Southern Legal, with installment payments in the aggregate of $73.68, to be made in connection with both purchases at an annual percentage rate of 27.29 percent. The second page in disclosing information about her purchases referred to the PIP, property damage liability, and bodily injury pertaining to an SR-22 requirement. It goes on to describe the legal services purchase separately on the second page. Ms. Akpo-Sani received a receipt, referred to as a New Business Receipt drawn on a form by Cash Register. That receipt is Petitioner's Exhibit numbered 4. It breaks out the cost items under a heading entitled "Vehicle(s)," wherein it sets out property damage liability, PIP, and bodily injury liability, all in the automobile insurance coverage category, as well as the driver's protection legal plan, which is not part of the automobile insurance. Nonetheless, it is depicted under the heading "Vehicle(s)." The document explains the amount tendered as an aggregate amount paid, which would be constituted of $124.10 for the automobile insurance and $18.90 for the legal plan, totaling $146.00 as depicted on the receipt. The document goes on to describe the "policy total" under the section in relation to the vehicle as being $796.00, which would include both the automobile insurance and the driver's protection legal plan. Other than the brief reference to the drivers protection legal plan depicted as part of the "Vehicle(s)," the balance of the receipt provides information concerning the automobile insurance side of the purchase. Another document provided to Ms. Akpo-Sani and signed by her on the occasion, was a document titled "Confirmation of Coverages." It is Respondent's Exhibit number 5. In relation to purchases made it sets out the property damage liability, and the PIP as required coverage, bodily injury liability as optional coverage, and the election of a driver's protection legal under ancillary products identified as optional. Although the document refers to the legal insurance as an optional opportunity, by the design of the form, given the manner in which this sale was made to Ms. Akpo-Sani, the impression created by Respondent would lead one to believe that it was not an option for her to decline the drivers protection legal. Instructions within the Confirmation of Coverages document explain the several parts. These parts are: auto insurance coverages required (1, 2), optional auto insurance coverages (3-6) and ancillary products (optional) (7-10), among them the driver's protection legal (10). The instructions state: Please READ the ten (10) sections above to be sure the coverages or benefits circled or checked are the coverages or benefits you want. The terms 'Full Coverage', 'Minimum Coverage', and 'State Required Coverage' are not specific enough to assure that you are buying the insurance coverages or benefits you want. The above confirmations are meant to protect you, your agent, and your insurance company from misunderstandings. If 'NO COVERAGE' or 'DECLINED' is marked in any section, you are not buying that sections coverages and benefits. COVERAGES AND BENEFITS ARE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE INDIVIDUAL POLICIES OR PLANS. Please read the policy jacket or plan descriptions that re available to you for detailed definitions of the coverages and benefits. If you still have questions, ask your agent to explain in more detail. Items seven (7) through ten (10) are high commission items that allow the agency to make a reasonable profit and continue to offer you the most competitive rates available on your auto insurance. These are separate plans from your auto policy and are optional. I have read, confirm and consent to the coverages and benefits indicated on this form. The instructions identify ancillary products, to include the driver's protection legal, as separate from the auto policy but the sales pitch by Respondent related to option three did not treat the purchase in that manner. It made the purchase of the legal plan appear mandatory. Moreover the instructions themselves make it appear that the ancillary products are linked with the auto insurance in the interest of establishing competitive auto insurance rates. Ms. Akpo-Sani did not read the application for pre- paid traffic violation insurance which is Petitioner's Exhibit numbered 3 before signing it. Similarly Ms. Akpo-Sani did not notice the details within the Premium Finance Agreement. Petitioner's Exhibit numbered 5. Ms. Akpo-Sani did not read the Confirmation of Coverages document, Respondent's Exhibit numbered 5, before signing. Mr. Akpo-Sani was in a hurry and this explains why she did not take the time to carefully read the documents that have been described. Count II Samina C. Ashraf On July 20, 2001, Samina C. Ashraf purchased automobile insurance at Cash Register in Gainesville from Respondent. Respondent also sold Ms. Ashraf pre-paid traffic violation insurance underwritten by Southern Legal as part of the transaction. Petitioner's Exhibit numbered 19 is the deposition provided by Ms. Ashraf which forms the basis of her testimony for hearing purposes. Attached to that deposition are various exhibits. Exhibit "A" is the application for insurance with Direct General Insurance. Exhibit "B" is Confirmation of Coverages document. Exhibit "C" is a document referring to a travel protection plan, which cost $60.00 as a premium. Exhibit "C" is related to bail bond coverage, ambulance assistance, collision loss of use, theft loss of use, emergency travel loss of use, and personal effects loss from an auto rented as a result of loss under previously stated coverages. Exhibit "D" to the deposition is the application for pre-paid traffic violation insurance through Southern Legal. Exhibit "E" to the deposition is the Premium Finance Agreement with Direct General Financial, which sets out costs related to the basic automobile insurance, the legal insurance, and the travel protection plan, which is a type of motor club. The automobile and legal insurance was financed beyond the down-payment. The motor club premium was fully paid at the time the transaction commenced. In format the application with Direct General Insurance, the Confirmation of Coverages document, the pre-paid traffic violation insurance underwritten by Southern Legal, and the Premium Finance Agreement are the same as has been discussed concerning Ms. Akpo-Sani. Highlighting the Ashraf transaction, $105.00 was paid for the legal insurance, consisting of an $18.90 down-payment, with $86.10 to be financed with Direct General Financial. The Premium Finance Agreement with Direct General Financial included the automobile insurance and legal insurance, with a total amount to be financed of $873.15 at 25.71 annual percentage rate, $97.93 due on each payment financed. When Ms. Ashraf arrived at Cash Register she was interested in purchasing the minimum insurance necessary for her automobile. She had just purchased the auto and told Respondent that she needed to obtain insurance and return to the car lot where she had purchased the auto and show proof of insurance coverage. Ms. Ashraf was interested in a low down-payment for auto insurance. Respondent told her that she could pay the full amount of the insurance premium. Alternatively, Respondent explained what the down-payment amount would be and the continuing payment process beyond that point in time. In discussing towing and rental, Respondent told Ms. Ashraf the cost for that premium. Respondent explained the towing option (motor club) to Ms. Ashraf. Respondent did not tell Ms. Ashraf of other options available, to include the legal plan, as she recalls the transaction. Ms. Ashraf did sign the various documents involved in the transaction that have been described. The documents that have been identified were stacked one on top of the next. Respondent told Ms. Ashraf in relation to those documents, "Just sign here, here, here, here." Respondent did not discourage Ms. Ashraf from reading the documents but she did not read them. She was in a hurry. She had told Respondent that she was only interested in the automobile insurance that was necessary in association with the purchase of the car on that day. She erroneously assumed that Respondent was giving her what was needed and nothing more. Aside from the motor club, which Ms. Ashraf knowingly purchased, she did not realize that she had also purchased legal insurance through Southern Legal. Respondent had not separately explained that the legal insurance product was optional and that it was not part of the basic auto insurance policy or that there was an additional charge for the legal plan, notwithstanding any written explanation provided that would suggest otherwise. In relation to the Premium Finance Agreement, Respondent explained the portion dealing with the amount financed, the finance charge, the total payments, and the total sales price, but not the individual breakout of charges set out at the top of the document. Count III Kim Langford and Count IV Joana Samad Kim Langford and Joana Samad bought auto insurance from the Cash Register agency in Gainesville and the legal plan through Southern Legal, as alleged in the Amended Administrative Complaint. However, Respondent did not sell the legal plan to these customers. He was not immediately involved with either transaction and cannot be factually implicated under terms set forth in the Amended Administrative Complaint.1 Count V Albert B. Tomes On November 2, 2001, Albert B. Tomes bought auto insurance from Respondent at Cash Register in Gainesville. The company that he purchased the automobile insurance from was Direct General Insurance. The application for auto insurance is Respondent's Exhibit numbered 24. Respondent also sold Mr. Tomes pre-paid traffic violation insurance underwritten by Southern Legal. Petitioner's Exhibit numbered 13. The format of the application for the legal insurance is the same as with Ms. Akpo-Sani. The total cost of the legal insurance was $105.00. During the transaction, a Confirmation of Coverages document was executed. Respondent's Exhibit numbered 27. A Premium Finance Agreement was entered into following a down- payment in relation to the Direct General auto coverage insurance and the legal insurance through Southern Legal. Respondent's Exhibit numbered 25. The format of Confirmation of Coverages and the Premium Finance Agreement through Direct General Financial were the same as with the transaction involving Ms. Akpo-Sani. The documents that have been described were laid out in front of Mr. Tomes and he quickly signed his name and initials where necessary. As he explains it, he was told, "Initial here, initial here, initial here, sign this, sign this, and that's what I did." Mr. Tomes was there at the agency about 20 minutes. Mr. Tomes signed all documents that have been described in relation to the transaction. Mr. Tomes did not read the Premium Finance Agreement which he signed that set out the charges for the auto insurance and legal insurance. Mr. Tomes signed the Confirmation of Coverages document without reading it. Mr. Tomes paid a down-payment for the auto insurance of $107.50, with a premium to be financed in the amount of $358.00. He paid $31.50 as a down-payment for the legal insurance, with $73.50 to be financed. As reflected in the Premium Finance Agreement pertaining to the purchase of auto insurance, and legal insurance, the total amount financed was $325.40 at an annual percentage rate of 33.55 percent. The installment amount for each payment was $37.75. Mr. Tomes had called ahead before going to Cash Register. Information provided in the telephone call described a down-payment and monthly payments beyond that point. When Mr. Tomes arrived at Cash Register and spoke to Respondent, he was told by the Respondent that the automobile insurance could be paid for in cash or a down-payment could be made in monthly payments to follow. Mr. Tomes was told by Respondent that if more were paid down, then the monthly payments would be lower in cost. Although Mr. Tomes acknowledged signing the application for pre-paid traffic violation insurance, he does not recall seeing the document on November 2, 2001. He did not understand what he was buying as evidenced by the document. The product described in the document was not explained to him by Respondent. All that Mr. Tomes was interested in purchasing was automobile insurance sufficient to "be legal." He just wanted the basic automobile insurance coverage, and that is what he asked for. He understood this to mean PIP coverage. Although Mr. Tomes does not recall the application for legal insurance and its terms, Respondent and Mr. Tomes generally discussed the legal plan. Mr. Tomes told Respondent he did not want the legal plan. Respondent said to Mr. Tomes "You don't have to have the legal plan just take the standard down-payment option. I know that is a little harder on your checkbook today, but it keeps your monthly payment a lot lower and saves you money in the long run." This is taken to mean the option that required a larger down-payment and smaller monthly payments without having to purchase the additional product, the legal plan. Mr. Tomes told Respondent in reply "Well, I want the low down-payment option but I don't want the legal." Respondent said in turn that he couldn't do it that way. He stated that if Mr. Tomes took the 18 percent down-payment, he would also have to take the legal plan. Mr. Tomes was not happy with that arrangement where he was allowed a low down-payment conditioned upon the purchase of the legal plan but ultimately "did it." Count VI Raymond L. Washington On September 19, 2001, Raymond L. Washington purchased automobile insurance from Cash Register in Gainesville. Respondent was the employee for the agency involved in the transaction. The automobile insurance was purchased from Direct General Insurance. At the same time, Respondent sold Mr. Washington pre-paid traffic violation insurance from Southern Legal and a motor club contract from American Bankers Motor. A Premium Finance Agreement was entered into between Mr. Washington and Direct General Financial in relation to the automobile insurance and the legal insurance. A Confirmation of Coverages document was executed on this occasion. The format of all documents that have been described was the same as for the Akpo-Sani transaction. Mr. Washington signed all the documents. The automobile insurance application is Respondent's Exhibit numbered 28. The application for pre-paid traffic violation insurance is Petitioner's Exhibit numbered 15. The Premium Finance Agreement with Direct General Financial is Respondent's Exhibit numbered 29. The Confirmation of Coverages document is Respondent's Exhibit numbered 31. The Premium Finance Agreement sets out a down-payment of $93.10, with a balance to be paid of $418.90 pertaining to the automobile insurance. Mr. Washington, according to the Premium Finance Agreement, paid $18.90 down for the legal insurance, with $86.10 to be paid through installment payments. The Premium Finance Agreement sets out that $567.10 in the aggregate was financed for the auto insurance and for the legal insurance, at an annual percentage rate of 28.22 percent. The monthly payment was $64.30. The motor club was a $60.00 one time premium payment. On the date in question, Mr. Washington went to Cash Register with the intent to purchase basic insurance, what he refers to as "PIP." He told Respondent what he wanted to buy. Respondent offered towing and rental insurance. Mr. Washington was interested in that offering and purchased the towing and rental through the motor club contract. By contrast, Mr. Washington has no recollection of the discussion between the parties of the legal insurance through Southern Legal. He was told he needed to sign the document applying for the legal insurance and that he should have it. The legal insurance was not something he was interested in purchasing. Mr. Washington had called for a quotation of the price of auto insurance before arriving at Cash Register. Once there, he spent approximately one and one-half hours to finish his business. Respondent explained the several options for auto insurance, to include the cash purchase, a higher down-payment or a lower down-payment, with the purchase of an additional product. Mr. Washington wanted to make a lower down-payment. While at the agency Mr. Washington read some of the Premium Finance Agreement but not in all its details. He did not read the top of the document referring to the schedule of policies, with the types of coverage and the listing of the auto insurance, legal insurance and motor club. He did not read the upper right portion of the document pertaining to the companies being paid through the finance agreement. He read the part setting forth the monthly amount to be paid as an installment, which was $64.30. Mr. Washington did not read the application for legal insurance through Southern Legal before signing the document. Concerning the Confirmation of Coverages, Mr. Washington looked at that part of that document that told him to read all ten sections above. But he did not read item 10 which had a check-mark placed next to the driver's protection legal plan SL-210-A. Although Mr. Washington was at the agency for over an hour, he did not feel that he had time to read all the documents provided him. He was in a hurry to leave. Mr. Washington cannot remember the details of the discussion but he does recall that some questions that he asked Respondent concerning the transaction were not fully addressed. He has no recollection of any discussion of item 10 within the Confirmation of Coverages document associated with the driver's protection legal plan, and he did not realize that he had purchased the legal insurance. Respondent recalls his dealings with Mr. Washington and the offering of the three options to purchase auto insurance and that Mr. Washington chose the low down-payment option. Count VII Change of Address On August 1, 2003, Respondent became an agent for Allstate at West Newberry Road, Highway 26, Jonesville, Florida, without notifying Petitioner of this change in his business address. According to records maintained by the Petitioner, Respondent had not provided information concerning the change of address as late as March 3, 2004. Petitioner's Exhibit numbered 18. Respondent proceeded with the mistaken belief that once he was appointed as an agent for Allstate, that the insurer would notify Petitioner of that appointment and presumably include information on the address of his business.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That a Final Order be entered finding Respondent in violation of those provisions within Counts I, II, and V through VII, that have been concluded as violations, dismissing the others within those counts, dismissing Counts III and IV; suspending Respondent's licenses for one year, imposing a $100.00 administrative fine, placing Respondent on two years' probation and requiring attendance at such continuing education courses as deemed appropriate. DONE AND ENTERED this 1st day of July, 2004, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 1st day of July, 2004.
The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
Findings Of Fact At all times pertinent to this proceeding, Respondent was licensed in this state by the Petitioner as an insurance agent. Respondent was licensed, pursuant to the Florida Insurance Code (Chapter 626, Florida Statutes) as a general lines agent, a health insurance agent, and a residential property and casualty joint underwriting association representative. In February 1990, Maria del Carmen Comas, who was subsequently known as Maria del Carmen Diaz (hereinafter referred to as Maria Diaz), was licensed by Petitioner as an insurance agent. By Final Order entered September 20, 1994, the licensure of Ms. Diaz was revoked by the Petitioner. At all times pertinent to this proceeding, Respondent and Ms. Diaz maintained a close personal and professional relationship. On October 12, 1990, an entity known as The First Assurance, Inc., (hereinafter referred to as FIRST) was incorporated under the laws of the State of Florida. At all times pertinent to this proceeding, Respondent was the president and sole officer of FIRST, which is a Florida incorporated general lines insurance agency. FIRST operated out of offices located at 10680 Coral Way, Miami, Florida (hereinafter referred to as the Coral Way location) until June 1994, when Respondent moved the office of FIRST to 8780 Sunset Drive, Miami, Florida. On September 21, 1993, an entity known as The First Assurance of Miami, Inc., (hereinafter referred to as FIRST OF MIAMI) was incorporated under the laws of the State of Florida by Respondent and Maria Diaz. At all times pertinent to this proceeding, Respondent was the president and sole officer of FIRST OF MIAMI, a Florida incorporated general lines insurance agency doing business at 8780 Sunset Drive, Miami, Florida (hereinafter referred to as the Sunset Drive location). Respondent and Ms. Diaz were equal owners of FIRST OF MIAMI until that corporation ceased its operation in February 1995. On August 26, 1994, an entity known as Marlin Insurance Agency, Inc., (hereinafter referred to as MARLIN) was incorporated under the laws of the State of Florida. Respondent was the sole incorporator of MARLIN. At all times pertinent to this proceeding, Respondent was the president and sole officer of MARLIN, a Florida incorporated general lines insurance agency doing business at the Sunset Drive location where Respondent operated FIRST and FIRST OF MIAMI. MARLIN was originally incorporated for the purpose of purchasing the business of Rodal Insurance Agency in Hialeah, Florida. After the purchase of Rodal was rescinded by court order, MARLIN remained dormant until February 1995, when MARLIN began operating as a general lines insurance agency at the Sunset Drive location. At all times pertinent to this proceeding, Respondent was the supervising agent of MARLIN. As long as FIRST and FIRST OF MIAMI maintained separate offices, Respondent managed the day to day affairs of FIRST and Ms. Diaz managed the day to day affairs of FIRST OF MIAMI. After FIRST moved its offices into those of FIRST OF MIAMI, the separation of management became less distinct. At all times pertinent to this proceeding, Carlos Gonzalez was an employee of FIRST or of FIRST OF MIAMI. Mr. Gonzalez was hired and trained by Respondent and worked under his direct supervision. At no time pertinent to this proceeding did Mr. Gonzalez hold any license or appointment under the Florida Insurance Code. At all times pertinent to this proceeding, Alvaro Alcivar was an employee of FIRST OF MIAMI or of MARLIN. Mr. Alcivar acted under the supervision of either Maria Diaz or of Respondent. At no time pertinent to this proceeding did Mr. Alcivar hold any license or appointment under the Florida Insurance Code. At all times pertinent to this proceeding, Respondent had sole signatory authority of the FIRST's account number Number33080870-10 (the FIRST expense account) and of FIRST's account Number0303043975-10, both maintained at Ready State Bank in Hialeah, Florida. At all times pertinent to this proceeding, Respondent had joint signatory authority with Maria Diaz of the FIRST's account number Number33095150-10 maintained at Ready State Bank in Hialeah, Florida. At all times pertinent to this proceeding, Respondent had joint signatory authority with Maria Diaz of the FIRST OF MIAMI's account number Number33095630-10 maintained at Ready State Bank in Hialeah, Florida. At all times pertinent to this proceeding, Respondent had sole signatory authority of the FIRST OF MIAMI's account number Number0303116492-10 maintained at Ready State Bank in Hialeah, Florida. All premiums, return premiums and other funds belonging to insureds, insurers, and others received in transactions under his license were and remain trust funds held by Respondent in a fiduciary capacity. Respondent obtained a power of attorney from his customers as a routine business practice. Respondent has repeatedly issued checks in payment of fiduciary funds that have subsequently been dishonored by the bank because the account on which the checks were drawn had insufficient funds. ARCAMONTE TRANSACTION (COUNT ONE) On or about July 14, 1993, Susan Arcamonte of Miami, Florida, purchased a new car. Susan Arcamonte needed insurance for this automobile and discussed that need with Carlos Gonzalez, who was employed by FIRST. As a result of her discussions with Mr. Gonzalez, Ms. Arcamonte agreed to purchase a policy of insurance that would be issued by Eagle Insurance Company. The annual premium quoted by Mr. Gonzalez for this policy totaled $1,618.00. Mr. Gonzalez advised her that there would be additional charges if the premium was paid by a premium finance company. Because she did not have the funds to pay the lump sum annual premium and did not want to finance the premium, she had her parents, Edmond and Nancy Arcamonte, pay the annual premium. As instructed by Carlos Gonzalez, this check was in the amount of $1,618.00 and was made payable to "The First Assurance, Inc." This check was in full payment of the annual premium for the automobile insurance policy that was to be issued by Eagle Insurance Company. After receiving the check from Mr. and Mrs. Arcamonte, Mr. Gonzalez issued to Susan Arcamonte an insurance card containing the name "The First Assurance, Inc." and binder numbers 12873 and 931374 written across the top. Mr. Gonzalez represented to Ms. Arcamonte that this was a binder of the coverage they had discussed. Mr. Gonzalez thereafter delivered the check and the completed application for insurance to FIRST. Respondent reviewed the application for insurance and signed the application. The Arcamontes' check was thereafter deposited by Respondent into the FIRST expense account at Ready State Bank, Hialeah, Florida. In July 1993, Respondent or some person in his employ at FIRST and acting with his knowledge under his direct supervision and control, affixed the signature of Susan Arcamonte to a Century Premium Insurance Finance Co., Inc. (Century PFC) premium finance agreement and, in the space provided for her address, filled in the office address of FIRST. Ms. Arcamonte's signature was affixed to this agreement without her knowledge or consent. Respondent personally signed the premium fiance agreement that was sent to Century PFC. Because the address of FIRST was inserted on the premium finance agreement, Ms. Arcamonte did not receive payment coupons, cancellation notices, and other correspondence from Century PFC. Consequently, the existence of the premium finance agreement was concealed from Ms. Arcamonte. The original application for insurance signed by Susan Arcamonte contained a power of attorney purporting to grant Respondent the authority to sign Ms. Arcamonte's name to "applications or similar papers including premium finance contracts". There was no disclosure that the signature on the premium finance agreement was not that of Ms. Arcamonte or that FIRST was executing her signature pursuant to a power of attorney. Respondent contends that the premium finance agreement was executed pursuant to the power of attorney because the check from Mr. and Mrs. Arcamonte was inadvertently separated from her application for payment and erroneously deposited into the FIRST expense account. This contention lacks credibility and is rejected. The fact that Respondent deposited the check in his expense account, that the paperwork for the premium finance agreement contained the FIRST address, that Respondent took no action to rectify this alleged error even after receiving correspondence from the finance company, and that Ms. Arcamonte's signature was forged on the application belie Respondent's contention that this was an innocent mistake. On or about September 20, 1993, the Eagle Insurance policy that Ms. Arcamonte purchased was cancelled for nonpayment of premiums because Respondent, or persons acting under his direct supervision and control, failed to make a regular installment payment on the premium finance agreement. Ms. Arcamonte never received the 10 Day Notice of Cancellation Notices that Century PFC mailed to FIRST's address. It was not until October 1993 when she received a Notice of Cancellation from Eagle mailed September 27, 1993, that she learned that her policy had been cancelled effective September 20, 1993. As a result of Respondent's actions and those of Carlos Gonzalez, Susan Arcamonte failed to timely receive automobile insurance, suffered a finance charge for automobile insurance without her knowledge or consent, had her automobile insurance cancelled, and incurred higher premium charges for subsequent coverage because of a gap in her coverage. Following a criminal complaint filed against him by Ms. Arcamonte, Respondent was arrested and placed in a pretrial intervention program. It was only after this action was taken that Respondent made restitution to the Arcamontes for the $1,618.00 premium they paid. At no time during the transaction, did the Arcamontes deal with anyone from the FIRST other than Carlos Gonzalez. Mr. Gonzalez held himself out to be and acted as an insurance agent during this transaction. Specifically, Carlos Gonzalez did the following: Was introduced to the Arcamontes as an insurance agent and did not correct that misidentification. Interviewed Susan Arcamonte to gather the information necessary to determine level of coverage and to quote a premium for that coverage. Discussed coverage options and requirements including whether Ms. Arcamonte needed personal injury protection. Discussed deductible options and answered general questions about insurance. Selected an insurer for Ms. Arcamonte, quoted a premium for that coverage, and made representations as to the quality of the insurer. Offered to bind insurance coverage for the automobile Ms. Arcamonte was in the process of purchasing and sent a binder to her at the automobile dealership via fax. Personally completed the insurance application and related paperwork. Personally completed an insurance identification card, including binder numbers, as proof of insurance, and presented the identification card to Ms. Arcamonte. Presented Ms. Arcamonte with a business card that identified himself as a representative of FIRST. Respondent knew or should have known of the acts of Carlos Gonzalez. Respondent received from Mr. Gonzalez the application for insurance he had completed for Ms. Arcamonte so that all Respondent had to do was sign it. JOHNSON - MOREL TRANSACTION (COUNT TWO) On May 31, 1993, Linda E. Johnson and her husband, Miguel Morel, visited the residence of Wilfreido Cordeiro, an employee of FIRST who was acting on behalf of FIRST. As a result of their conversation with Mr. Cordeiro about their insurance needs, Mr. Morel and Ms. Johnson completed an application for automobile insurance from Armor Insurance Company (Armor) to be issued through FIRST. Mr. Cordeiro, who was not licensed by Petitioner for any purpose, held himself out to be an agent. He represented to these consumers that coverage with Armor was bound and gave them an identification card with the FIRST name on it that purported to be a binder of coverage. The FIRST insurance identification card was issued without authorization from Armor and in violation of the established policies and practices of Armor. Because Mr. Cordeiro was unlicensed, Respondent acted as the agent of record for this transaction. On or about May 31, 1993, Mrs. Linda E. Johnson tendered to Respondent, or persons acting with his knowledge and under his direct supervision and control, a check in the amount of $500.00 payable to FIRST as a premium down payment for the automobile insurance from Armor. On or about June 4, 1993, Respondent, or persons acting with his knowledge and under his direct supervision and control, deposited Mrs. Johnson's check in the FIRST expense account at the Ready State Bank. On or about June 29, 1993, Mrs. Johnson was contacted by her bank and informed that she had no automobile insurance. She immediately contacted Respondent who provided the bank with a certificate of insurance indicating coverage was placed with American Skyhawk Insurance (American Skyhawk) effective June 1, 1993. No authority to bind coverage had been extended by American Skyhawk prior to the submission of the application two and one-half months after the coverage effective date indicated on the certificate of insurance. On or about August 18, 1993, Respondent, or persons acting with his knowledge and under his direct supervision and control, completed a Century PFC and affixed thereto the signature of Mr. Morel without his knowledge or consent. This agreement reflected that Mr. Morel had paid the sum of $400.00 as a downpayment, despite the fact that Mrs. Johnson's check, in the amount of $500.00, had been received and deposited in the Respondent expense account. As a result of Respondent's action, Mrs. Johnson and Mr. Morel failed to timely receive automobile coverage; suffered a finance charge for automobile insurance without their knowledge or consent; and suffered the loss in at least the amount of $100.00. At no time during the transaction with FIRST did Mr. Morel or Mrs. Johnson knowingly execute a power of attorney. HWANG TRANSACTION (COUNT THREE) On August 29, 1992, Mr. Show Ming Hwang of Miami, Florida, purchased via telephone a policy of insurance for a car he was purchasing. Mr. Hwang called from a car dealership and spoke to an employee of FIRST who was acting under Respondent's direct supervision. Mr. Hwang tendered to FIRST a check in the amount of $869.00 as the full premium for this insurance, which was to be issued by an insurer named Security National. Respondent was the agen t of record for this transaction. Security National issued policy NumberSN00127048 providing insurance coverage for Mr. Hwang effective August 29, 1992. On December 22, 1992, Mr. Hwang asked FIRST to cancel his policy with Security National because he had moved and had secured other coverage. On January 15, 1993, Security National cancelled insurance policy NumberSN00127048 in response to Mr. Hwang's request. On January 26, 1993, Security National sent to Respondent its check Number216878 in the sum of $366.35 payable to Mr. Hwang. This check was a refund of the unearned premium for the cancelled policy. In addition to the unearned premium, Mr. Hwang was also entitled to a refund of the unearned commission from FIRST. The amount of the unearned commission was $64.55 and should have been paid by FIRST directly to Mr. Hwang. On February 8, 1993, Respondent, or an employee of FIRST acting under his direct supervision, endorsed the check from Security National in the name of Mr. Hwang and deposited that check in the FIRST expense account at Ready State Bank. Mr. Hwang was unaware that his name had been endorsed on the check and had not authorized such endorsement. This endorsement was not pursuant to a validly executed power of attorney. Mr. Hwang made repeated attempts to obtain the refunds to which he was entitled. Finally, he secured the intervention of the Petitioner. After that intervention, Respondent issued a FIRST check on December 17, 1993, payable to Mr. Hwang in the amount of $431.00 as payment of the refunds. Less than a month later, this check was dishonored because there were insufficient funds in the account on which it was drawn. After further intervention by the Petitioner, Respondent issued a cashier's check in the amount of $431.00 payable to Mr. Hwang. This check, dated March 22, 1994, was thereafter received and deposited by Mr. Hwang. Respondent failed to return the refunds to Mr. Hwang in the applicable regular course of business and converted the refund from Security National to his own use until the intervention of the Petitioner. As a result of Respondent's actions, Mr. Hwang failed to timely receive these refunds. MARIA DIAZ (COUNT FOUR) On September 20, 1994, the Petitioner entered a Final Order that revoked all licenses that it had previously issued to Maria Diaz (who was at that time known as Maria del Carmen Comas). In September 1994, Ms. Diaz, accompanied by Respondent, visited the Petitioner's office in Miami where she was told that the revocation of her license was forthcoming. After that information was given to them, Respondent and Ms. Diaz knew or should have known that the revocation of her licensure was imminent. There was insufficient evidence to establish when Ms. Diaz received a written copy of the order revoking her licensure. Ms. Diaz and Respondent assert that they did not know about the revocation until the end of January, 1995. The order entered in September 1994 prohibited Ms. Diaz from engaging in or attempting to engage in any transaction or business for which a license or appointment is required under the Insurance Code or directly owning, controlling, or being employed in any manner by any insurance agent or agency. After Respondent and Ms. Diaz had been told that the revocation of her licensure was imminent, Ms. Diaz engaged in transactions requiring licensure and acting in violation of the order revoking her licensure. This activity included applying to Seminole Insurance Company (Seminole) in December 1994 seeking appointment as a general lines insurance agent by Seminole, the submission of a large number of applications to Seminole, and the mishandling of an insurance transaction with Johannah Rexach in July and August 1995. Ms. Diaz began a business as a travel agent at the MARLIN office and continued to be present in the MARLIN office long after she had received written notice of the revocation of her licensure by Petitioner. At least on one occasion in May 1995, Ms. Diaz answered the MARLIN telephone by saying "insurance". Ms. Diaz continued to greet her former insurance customers and mailed out renewal notices after both she and Respondent had actual knowledge of the revocation of her licensure. Respondent knew or should have known of Ms. Diaz's activities. While there was insufficient evidence to establish that Ms. Diaz was formally on MARLIN's payroll, the evidence is clear and convincing that Respondent permitted Ms. Diaz to share office space while she attempted to develop her travel agency and that, in return, Ms. Diaz helped out at the MARLIN office. Respondent employed the services of Ms. Diaz and he placed her in a position to engage in transactions that required licensure after he knew or should have known that her licensure had been revoked. MARTINEZ TRANSACTION (COUNT FIVE) On April 23, 1994, Mr. and Mrs. Santiago Martinez of Miami, Florida, completed applications for automobile insurance from Fortune Insurance Company (Fortune) and Aries Insurance Company (Aries). The record is unclear as to whether the insurance was to be issued through FIRST or FIRST OF MIAMI. The individual with whom Mr. and Mrs. Martinez dealt was Alvaro Alcivar. This was during the time that FIRST and FIRST OF MIAMI maintained separate offices and it was before Respondent and Ms. Diaz had been told that her licensure was about to be revoked. The greater weight of the evidence established that Mr. Alcivar was, at that time, an employee of FIRST OF MIAMI and that he was working under the supervision of Maria Diaz. Succinctly stated, premiums paid by Mr. and Mrs. Martinez were deposited into a FIRST OF MIAMI bank account that showed First Assurance of Miami, Inc., d/b/a Complete Insurance as the owner of the account. The premium payment was not forwarded to the insurer. Because of this failure, Mr. and Mrs. Martinez did not receive insurance coverage for which they had paid. While Petitioner established that Mr. Alcivar and whoever was his supervising agent mishandled this transaction, there was insufficient evidence to establish that Respondent was aware of this transaction until Mr. and Mrs. Martinez demanded a refund of the premium they had paid. At that juncture, he attempted to resolve the problem. Consequently, it is found that the evidence failed to establish that Respondent was responsible for these violations of the Florida Insurance Code. ZAFRANI TRANSACTION (COUNT SIX) In July 1992, Mr. Issac Zafrani and his son, Ramon, of Miami, Florida, purchased automobile insurance with Oak Casualty Insurance Company (Oak) after dealing with Carlos Gonzalez. The various documents associated with this transaction refer to the agency issuing this policy as FIRST, FIRST OF MIAMI, or Rodal Insurance Agency. Mr. Gonzalez was an employee of FIRST and operated under the direct supervision of Respondent. The entire transaction was completed by Mr. Gonzalez at the automobile dealership where Mr. Zafrani was purchasing an automobile. All subsequent dealings by Mr. Zafrani was through Mr. Gonzalez by telephone or at locations other than the offices of FIRST. Mr. Gonzalez held himself out to be and acted as an insurance agent during this transaction. Specifically, Carlos Gonzalez did the following: Was introduced to the Zafranis as an insurance agent and did not correct that misidentification. Personally completed the insurance application and related paperwork. Discussed coverage and deductible options. Selected an insurer for the Zafranis, deter- mined the premium for the coverage, and accepted the payment for the premium. Personally completed an insurance identifi- cation card, including what purported to be proof of insurance, and presented the identification card to the Zafranis. Presented the Zafranis with a business card that identified himself as a representative of FIRST. The Zafranis paid for the renewal of their policy through FIRST each year on an annual basis. On September 1, 1994, the Zafranis tendered to Mr. Gonzalez their check in the amount of $1,748.00 as payment in full of the annual premium for the policy year 1994-95. This check was made payable to FIRST OF MIAMI and was deposited in the FIRST Expense Account at Ready State Bank ( Number0303080870- 10). Respondent was the only person with authority to sign on this account. On September 30, 1994, an employee of FIRST completed a premium finance agreement that purported to finance the Zafranis' premium for the Oak Casualty insurance and forged Issac Zafrani's signature to that agreement. This false document reflected that the total premium was $1,748.00 and that the Zafranis had made a downpayment of $524.00 and had an unpaid balance of $1,224.00. This action was taken without Issac Zafrani's knowledge or consent. Mr. Zafrani had not executed a power of attorney to authorize these acts. Respondent knew or should have known of this act. On September 30, 1994, Respondent, or an employee of FIRST working under his direct supervision, issued a premium finance draft from Artic to Oak in the amount of $1,485.80 based upon this false application. A few weeks after they paid the renewal premium, the Zafranis complained to Mr. Gonzalez that they had not received their renewal policy from Oak. Mr. Gonzalez advised them that the company had cancelled their policy in error. He promised that he would investigate the matter and take corrective action. On December 23, 1994, Respondent, or an employee of FIRST acting under his direct supervision, submitted an automobile insurance application to Seminole Insurance Company indicating that coverage had been bound for Issac Zafrani. On December 23, 1994, Respondent issued FIRST check Number1196 payable to Seminole in the amount of $1,681.65 in payment of the policy he was attempting to secure on behalf of the Zafranis. On or about December 27 1994, Mr. Gonzalez issued to the Zafranis a FIRST card with what purported to be a binder number from Seminole Insurance Company. No authorization to bind that coverage had been issued by Seminole. On January 3, 1995, Artic issued a cancellation notice on the Oak Casualty policy because of missed payments on the premium finance agreement. The Zafranis did not know about this premium finance agreement and Respondent failed to make the payments. In January 1995, FIRST check Number1196 that had been tendered to Seminole was dishonored by Respondent's bank because the account on which the check was drawn had insufficient funds to pay the check. As a result of these actions, the Zafranis failed to timely receive automobile insurance for which they had fully paid and suffered the loss of the sum of $1,748.00. Respondent knew or should have known of these actions. DEBT TO WORLD PREMIUM FINANCE COMPANY (COUNT SEVEN) On August 29, 1995, a final judgment was entered in a Dade County Court action brought by World Premium Finance Co., Inc. (World PFC) against FIRST OF MIAMI and the Respondent, individually, as defendants. This final judgment awarded damages against FIRST OF MIAMI in the sum of $7,203.03 and awarded damages against both defendants in the sum of $15,000 plus attorney's fees of $1,000. The World PFC complaint was based on worthless checks FIRST OF MIAMI and Respondent had issued in connection with premium finance contracts and included debts for unpaid downpayments and unearned commissions on premium finance contracts that had been cancelled. Respondent's assertion that these debts were the responsibility of Maria Diaz is rejected. While Ms. Diaz initially made the arrangements for FIRST OF MIAMI to finance through World PFC and was the agent responsible for some of these transactions, it is clear that Respondent was the agent for many of these underlying transactions. Further, some, if not all, of these worthless checks were drawn on accounts for which Respondent was the only person with signatory authority. The downpayments and unearned commissions constitute fiduciary funds for which Respondent is responsible. Respondent has failed to pay these fiduciary funds to World PFC after repeated demands for payments. GUTIERREZ TRANSACTION (COUNT EIGHT) On October 11, 1993, Ms. Madalina N. Gutierrez of Miami, Florida, completed an application for automobile insurance. Aries Insurance Company was the insurer for this policy and FIRST was the insurance agency. The premium for this policy was to have been $574.00. The person with whom Ms. Gutierrez dealt with was Carmen "Mela" Babacarris, an employee of FIRST OF MIAMI. Ms. Babacarris has never held any license or appointment under the Florida Insurance Code. Ms. Gutierrez paid to FIRST the sum of $287.00 on October 11, 1993, when she applied for this insurance. On that date, Ms. Babacarris gave to Ms. Gutierrez an insurance card that purported to bind coverage with Aries. She returned on November 1, 1993, and paid to FIRST the balance owed of $287.00. Both of these payments were tendered to and received by Ms. Babacarris on behalf of FIRST. The sums paid by Ms. Gutierrez for this insurance coverage were not remitted by the FIRST to Aries or to any other insurer. As a consequence, Ms. Gutierrez did not receive the insurance coverage for which she had paid. Ms. Gutierrez was unable to obtain a refund of the sums that she had paid to FIRST. Respondent knew or should have known of the acts pertaining to this transaction by Ms. Babacarris since the transaction was processed through the FIRST, the agency for which Respondent was the sole supervising agent. RICO TRANSACTION (COUNT NINE) On June 27, 1994, Mr. Rafael Rico of Miami, Florida, completed an application for automobile insurance from Aries Insurance. It is unclear from the documents whether this insurance was to be issued through FIRST or through FIRST OF MIAMI. This confusion in the record is attributable to the fact that the persons involved in this transaction and associated with these two agencies made little distinction between the two agencies. This application was completed at the automobile dealership from which Mr. Rico was purchasing the vehicle to be insured. The individual with whom Mr. Rico dealt was Alvaro Alcivar. At all times during the transaction with Mr. Rico, Mr. Alcivar held himself out to be and acted as an insurance agent. Specifically, Mr. Alcivar did the following: Personally completed the insurance application and related paperwork. Discussed coverage and deductible options and answered Mr. Rico's general insurance questions. Selected the insurer for Mr. Rico's coverage. Personally completed an insurance identification card, including a policy number, as proof of insurance and provided it to Mr. Rico. Indicated that coverage was bound immediately and gave to him a card that purported to be a Florida Automobile Insurance Identification Card indicating that Mr. Rico had insurance coverage through Aries. Developed the premium and downpayment. Accepted payment from Mr. Rico. Presented Mr. Rico with a business card identifying himself as a representative of FIRST OF MIAMI. Mr. Alcivar was the only representative of the FIRST or of the FIRST OF MIAMI with whom Mr. Rico dealt. On June 27, 1994, Mr. Rico tendered to Mr. Alcivar the sum of $947.00 as payment for this insurance with the sum of $500.00 being paid in cash and the balance being charged to Mr. Rico's Mastercard. This Mastercard entry was processed through the account of the FIRST, not that of the FIRST OF MIAMI. Despite the payments by Mr. Rico, the premium to which Aries was entitled for this coverage was not remitted by FIRST or by FIRST OF MIAMI. As a result of this failure, Aries cancelled the binder that had been issued to Mr. Rico. Mr. Rico was damaged as a result of this failure. He lost the premium he had paid and the lending institution that financed his vehicle placed insurance on the vehicle at a higher premium than that charged by Aries. Based on the relationship between FIRST and FIRST OF MIAMI, the relationship between Respondent and Ms. Diaz, the repeated references to FIRST in the documentation of this transaction, and the deposit of at least $447.00 in the Mastercard account of FIRST, it is concluded that Respondent knew or should have known about this transaction. CHERI TRANSACTION (COUNT ELEVEN) On November 19, 1994, Mr. Dieuseul Cheri of Miami, Florida, completed an application for automobile insurance that was to be issued by Seminole Insurance Company as the insurer. The application for insurance reflects that Maria Diaz was the agent for this transaction, but the name of the agency is FIRST, not FIRST OF MIAMI. Likewise, the premium finance agreement pertaining to this transaction reflects that FIRST is the producing agency. The entire transaction was handled by Alvaro Alcivar at an automobile dealership where Mr. Cheri was purchasing a vehicle and occurred after Ms. Diaz had been told in September that the revocation of her licensure was imminent. Mr. Cheri gave to Mr. Alcivar the sum of $205.00 in cash as the downpayment for the premium for this Seminole policy. At all times Mr. Alcivar held himself out to be and acted as an insurance agent. Specifically, Mr. Alcivar: Was introduced to Mr. Cheri as an insurance agent and did not correct that misidentification. Personally completed the insurance application and related paperwork. Discussed coverage and deductible options and answered Mr. Cheri's general insurance questions. Selected the insurer for Mr. Cheri's coverage. Personally completed an insurance identification card, including a policy number, as proof of insurance and provided it to Mr. Cheri. Completed a named driver exclusion agreement for Mr. Cheri's policy, which had a significant effect on the coverage provided under the policy, and completed a vehicle inspection. Developed the premium and downpayment. Accepted payment from Mr. Cheri on behalf of FIRST OF MIAMI. Presented Mr. Cheri with a business card identifying himself as a representative of FIRST OF MIAMI. Mr. Alcivar was the only representative of the FIRST or of the FIRST OF MIAMI with whom Mr. Cheri dealt. FIRST OF MIAMI failed to bind coverage with Seminole on Mr. Cheri's behalf until November 22, 1994. As a result, there was a lapse in Mr. Cheri's coverage from November 17 until November 22, 1994. On November 19, 1994, FIRST OF MIAMI submitted a premium finance agreement on Mr. Cheri's insurance policy to World Premium Finance Co., Inc. (World PFC). The World PFC contract as well as the application were signed by Maria Diaz. Ms. Diaz never met Mr. Cheri. The premium finance agreement submitted to World PFC by FIRST OF MIAMI indicated that he had made a premium downpayment of only $105.00 despite the fact that Mr. Cheri had made a downpayment of $205.00. The evidence is not clear that Respondent knew or should have known of this transaction because of the involvement of Ms. Diaz. Instead, this is an example of the Respondent permitting Ms. Diaz to continue to participate in insurance transactions that require licensure after Respondent and Ms. Diaz had been told in September 1994 that revocation was imminent. ALVARO ALCIVAR (COUNT TWELVE) Petitioner established by clear and convincing evidence that Alvaro Alcivar performed acts and made representations to consumers that require licensure pursuant to the Florida Insurance Code. Petitioner also established that Respondent knew or should have known of these acts and that he aided and abetted these violations by Mr. Alcivar. CARLOS GONZALEZ (COUNT THIRTEEN) Petitioner established by clear and convincing evidence that Carlos Gonzalez performed acts and made representations to consumers that require licensure pursuant to the Florida Insurance Code. Petitioner also established that Respondent knew or should have known of these acts and that he aided and abetted these violations by Mr. Gonzalez.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order that adopts the findings of fact and conclusions of law contained herein. It is further recommended that Petitioner revoke all licensure and appointment held by Respondent pursuant to the Florida Insurance Code and that it impose against Respondent an administrative fine in the amount of $10,000.00. DONE AND ENTERED this 15th day of April 1996 in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of April 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-0317 The following rulings are made as to the proposed findings of fact submitted by Petitioner. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5,6, 7, 8, 9, 11, 12, 13, 14, 15, 16, 18, 19, 20, 21, 22, 23, 27, 25, 27, 28, 29, 30, 31, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 73, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 123, 125, 126, 127, 139, 140, 141, and 142 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in part by the Recommended Order. The testimony at the formal hearing that the office was moved in June 1994. The proposed findings of fact in paragraphs 10, 17, and 81 are adopted in part by the Recommended Order, but are rejected to the extent they are contrary to the findings made. The proposed findings of fact in paragraphs 26, 32, 72, 74, 75, 76, 83, 129, 130, 131, 136, 137, 143, and 144 are subordinate to the findings made. The proposed findings of fact in paragraphs 46, 61, 82, and 124 are rejected as being unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 77, 78, 79, 80, 128, 132, 133, 134, 135, and 136 are rejected as being contrary to the findings made. The following rulings are made as to the proposed findings of fact submitted by Respondent. The proposed findings of fact in paragraphs 1, 3, 4, 5, 7, 8, 9, 13, 15, 17, 18, 19, 20, 23, 26, 32, 33, 34, 35, 36, 37, 40, 41, 49, 50, 53, 54, 55, 64, 72, and 73 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in part by the Recommended Order, but are rejected in part since Respondent moved the offices of the FIRST from Coral Way to Sunset Drive at a time pertinent to this proceeding. The proposed findings of fact in paragraphs 6 and 52 are adopted in part by the Recommended Order, but are rejected to the extent they are contrary to the findings made. The proposed findings of fact in paragraphs 10, 11, 21 and 27 are rejected as being unsubstantiated by credible evidence. The evidence that supports these proposed findings lacks credibility. The proposed findings of fact in paragraphs 12 and 31 are adopted in part by the Recommended Order, but are rejected to the extent the proposed findings mischaracterize the evidence. The proposed findings of fact in paragraphs 16 are adopted in part by the Recommended Order, but are rejected to the extent they are unnecessary to the conclusions reached. The proposed findings of fact in paragraph 24 are adopted in part by the Recommended Order, but are rejected to the extent they are contrary to the finding that they knew that the revocation of Ms. Diaz's licensure was imminent. The proposed findings of fact in paragraphs 25, 28, 30, 38, 39, 40, 45, 46, 47, 51, 56, 58, 59, 60, 61, 62, 65, 66, 67, 69, 71, 74, 75, 76, 77, and 78 are rejected as being contrary to the findings made. The proposed findings of fact in paragraphs 29 and 57 are subordinate to the findings made. The proposed findings of fact in paragraph 31 are rejected since they contain an inference that Respondent told Ms. Diaz to move as soon as he knew of her interaction with insurance customers. The proposed findings of fact in paragraph 42 are rejected as being a mischaracterization of the evidence. The proposed findings of fact in paragraphs 48, 63, 68, and 70 are rejected as being unnecessary to the conclusions reached. COPIES FURNISHED: John R. Dunphy, Esquire Department of Insurance and Treasurer Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 Charles J. Grimsley, Esquire Charles J. Grimsley and Associates, P.A. 1880 Brickell Avenue Miami, Florida 33129 Honorable Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner, Acting General Counsel Department of Insurance The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The issues are whether Respondent, by entering a plea of nolo contendere to a misdemeanor charge of conspiracy to commit workers' compensation fraud, demonstrated a lack of fitness and trustworthiness to sell insurance in violation of Section 626.611(7), Florida Statutes, and if so, what penalty should be imposed.
Findings Of Fact At all times relevant to this proceeding, Respondent was eligible for licensure and licensed in the following areas: (a) as a health insurance agent; (b) as a life insurance agent; (c) as a life and health insurance agent; (d) as a life, health, and variable annuity agent; (e) as a surplus lines insurance agent; and (f) as a general lines insurance agent. In June 1992, the insurance agency that Respondent worked for was purchased by another insurance agency. Ronald Palmerton was a client of the owner of Respondent's former employer. Mr. Palmerton held a workers' compensation policy issued by Liberty Mutual Insurance Company (Liberty Mutual). After the owner of Respondent's former employer left the new agency, Respondent handled Mr. Palmerton's requests for additional insurance with Liberty Mutual. Respondent was never paid a commission for any work performed on Mr. Palmerton's behalf. Even so, Respondent's testimony that Mr. Palmerton was not up front with information that he provided to Respondent and that Respondent never told Mr. Palmerton that he could avoid his workers' compensation experience modification if he started another company is not persuasive. In a Fourth Amended Information dated April 16, 2001, Respondent and Mr. Palmerton, were charged in the Circuit Court of the First Judicial District, in and for Escambia County, Florida, Case No. 99-2081 CF, with several felony and misdemeanor violations. Specifically, Respondent was charged as follows: (a) with racketeering, a first-degree felony in violation of Section 895.03, Florida Statutes; (b) with conspiracy to commit racketeering, a first-degree felony in violation of Sections 895.03(4) and 777.04(3), Florida Statutes; and (c) conspiracy to commit workers' compensation fraud, a misdemeanor in violation of Sections 440.37(4) and 777.04(3), Florida Statutes. The misdemeanor criminal charge was based on allegations that, beginning on April 4, 1993, Respondent and Mr. Palmerton did unlawfully and knowingly conspire to commit workers' compensation fraud by knowingly making false or misleading oral or written statements and representations and/or knowingly omitting or concealing material information required by Section 440.381, Florida Statutes. According to the Fourth Amended Information, the purpose of the conspiracy was to avoid or diminish the amount of payment of any workers' compensation premiums to be paid by Mr. Palmerton and/or his related companies to a carrier or self-insurance fund. The criminal trial was scheduled for April 16, 2001. On April 12, 2001, the State of Florida offered a plea agreement to Respondent. Respondent initially refused the offer but changed his mind after learning that Mr. Palmerton had agreed to plead guilty to felony charges for perjury and racketeering, with a sentence for 18 months' house arrest and 15 years of probation. Respondent understood that Mr. Palmerton would testify against Respondent if he elected to proceed to trial. On April 16, 2001, Respondent entered into a Plea Agreement in which he agreed to plead no contest to one count of conspiracy to commit workers' compensation fraud, a first-degree misdemeanor. The agreement included a provision for a sentence of one year of probation. Under the agreement, a sentence of nine months' incarceration in the Escambia County jail would be suspended pending Respondent's successful completion of all terms and conditions of probation. The agreement also provided that Respondent's probation would include the payment of any restitution ordered by the Court during a subsequent hearing. On April 16, 2001, the Court adjudicated Respondent guilty, withholding imposition of sentence and placing Respondent on one year of probation. The terms of Respondent's probation included, but are not limited to, the following: payment of a fine and court costs in the amount of $1,000; payment of the costs of prosecution in the amount of $5,000; and (c) payment of restitution as determined at a subsequent hearing. A few days after being adjudicated guilty, Respondent contacted Petitioner's staff to determine the effect of his nolo contendere plea to a misdemeanor offense on his licensure status. Petitioner's staff subsequently informed Respondent that a misdemeanor offense would not result in an automatic suspension of an insurance license. On April 11, 2002, the Court conducted a restitution hearing. During the hearing, the State of Florida and Respondent agreed and stipulated to the entry of a restitution order and judgment satisfactory to the victim, Liberty Mutual. On June 3, 2002, the Court entered a Restitution Order and Judgment against Respondent. The Order required Respondent to pay restitution in the amount of $225,000. Pursuant to the Order, Respondent and Mr. Palmerton are jointly and severally liable for payment of the restitution, with Respondent receiving credit toward the total obligation for $200,000 previously paid by Mr. Palmerton and $10,000 paid by Respondent on April 11, 2002. As such, the effective amount of the Restitution Order and Judgment was a $15,000 balance due from Respondent. In June 2002, Petitioner issued a renewal notice for Respondent's surplus lines insurance license. The notice requested the appointing insurance company or agency to certify that Respondent had not pled guilty, or nolo contendere to, or had not been found guilty of a felony since originally being appointed by the appointing entity. The notice did not inquire whether Respondent had pled guilty, or nolo contendere to, or found guilty of a misdemeanor. At the time of the formal hearing, Respondent and Mr. Palmerton were still jointly and severally obligated to pay $15,000 in unpaid restitution. Respondent had successfully completed his probation in all other respects. During the hearing, Petitioner denied any wrong doing in relation to the misdemeanor offense to which he pled no contest. Specifically, Respondent denied that he ever intended to assist Mr. Palmerton in any type of scheme to defraud or otherwise do harm to Liberty Mutual. Respondent's testimony in this regard in not persuasive. Respondent has been a licensed insurance agent for 32 years. Prior to the instant proceeding, Respondent's insurance licenses have not been the subject of a disciplinary proceeding or lawsuit. Liberty Mutual did not name Respondent as a party in its civil suit against Mr. Palmerton. Instead, Respondent cooperated with and testified on behalf of Liberty Mutual in that proceeding. Until Respondent committed the offense at issue here, his reputation in the insurance community indicates that he was an honest and trustworthy agent.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That Petitioner enter a final order imposing a six-month suspension of Respondent's insurance licenses. DONE AND ENTERED this 28th day of October, 2002, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of October, 2002. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance Division of Legal Services 200 East Gaines Street, Room 612 Tallahassee, Florida 32399-0333 Thomas E. Wheeler, Jr., Esquire Post Office Box 12564 Pensacola, Florida 32573-2564 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 presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint, and, if so, what disciplinary action should be imposed.
Findings Of Fact Based on the evidence adduced at hearing, and the record as a whole, the following findings of fact are made to supplement and clarify the extensive factual stipulations set forth in the parties' Statement of Facts Admitted3: Respondent works as the manager of a Cash Register Insurance ("Cash Register") office in New Port Richey. Cash Register is owned by Direct General Insurance Agency, Inc. ("Direct General"). Respondent sells automobile insurance to individual customers. During the relevant period, Respondent also sold four ancillary products: a vehicle protection plan, an accident medical protection plan, a travel protection plan, and a term life insurance policy.4 Respondent is paid a salary, and receives no commission on the sale of automobile insurance. Respondent does receive a ten percent commission on the sale of ancillary products. Respondent received 34 percent of her overall income from the sale of ancillary products during the relevant time period. Respondent deals with at least 50 customers per day, six days per week. She sells between seven and ten automobile insurance policies per day, on average. Given her customer volume, Respondent cannot remember each customer to whom she has sold insurance. Respondent frankly testified that she had no specific recollection of selling the policies to the individuals named in the Statement of Facts Admitted. However, Respondent also testified that she sells insurance according to a script, and that in light of this unvarying practice she could state with confidence whether she had or had not engaged in the specific sales techniques alleged by the Department and its witnesses. Respondent testified at length as to her sales routine. When talking to potential customers on the telephone, Respondent must follow the script provided by Direct General. Respondent testified that agents are not required to follow the script when customers come in to the office, but that she generally adheres to the format provided by her employer. All of the sales at issue in this proceeding were generated via in-person sales at Respondent's Cash Register office. Respondent first obtains basic information from the customer: name, address, date of birth, Social Security number, whether there are persons over age 14 in the household and whether those persons will drive the insured vehicle. She then asks the type of vehicle and the type of coverage the customer wants to purchase. Respondent enters the information into her computer, which generates a price quote. If the customer wants only basic personal injury protection ("PIP") and property damage coverage, Respondent informs the customer that the quoted price includes PIP with an optional deductible of $1,000, a coverage limit of $10,000, and property damage coverage of $10,000. The price quote includes a down payment and monthly payments. The quoted amounts vary depending on whether the customer chooses to make 10 or 12 payments. During her presentation, Respondent mentions that the price quoted for the monthly payments includes the ancillary products. Once the customer has agreed to the price quote, Respondent makes a computer inquiry to obtain the customer's driving record. While waiting on these records, Respondent goes over a "pen sale" document with the customer. The pen sale document is a handwritten sheet that Respondent draws up in the presence of the customer to explain the policies. Respondent's pen sale sheets for Mr. Gatlin, Ms. Johnson, Mr. Hansen, and Mr. Dossantos (hereinafter referred to collectively as the "Complaining Customers") were admitted into evidence. At the top of the page, under the heading "Mandatory," Respondent outlined the PIP and property damage coverages, with the customer's options regarding deductibles. Lower on the page, under the heading "Optional," Respondent outlined the details of the ancillary coverages included in the price quote. Respondent testified that she sits with the customer and uses the pen sale sheet to explain the mandatory coverages in detail. She explains that Florida law requires that she offer bodily injury liability coverage, but that the customer has the option to reject it, and she indicates the customer's decision on the pen sale sheet. She explains the ancillary policies, and indicates on the pen sale sheet which of these policies the customer accepts and which ones the customer rejects. The customer is asked to sign the bottom of the sale sheet. When shown the pen sale sheet for each Complaining Customer, Respondent was able to state with confidence which ancillary policies each of them has accepted or rejected. None of the Complaining Customers denied having been shown the pen sale sheet, though none of them appeared to grasp its significance. Each of the Complaining Customers conceded that the signature at the bottom of his or her respective pen sale sheet was genuine. After Respondent obtains the customer's signature on the pen sale sheet, and has received the customer's driving records, she prints out the policy paperwork and goes over it with the customers. The earliest of the Complaining Customers was James Gatlin (Counts I, II, and III of the Administrative Complaint), who purchased insurance from Respondent on October 7, 2005.5 Mr. Gatlin's signed pen sale sheet indicated that he accepted the accident medical protection plan, the travel protection plan, and the term life policy. It also indicated that he rejected optional uninsured motorist, medical payment, accidental death, and comprehensive and collision policies offered by Respondent. Mr. Gatlin's policy paperwork was admitted into evidence. After explaining the automobile policy, Respondent explained the ancillary products that Mr. Gatlin had initially accepted on the pen sale sheet.6 Respondent first showed Mr. Gatlin a spreadsheet titled, "Explanation of Policies, Coverages and Cost Breakdown (Including Non-Insurance Products)." Under the subheading "Auto Policy Coverages," the spreadsheet set forth the amount and type of coverage for each of the two cars for which Mr. Gatlin was buying insurance, as well as a premium estimate for each vehicle. Under the subheading "Optional Policies," the spreadsheet set forth the following: "American Bankers Travel Protection Plan," "Lloyds Accident Medical Protection Plan," and "Life Insurance." A monthly premium amount was set forth next to each of the three optional coverages. The subheading "Optional Policies," the list of the optional policies, the premium amounts for each optional policy, and the total estimated cost of all products are separately circled by hand on the spreadsheet. Respondent testified that it is her practice to circle these items as she explains them to the customer. Mr. Gatlin's initials appear above the list of optional policies. Below the grids of the spreadsheet is the following text (emphasis added): I, the undersigned, acknowledge that: The above premiums are estimates and that the actual premium charged to me will be determined by the Insurance Company issuing the policy. Further, I am responsible for the amount of the premium charged at the time the policy is issued. I agree that if my down payment or full payment check is returned by the bank for any reason, coverage will be null and void from the date of inception. I acknowledge that I have been advised of and understand the above coverage(s), and cost breakdowns, including non-insurance products, if any, and further [sic] that I have received a complete copy of this product. This document is only an explanation of insurance coverage and other products, if applicable—it is not a contract. The policy, if issued, will contain the terms and conditions of coverage. The level of coverage illustrated above is based on preliminary information which I have supplied. My eligibility for coverage is subject to the acceptance of my application in accordance with the Insurance Company's underwriting requirements. Customer Signature Date The signature line was signed by "James D. Gatlin" and dated October 7, 2005. At the hearing, Mr. Gatlin conceded the authenticity of his initials and signature on the spreadsheet. Respondent next explained the details of the accident medical protection plan to Mr. Gatlin. She explained the coverage options (individual, husband and wife, or family), and the annual premium for each. On the application, Respondent circled the "Individual Coverage Only" option. Mr. Gatlin placed his initials in the space provided to indicate his choice of coverage, and signed the application on the line provided. A second page, titled "Accident Medical Protection Plan," detailed the coverage provided and the method of filing a claim under the policy. The following text is provided at the bottom of the page (emphasis added): THE ACCIDENT MEDICAL PLAN IS A LIMITED POLICY. READ IT CAREFULLY. I, the undersigned, understand and acknowledge that: The Accident Medical Plan does not provide Liability Coverage insurance for bodily injury or property damage, nor does it meet any financial responsibility law. I am electing to purchase an optional coverage that is not required by the State of Florida. My agent has provided me with an outline of coverage and a copy of this acknowledgement. If I decide to select another option, or cancel this policy, I must notify the company or my agent in writing. I agree that if my down payment or full payment check is returned by the bank for any reason, coverage will be null and void from the date of inception. Insured's Signature Date I hereby REJECT this valuable coverage: Insured's Signature Date Mr. Gatlin signed and dated the form on the first line provided, indicating his acceptance of the accident medical protection plan. Respondent next explained the travel protection plan. The two forms associated with this plan set forth the coverages provided, the limits of those coverages, and the premium associated with the plan. The first form was titled, "American Bankers Insurance Company Optional Travel Protection Plan." After listing the coverages and their limits, the form read as follows: Purchasing the Optional Travel Protection Plan is not a condition of purchasing your automobile liability policy. I hereby acknowledge I am purchasing an Optional Travel Protection Plan, and that I have received a copy of this acknowledgement. Insured Signature Date I HEREBY REJECT THIS VALUABLE COVERAGE: Insured Signature Date Mr. Gatlin signed and dated the first line of the form, indicating his acceptance of the policy. The second form, titled "Travel Protection Plan—Florida Declarations," listed the effective dates of the policy, the premium, the automobile covered, repeated the coverages and their limitations, and gave notice to the insured of his 30-day right to examine the policy and return it for a full refund provided no loss has occurred. Mr. Gatlin signed and dated the "Applicant's Signature" line. Respondent next went over the documents relating to the term life policy that Mr. Gatlin accepted on the pen sale sheet. The policy named Carol Burinskas, with whom Mr. Gatlin lived, as the beneficiary on the $10,000 policy, and stated an annual premium of $276.00. Mr. Gatlin initialed his "no" answers to six standard insurability questions dealing with recent medical history and exposure to HIV. Mr. Gatlin signed and dated his acceptance of the policy on the signature line provided. After completing her explanation of the various policies and obtaining Mr. Gatlin's acceptance, Respondent next explained the premium finance agreement. On the first page of the agreement, under the heading, "Itemization of Amounts Financed," was stated the type of policy, the insurance company, and the annual premium for each of the four policies accepted by Mr. Gatlin, totaling $1,363.00, plus $4.55 in documentary stamp tax, less a down payment of $151.00, for a total amount financed of $1,216.55. The page disclosed the finance charge ($139.99) and the annual percentage rate of the loan (24.37%). Mr. Gatlin opted to make 10 monthly payments of $135.65, and initialed the bottom of the first sheet of the premium finance agreement, then signed the second page to indicate his acceptance of the loan terms. Finally, Respondent showed Mr. Gatlin a document titled "Insurance Premium Financing Disclosure Form," which redundantly set forth in a simplified form exactly what Mr. Gatlin was purchasing and a breakdown of what each element of his purchase contributed to the total cost of the loan. The itemization read as follows: Insurance you are REQUIRED by law to have: Personal Injury Protection (PIP) $578 Property Damage Liability (PD) $314 Other insurance which you MAY be required by law to have: Bodily Injury (if an SR-22 has been issued)7 $0 OPTIONAL insurance coverage: Bodily Injury (if an SR-22 has NOT been issued) $0 Medical Payments $0 Uninsured Motorist $0 Comprehensive $0 Collision $0 Accidental Death $0 Towing $0 Travel Protection Plan $60 Rental $0 Hospital Indemnity $110 Life Insurance $266 Life Policy Fee $10 SR-22 Fee $0 Recoupment Fee, if applicable $0 Policy Fee, if applicable $25 TOTAL INSURANCE PREMIUMS $1,363 Document Stamp Tax, if applicable $4.55 Less Down Payment applied $151.00 AMOUNT FINANCED (loaned to you) $1,216.55 I, James Gatlin, have read the above and understand the coverages I am buying and how much they cost. _ Signature of Named Insured Date Mr. Gatlin signed and dated the Insurance Premium Financing Disclosure Form on the spaces indicated. As noted above, Carol Burinskas lives with Mr. Gatlin and was named as the beneficiary in the term life policy the Respondent sold to Mr. Gatlin. Ms. Burinskas testified that she went into Respondent's Cash Register office on Mr. Gatlin's behalf a day or two before he completed the transaction. Ms. Burinskas had obtained quotes from several agencies in the course of doing the legwork for Mr. Gatlin's insurance purchase. Ms. Burinskas testified that she told Respondent that she was shopping for Mr. Gatlin, and was seeking quotes on the bare minimum insurance, "just what we needed to get a tag for the car." Based on information provided by Ms. Burinskas, Respondent provided a price quote, which Ms. Bruinskas showed to Mr. Gatlin at home that evening. Mr. Gatlin looked over the quote and pronounced it acceptable. He told Ms. Burinskas that he would stop in at the Cash Register office the next day and complete the paperwork for the policy. Mr. Gatlin testified that he believed the Cash Register quote offered the most reasonable price he had seen, but he was unaware that Respondent's quote included the ancillary policies discussed above. When he went into Respondent's office, he reiterated to her that he wanted only "the bare minimum insurance." Mr. Gatlin owned his vehicles outright and saw no need to carry extra coverage on them. Mr. Gatlin testified that Respondent asked him if he wanted life insurance, and he declined. Mr. Gatlin already had a $250,000 life insurance policy through his employer, Pasco County, for which Mr. Gatlin's sister is the beneficiary. He testified that if he had known he was purchasing a life insurance policy from Respondent, he would have made his sister the beneficiary. As noted above, Ms. Burinskas is the stated beneficiary of the term life policy Respondent sold to Mr. Gatlin. Mr. Gatlin testified that Respondent "was speaking very quickly and putting the papers in front of me just as fast as she was talking, so I was busy signing and dating." By the end of the process, "there was a stack of papers, rather thick" in front of Mr. Gatlin. Mr. Gatlin never heard Respondent say that some of the items he was purchasing were optional. In fact, he could not remember much at all about the content of Respondent's presentation. He remembered that Respondent talked while he initialed and signed in the places where she pointed. On cross-examination, Mr. Gatlin conceded that Respondent may have explained the ancillary policies, but so fast that he could not understand. He even conceded that he had allowed Respondent to talk him into buying the policies, though he later amended his answer to assert that he had been "bamboozled." Mr. Gatlin made no effort to slow down Respondent's presentation, and he had no questions about anything Respondent was saying. Mr. Gatlin stated that his only concern was how much he was paying, and that he was satisfied with the price quoted by Respondent at the time he bought the policies. Mr. Gatlin stated that it should have been obvious to Respondent that he was not reading the documents he was signing. He trusted Respondent to treat him the right way, and not sell him products without his knowledge. Respondent denied that she ever rushes anyone through the sales process, or has ever sold a customer a policy the customer did not agree to purchase. Ms. Burinskas discovered the ancillary policies only after reading a newspaper article about Direct General and the practice of sliding. She asked Mr. Gatlin if he had purchased any policies mentioned in the article, and he said that he had not, "as far as he knew." Ms. Burinskas pulled out the insurance paperwork, and in short order was able to ascertain that Mr. Gatlin had purchased the ancillary products described above. The next Complaining Customer was Gabriella Jungling, now known by her married name of Johnson (Counts IV and V). On August 17, 2006, Ms. Jungling and her future husband, Jeremy Johnson, were at a Division of Highway Safety and Motor Vehicles ("DHSMV") office. Mr. Johnson was attempting to have his suspended license reinstated, but was informed that he must obtain the SR-22 form before his license could be issued. A DHSMV employee gave Ms. Jungling the names of several insurance companies that could immediately write a policy. Ms. Jungling noted that Respondent's Cash Register office was near the DHSMV office. Ms. Jungling and Mr. Johnson drove to Respondent's office. Ms. Jungling testified that she handled all the transactions that occurred at Respondent's office. She and Mr. Johnson intended to obtain "full coverage," whatever they needed to fulfill the SR-22 requirement and satisfy the bank that financed Mr. Johnson's truck, which was the only vehicle on the resulting policy. Ms. Jungling told Respondent that she wanted full coverage for a financed truck. Respondent made her standard sales presentation to Ms. Jungling. She gathered the basic information described in Finding of Fact 7 above, then gave Ms. Jungling a price quote that included the amount of the down payment and monthly payment amounts. Included in the price quote were the optional vehicle protection plan and a term life insurance policy. Respondent explained to Ms. Jungling that the optional vehicle protection plan included $125 per day for hospitalization resulting from an accident and $25 per day for a rental car if the insured car is in an accident or is stolen. Ms. Jungling agreed to the price quote. Respondent next went over a pen sale sheet with Ms. Jungling. As noted in the general pen sale findings above, Ms. Jungling did not deny having seen the pen sale sheet and admitted that she signed it. The pen sale document was different from that shown to Mr. Gatlin because Direct General had ceased offering the travel protection plan and instead offered the vehicle protection plan. See footnote 4, supra. The signed pen sale sheet indicated that Ms. Jungling accepted the vehicle protection plan and the term life insurance policy. It also indicated that she rejected optional uninsured motorist, medical payment, accidental death, comprehensive and collision policies. Respondent next printed the policy paperwork and reviewed it with Ms. Jungling. Ms. Jungling signed the vehicle protection plan application on the signature line, directly beneath the following language: "The purchase of this plan is optional and is not required with your auto insurance policy. I hereby request that the above coverages be placed in effect on the date and for the term indicated." The application indicated that Ms. Jungling was opting for a "family plan"8 with a term of one year. Ms. Jungling also signed a separate page titled, "Optional Vehicle Protection Plan Summary & Acknowledgement." This form listed the coverages and limitations provided under the vehicle protection plan. Below this listing, in bold type, was the statement, "Please Read Your Policy Carefully For A Full Explanation of Benefits." Beneath the bold type was the following language: Purchasing the Vehicle Protection Plan is not a condition of purchasing your automobile policy. I hereby acknowledge that my agent has fully explained to me and I understand: the coverage provided under the Vehicle Protection Plan; that the Vehicle Protection Plan is an optional insurance product that is separate from my automobile insurance policy; that purchasing this optional Vehicle Protection Plan is not a condition of purchasing my automobile insurance policy; I have made an informed decision to purchase the Vehicle Protection Plan, and I have received a copy of my signed acknowledgement. Insured Signature Date I HEREBY REJECT THIS VALUABLE COVERAGE: Insured Signature Date Ms. Jungling signed the first signature line, indicating her acceptance of the policy. Respondent went over the documents relating to the term life policy that Ms. Jungling accepted on the pen sale sheet. The policy named Mr. Johnson as the beneficiary on the $10,000 policy, and stated an annual premium of $108.00. Ms. Jungling initialed her "no" answers to the standard insurability questions, and signed and dated her acceptance of the policy on the signature line provided. Respondent showed Ms. Jungling an "Explanation of Policies, Coverages and Cost Breakdown (Including Non-Insurance Products)" spreadsheet identical in form to that shown Mr. Gatlin. The "Optional Policies" subheading listed the optional policies, their premium amounts, and the total estimated cost of all products. These optional items were individually circled by Respondent and initialed by Ms. Jungling. The spreadsheet contained language identical to that set forth in Finding of Fact 18 above. Ms. Jungling signed and dated the sheet in the spaces provided. Respondent presented the premium finance agreement to Ms. Jungling in the same fashion described in Finding of Fact 26 above. On the first page of the agreement, under the heading, "Itemization of Amounts Financed," was stated the type of policy, the insurance company, and the annual premium for each of the three policies (auto, life, and vehicle protection) accepted by Ms. Jungling, totaling $3,052.00, plus $9.80 in documentary stamp tax, less a down payment of $295.00, for a total amount financed of $2,766.80. The page disclosed the finance charge ($308.35) and the annual percentage rate of the loan (23.51%). Ms. Jungling opted to make 12 monthly payments of $256.26, and initialed the bottom of the first sheet of the premium finance agreement, then signed the second page to indicate her acceptance of the loan terms. Finally, Respondent showed Ms. Jungling the Insurance Premium Financing Disclosure Form. The itemization for Ms. Jungling's policies read as follows: Insurance you are REQUIRED by law to have: Personal Injury Protection (PIP) $491 Property Damage Liability (PD) $405 Other insurance which you MAY be required by law to have: Bodily Injury (if an SR-22 has been issued)[9] $0 OPTIONAL insurance coverage: Bodily Injury (if an SR-22 has NOT been issued) $782 Medical Payments $0 Uninsured Motorist $0 Comprehensive $131 Collision $830 Accidental Death $20 Towing $0 Rental $0 Life Insurance $98 Accident Medical Plan $0 Vehicle Protection Insurance $260 Life Policy Fee $10 SR-22 Fee $0 Recoupment Fee, if applicable $0 Policy Fee, if applicable $25 TOTAL INSURANCE PREMIUMS $3,052 Document Stamp Tax, if applicable $9.80 Less Down Payment applied $295.00 AMOUNT FINANCED (loaned to you) $2,766.80 I, Gabriella N. Jungling, have read the above and understand the coverages I am buying and how much they cost. Signature of Named Insured Date Ms. Jungling signed and dated the Insurance Premium Financing Disclosure Form on the spaces indicated. Ms. Jungling testified that she already has a life insurance policy through her employer, Wells Fargo, and that she told Respondent that she was not interested in buying more. She admitted that the initials and signatures on the life insurance policy were hers, but had no recollection of Respondent's explanation of the policy. Ms. Jungling believed that she would have recalled an explanation had one been given by Respondent, and stated that she would have rejected the policy had Respondent told her it would cost $108.00 over and above the amount she was paying for auto insurance. However, Ms. Jungling conceded that Respondent did not rush her through the signing process. Ms. Jungling was in a hurry to purchase insurance and get back to her job. She admitted that Respondent presented the paperwork page by page, and that nothing prevented her from reading the paperwork. Ms. Jungling had no problem with the price quoted by Respondent. The life insurance paperwork plainly states, in bold lettering above Ms. Jungling's signature, that the annual premium for the policy is $108.00. The price of the policy is also stated on the Explanation of Policies, Coverages and Cost Breakdown page and on the Insurance Premium Financing Disclosure Form, both of which were signed by Ms. Jungling. Ms. Jungling also did not recall the explanation given to her by Respondent of the vehicle protection plan paperwork. She testified that she would have rejected the policy if Respondent had told her that it was separate and apart from the automobile insurance required by law. However, as noted above, the Optional Vehicle Protection Plan Summary & Acknowledgement page clearly stated that the vehicle protection plan was not a condition of purchasing an automobile policy and was an optional product separate from the automobile insurance policy. Ms. Jungling acknowledged that she signed this page. Ms. Jungling testified that she did not really read her insurance paperwork until she received a call from a Department investigator, who asked if she had knowingly purchased life insurance and the vehicle protection plan. Ms. Jungling gave a statement to a Department investigator in February 2007. On March 16, 2007, she went to Respondent's office and signed the paperwork to cancel the term life and vehicle protection policies, for which she received a pro-rated refund. The next Complaining Customer was Bruce Hansen (Counts VI and VII). On August 19, 2006, Mr. Hansen entered Respondent's Cash Register office to purchase insurance. Mr. Hansen testified that he has done business with Cash Register for years, but this was the first time he had done business with Respondent's office. Mr. Hansen stated that he had never bought anything other than basic auto coverage from Cash Register, and had no intention of buying anything else when he walked into Respondent's office. Mr. Hansen was purchasing new insurance, not renewing an existing policy. In fact, his driver's license had been suspended for lack of insurance coverage. Mr. Hansen testified that he told Respondent he wanted the most basic insurance that would get his license reinstated. He owned his car outright, and therefore was unconcerned about satisfying a financing entity. Respondent made her standard presentation to Mr. Hansen. She gathered the basic information described in Finding of Fact 7 above, then gave Mr. Hansen a price quote that included the amount of the down payment and monthly payment amounts. Included in the price quote were the optional vehicle protection plan and a term life insurance policy. Mr. Hansen agreed to the price quote. Respondent next went over a pen sale sheet with Mr. Hansen. As noted in the general pen sale findings above, Mr. Hansen did not deny having seen the pen sale sheet and admitted that he signed it. The pen sale document was identical to that shown to Ms. Jungling. Respondent used the pen sale sheet to explain to Mr. Hansen that the optional vehicle protection plan included a $1,000 medical expense that could be used toward his PIP deductible, hospital coverage of $125 per day, and rental car reimbursement of $25 per day if the insured car is in an accident or is stolen. Respondent also used the pen sale sheet to explain the term life insurance offered in the price quote. The signed pen sale sheet indicated that Mr. Hansen accepted the vehicle protection plan and the term life insurance policy. It also indicated that he rejected optional uninsured motorist, medical payment, accidental death, comprehensive and collision policies. Respondent next printed the policy paperwork and reviewed it with Mr. Hansen. The paperwork for the vehicle protection plan application was identical to that described in Findings of Fact 45 and 46 relating to Ms. Jungling. Mr. Hansen opted for the "individual plan" with a term of one year. He signed on the signature line of the application page, and signed the "Optional Vehicle Protection Plan Summary & Acknowledgement" page indicating his acceptance of this optional policy. Respondent went over the documents relating to the term life policy. The policy named Mr. Hansen's mother, who lived with Mr. Hansen, as the beneficiary on the $10,000 policy, and stated an annual premium of $108.00. Mr. Hansen initialed "no" answers to the standard insurability questions, and signed and dated his acceptance of the policy on the signature line provided. Respondent showed Mr. Hansen an "Explanation of Policies, Coverages and Cost Breakdown (Including Non-Insurance Products)" spreadsheet identical in form to that shown Mr. Gatlin and Ms. Jungling. The "Optional Policies" subheading listed the optional policies, their premium amounts, and the total estimated cost of all products. These optional items were individually circled by Respondent and initialed by Mr. Hansen. The spreadsheet contained language identical to that set forth in Finding of Fact 18 above. Mr. Hansen signed and dated the sheet in the spaces provided. Respondent presented the premium finance agreement to Mr. Hansen in the same fashion described in Finding of Fact 26 above. On the first page of the agreement, under the heading, "Itemization of Amounts Financed," was stated the type of policy, the insurance company, and the annual premium for each of the three policies (auto, life, and vehicle protection) accepted by Mr. Hansen, totaling $833.00, plus $2.80 in documentary stamp tax, less a down payment of $92.00, for a total amount financed of $743.80. The page disclosed the finance charge ($93.36) and the annual percentage rate of the loan (26.56%). Mr. Hansen opted to make 10 monthly payments of $83.72, initialed the bottom of the first sheet of the premium finance agreement, then signed the second page to indicate his acceptance of the loan terms. Finally, Respondent showed Mr. Hansen the Insurance Premium Financing Disclosure Form. The itemization for Mr. Hansen's policies read as follows: Insurance you are REQUIRED by law to have: Personal Injury Protection (PIP) $311 Property Damage Liability (PD) $219 Other insurance which you MAY be required by law to have: Bodily Injury (if an SR-22 has been issued)[10] $0 OPTIONAL insurance coverage: Bodily Injury (if an SR-22 has NOT been issued) $0 Medical Payments $0 Uninsured Motorist $0 Comprehensive $0 Collision $0 Accidental Death $0 Towing $0 Rental $0 Life Insurance $98 Accident Medical Plan $0 Vehicle Protection Insurance $170 Life Policy Fee $10 SR-22 Fee $0 Recoupment Fee, if applicable $0 Policy Fee, if applicable $25 TOTAL INSURANCE PREMIUMS $833 Document Stamp Tax, if applicable $2.80 Less Down Payment applied $92.00 AMOUNT FINANCED (loaned to you) $743.80 I, Bruce K. Hansen, have read the above and understand the coverages I am buying and how much they cost. Signature of Named Insured Date Mr. Hansen signed and dated the Insurance Premium Financing Disclosure Form on the spaces indicated. Mr. Hansen testified that he left Respondent's office believing he had bought only basic automobile insurance. He did not recall Respondent's explanations of the optional policies, and conceded that he was in a hurry to complete the transaction and spent a total of a half-hour in Respondent's office that day. Mr. Hansen testified that "I was flipping page after page, just signing my name to get out of there . . . I was trusting the person I was working with." Mr. Hansen testified that he did not recall Respondent explaining that the vehicle protection plan was a separate optional policy that would cost him an extra $170. He did recall Respondent asking the insurability questions related to the life insurance policy, but he thought they were just "procedure." Mr. Hansen conceded that Respondent might have explained every page of the paperwork to him, but that he was not paying attention. Mr. Hansen left Respondent's office with a copy of all the paperwork on his policies. He never looked at the paperwork until he was contacted by a Department investigator in February 2007. Mr. Hansen gave a statement to the Department investigator and agreed to testify in order to "stop stuff like this from happening," as well as try to obtain a full refund for the vehicle protection and term life policies. On March 3, 2007, he went to Respondent's office and signed the paperwork to cancel the term life and vehicle protection policies, for which he received a pro-rated refund. The final Complaining Customer was Sidney Dossantos (Counts VIII and IX). On July 20, 2006, Mr. Dossantos entered Respondent's Cash Register office to purchase insurance. Mr. Dossantos was renewing his policy with Direct General, though this was the first time he had done business with Respondent's office. In August 2005, Mr. Dossantos had purchased auto insurance plus an optional accident medical protection plan, a travel protection plan, and a term life insurance policy. Mr. Dossantos testified that he told Petitioner that he wished to purchase only basic automobile insurance, and that he rejected the optional term life and vehicle protection policies when Petitioner offered them. Respondent testified that her initial procedure is different with a renewing customer. She looks up the customer on her computer to verify the existing policies and determine if any money is owed. She verifies the customer's name, address and phone number. Respondent testified that the address is important because the customer's zip code is partially determinative of the rates offered on auto insurance. Respondent stated that the computer also lists the optional policies that are also due for renewal, and that it is her practice to go over these and inquire whether the customer wants to renew them. Mr. Dossantos' case was complicated by the fact that Direct General no longer offered the travel protection plan as a separate product. In these cases, Respondent would explain the vehicle protection plan, which was the current equivalent of the accident medical protection and travel protection plans that Mr. Dossantos purchased in 2005. See footnote 4, supra. Respondent testified that, after the customer verifies the information on file and states which policies he wishes to renew, she goes over a pen sale sheet with the customer. As noted in the general pen sale findings above, Mr. Dossantos did not deny having seen the pen sale sheet and admitted that he signed it. The pen sale document was identical to those shown to Ms. Jungling and Mr. Hansen. The signed pen sale sheet indicated that Mr. Dossantos accepted the vehicle protection plan and the term life insurance policy. It also indicated that he rejected optional uninsured motorist, medical payment, accidental death, comprehensive and collision policies. Respondent next printed the policy paperwork and reviewed it with Mr. Dossantos. The paperwork for the vehicle protection plan application was identical to that described in Findings of Fact 45 and 46 relating to Ms. Jungling. Mr. Dossantos opted for the "individual plan" with a term of one year. He signed on the signature line of the application page, and signed the "Optional Vehicle Protection Plan Summary & Acknowledgement" page indicating his acceptance of this optional policy. Respondent went over the documents relating to the term life policy. The policy named Mr. Dossantos' parents as the beneficiaries on the $10,000 policy, and stated an annual premium of $108.00. Mr. Dossantos was not asked the standard insurability questions, because this was a renewal of an existing policy. Mr. Dossantos signed and dated his acceptance of the policy on the signature line provided. Respondent showed Mr. Dossantos an "Explanation of Policies, Coverages and Cost Breakdown (Including Non-Insurance Products)" spreadsheet identical in form to that shown to Mr. Gatlin, Ms. Jungling, and Mr. Hansen. The "Optional Policies" subheading listed the optional policies, their premium amounts, and the total estimated cost of all products. These optional items were individually circled by Respondent and initialed by Mr. Dossantos. The spreadsheet contained language identical to that set forth in Finding of Fact 18 above. Mr. Dossantos signed and dated the sheet in the spaces provided. Respondent presented the premium finance agreement to Mr. Dossantos in the same fashion described in Finding of Fact 26 above. On the first page of the agreement, under the heading, "Itemization of Amounts Financed," was stated the type of policy, the insurance company, and the annual premium for each of the three policies (auto, life, and vehicle protection) accepted by Mr. Dossantos, totaling $913.00, plus $3.15 in documentary stamp tax, less a down payment of $80.00, for a total amount financed of $836.15. The page disclosed the finance charge ($102.47) and the annual percentage rate of the loan (25.93%). Mr. Dossantos opted to make 10 monthly payments of $93.86, initialed the bottom of the first sheet of the premium finance agreement, then signed the second page to indicate his acceptance of the loan terms. Finally, Respondent showed Mr. Dossantos the Insurance Premium Financing Disclosure Form. The itemization for Mr. Dossantos' policies read as follows: Insurance you are REQUIRED by law to have: Personal Injury Protection (PIP) $368 Property Damage Liability (PD) $242 Other insurance which you MAY be required by law to have: Bodily Injury (if an SR-22 has been issued)[11] $0 OPTIONAL insurance coverage: Bodily Injury (if an SR-22 has NOT been issued) $0 Medical Payments $0 Uninsured Motorist $0 Comprehensive $0 Collision $0 Accidental Death $0 Towing $0 Rental $0 Life Insurance $98 Accident Medical Plan $0 Vehicle Protection Insurance $170 Life Policy Fee $10 SR-22 Fee $0 Recoupment Fee, if applicable $0 Policy Fee, if applicable $25 TOTAL INSURANCE PREMIUMS $913 Document Stamp Tax, if applicable $3.15 Less Down Payment applied $80.00 AMOUNT FINANCED (loaned to you) $836.15 I, Sidney Dossantos, have read the above and understand the coverages I am buying and how much they cost. Signature of Named Insured Date Mr. Dossantos signed and dated the Insurance Premium Financing Disclosure Form on the spaces indicated. As noted above, Mr. Dossantos testified that he told Respondent he only wanted basic automobile insurance. Mr. Dossantos, a 25-year-old college student at the time he purchased insurance from Respondent, acknowledged having purchased the optional policies the previous year, when he was still living with his parents. However, in July 2006 he was living in an apartment with his girlfriend and money was tighter. He received life insurance through his employer, Publix Supermarkets, and did not want more. Mr. Dossantos conceded that his policy paperwork clearly stated that the vehicle protection plan was optional, but that he did not read it during the sale. Mr. Dossantos simply signed whatever papers Respondent placed in front of him. Mr. Dossantos testified that when he walked out of Respondent's office on July 20, 2006, he believed that he had bought basic auto insurance and nothing else. Like Ms. Jungling and Mr. Hansen, he learned otherwise only after being contacted by the Department's investigator in February 2007. Unlike Ms. Jungling and Mr. Hansen, Mr. Dossantos did not later cancel the optional policies. All four of the Complaining Customers credibly testified that the Department made no promises that they would obtain full refunds of the premiums paid on the optional policies in exchange for their written statements or their testimony in this proceeding. On or about August 9, 2006, Respondent changed her principal business street address from 6318 U.S. Highway 19 North, New Port Richey, Florida, to 5116 U.S. Highway 19 North, New Port Richey, Florida, but did not notify the Department of this change in principal business street address until on or about March 3, 2007.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that Petitioner issue a final order finding Respondent guilty of committing the violation alleged in Count X of the Administrative Complaint, fining her $250.00 for such violation, and dismissing the remaining counts of the Administrative Complaint. DONE AND ENTERED this 8th day of February, 2008, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 8th day of February, 2008.
The Issue Whether the School Board of Broward County's award of a contract for Excess General and Auto Liability insurance coverage to United National Insurance Company is barred because of illegality?
Findings Of Fact The Parties Ranger Insurance Company, Petitioner, is the holder of a Certificate of Authority dated September 9, 1996 and issued by the Department of Insurance and Bill Nelson, Insurance Commissioner and Treasurer. Good through June 1, 1997, the certificate authorizes Ranger to write in a number of lines of insurance business, including, Private Passenger Auto Liability, Commercial Automobile Liability, Private Passenger Automobile Auto Physical Damage, Commercial Auto Physical Damage and Other Liability. As such, Ranger is an "authorized" or "admitted" insurer in the State of Florida. L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., is a joint venture and co- petitioner with Ranger in this proceeding through whom Ranger proposed to procure the Excess General and Auto Liability (“Excess GL/AL”) coverage. A timely proposal under Request for Proposal 97- 072S was submitted to the School Board of Broward County by the petitioners to provide the Excess GL/AL Insurance Coverage sought by the RFP. United National Insurance Company is an "eligible" surplus lines insurer, approved by the Florida Department of Insurance to transact all surplus lines coverages in the State of Florida and licensed as such. The Department has notified insurance agents of United Nation's eligibility as a surplus lines insurer since 1978. It is the insurer of the Excess General and Excess Auto Liability insurance coverage awarded by the School Board under RFP 97-072S. Arthur J. Gallagher & Company ("Gallagher,") is the eighth largest insurance broker in the world. It has four sales offices, nine service offices, and approximately 150 employees in the State of Florida alone. The office from which it conducted business related to this proceeding is in Boca Raton, Florida, an office for which Area President David L. Marcus is responsible. Gallagher submitted a timely proposal (the "Gallagher proposal,") in response to the RFP on behalf of United National. The School Board of Broward County is the authority that operates, controls, and supervises all free public schools in the Broward County School District, "[i]n accordance with the provisions of s. (4)(b) of Article IX of the State Constitution ...". Section 230.03(2), F.S. In accord with its powers, the School Board may contract directly to purchase insurance. It is not required by its purchasing rules to use a competitive bidding or procurement process to purchase insurance. Nonetheless, on Friday, April 26, 1996, it issued a request for proposals, the RFP at issue in this proceeding, for insurance coverages including for Excess GL/AL insurance coverages. Siver Insurance Management Consultants Siver Insurance Management Consultants ("Siver,") are the drafters of RFP 97-072S. The School Board relied on Siver to draft the RFP, particularly its technical sections. Technical review of the proposals made under the RFP was conducted by Siver. And Siver put together for the School Board's use a summary of the policies proposed by both United National and Ranger. The summary was considered by the School Board's Evaluation Committee when it evaluated the competing proposals. The determination of whether the competing proposers were properly licensed was made by Siver. The School Board's Evaluation Committee, indeed the School Board, itself, played no role in determining the licensing credentials of the proposers while the proposals were under consideration. Under the arrangement between Siver and the School Board, however, the School Board retained the primary responsibility for administering the RFP. The RFP Request for Proposal 97-072S was mailed to 324 vendors (prospective proposers) the same day as its issuance, April 26, 1996. None of the vendors knew the contents of the RFP until it was issued. The RFP sought proposals for seven coverages, each of which was severable from the remainder of the coverages and was allowed to be proposed separately. The scope of the request was described in the RFP as follows: The School Board of Broward County, Florida ... is seeking proposals for various insurance coverages and risk management services. To facilitate distribution of the underwriting data and the requirements for each of the coverages, this consolidated Request for Proposals ... has been prepared. However, each of the coverages is severable and may be proposed separately. The following are included: Boiler & Machinery Excess General and Automobile Liability Excess Workers' Compensation School Leaders Errors & Omissions Crime Including Employee Dishonesty - Faithful Performance, Depositor's Forgery Claim and Risk Management Services (Including Managed Care Services) Statutory Death Benefits Petitioner's Ex. 1, pg. I-1. Since the seven coverages are severable and no proposer had to submit a proposal on all seven coverages, one way of looking at RFP 97-072S is as a consolidated RFP composed of seven, separate proposals, each for a different type of insurance coverage. Of the 324 vendors to whom the RFP was sent, only two, Gallagher, on behalf of United National, and Ranger, through the action of the joint venture, submitted proposals with respect to the Excess GL/AL coverages. Reasons for Using an RFP The School Board, under the auspices of Siver, chose to seek insurance coverage through an RFP rather than an Invitation to Bid, or what is colloquially referred to as a "straight bid," for a number of reasons. As one familiar with RFPs and Invitations to Bid might expect, the School Board and Siver were attracted to the RFP by the increased flexibility it offered in the ultimate product procured in comparison to the potentially less flexible product that would be procured through an invitation to bid. More pertinent to this case, however, Siver chose to use an RFP for the School Board in this case because "as explained ... by the Department of Insurance over the ... years, while there may... [be a] prohibition against any surplus lines agents submitting a straight bid, there would not be a prohibition against a ... [surplus lines] agent responding to a request for proposal " (Tr. 149.) The RFP approach was not chosen, however, in order to avoid any legal requirement or to circumvent the Insurance Code. As explained by Mr. Marshall, the approach was born of hard reality: Id. [O]ne of the primary motivations [for using an RFP rather than an Invitation to Bid] was to allow us [The School Board and Siver] to consider surplus lines companies because of the fact that very often they were the only insurers that would respond on the number of coverages and clients that we were working for. The Insurance Code and the Surplus Lines Law The Insurance Code in Section 624.401, Florida Statutes, requires generally that an insurer be authorized by the Department of Insurance (the "Department,") to transact business in the State of Florida before it does so: (1) No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the department, except as to such transactions as are expressly otherwise provided for in this code. One place in the code where transactions are "expressly otherwise provided for ...," is in the Surplus Lines Law, Section 626.913 et seq., Florida Statues. The purposes of the law are described as follows: It is declared that the purposes of the Surplus Lines Law are to provide for orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law, would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law. Section 626.913(2), F.S. Surplus lines insurance is authorized in the first instance only if coverages cannot be procured from authorized insurers: If certain insurance coverages of subjects resident, located, or to be performed in this state cannot be procured from authorized insurers, such coverages, hereinafter designated "surplus lines," may be procured from unauthorized insurers, subject to the following conditions: The insurance must be eligible for export under s. 626.916 or s. 626.917; The insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918; The insurance must be so placed through a licensed Florida surplus lines agent; and The other applicable provisions of this Surplus Lines Law must be met. Section 626.915, Florida Statutes, and then only subject to certain other conditions: No insurance coverage shall be eligible for export unless it meets all of the following conditions: The full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state ... . Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, to be in compliance with the diligent effort requirement, the surplus lines agent's reliance must be reasonable under the particular circumstances surrounding the risk. Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by-risk basis. It is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount. Section 626.916, F.S. Authorized vs. Unauthorized Insurers Unlike authorized insurers, unauthorized insurers do not have their rates and forms approved by the Department of Insurance, (the "Department.") Similarly, unauthorized insurers are not member of the Florida Insurance Guaranty Association, which guarantees payment of claims if an insurer becomes insolvent. Unauthorized insurers may qualify to transact Florida insurance business under the Surplus Lines Law and so, for purposes of the Surplus Lines Law, be considered "eligible" to transact surplus lines business in Florida. When a Surplus Lines insurer is eligible, Department of Insurance employees refer to the insurer in Surplus Lines terms as "authorized," a term in everyday English that is synonymous with "eligible." But an eligible surplus lines insurer remains an "unauthorized" insurer when compared to an "authorized" insurer for purposes of the Insurance Code and that part of the code known as the Surplus Lines Law. Submission and Review of Proposals Both L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., (the "Joint Venture") and Gallagher submitted timely proposals with regard to Excess GL/AL coverage in response to the RFP. The Joint Venture's proposal was submitted, of course, on behalf of Ranger, an authorized insurer, and Gallagher's was submitted on behalf of United National, an insurer eligible to transact insurance in the State of Florida as a surplus lines insurer but otherwise an unauthorized insurer. The School Board's Insurance Evaluation Committee met on May 30, 1996, to evaluate proposals received pursuant to the RFP. Although briefly discussed by the Evaluation Committee, the issue of proper licensing was not determined independently by the committee. Instead of making that determination, the committee turned to its insurance consultant, Siver. Siver had determined that both proposers, Ranger and United National, were properly licensed for purposes of responding to the RFP and being considered by the committee. Siver communicated that determination to the committee. The committee relied on Siver's determination. Aside from receiving Siver's determination of proper licensing when "briefly discussed" (Tr. 108,) the Evaluation Committee did not address whether either Ranger or United National were properly licensed. Certainly, no issue of whether Ranger should take precedence over United National by virtue that it was an authorized insurer when United National was an unauthorized insurer and a mere eligible Surplus Lines insurer was ever discussed by the committee. In evaluating the proposals, the Committee awarded 73 points to the Gallagher proposal and 69 points to the Ranger proposal. Points were awarded on the basis of three criteria or in three categories: Qualifications (20 points maximum); Scope of Coverages/Services Offered (30 points maximum); and, Points for Projected Costs (50 points maximum.) The Ranger proposal outscored the Gallagher proposal in the "projected cost" category, 50 to 23, but it scored lower in the "qualifications" category, 14 versus 20 for Gallagher, and significantly lower in the "scope of coverages" category, five points versus 30 for Gallagher. The United National coverage was more than twice as costly as Ranger's, a $491,000 annual premium as opposed to Ranger's $226,799, which explains the points awarded in the "projected cost" category. The Gallagher proposal received more points than the Ranger proposal in the "qualifications" category because United National has provided the School Board with Excess GL/AL coverage for a number of years and Ranger has never provided the School Board with such coverage. The Ranger proposal fell so drastically short of the Gallagher proposal in the "scope of coverages/services offered" category primarily because of an athletic participation exclusion appearing in a rider to the specimen policy appearing in its proposal. Ranger had intended to cover athletic participation and the rider was included with the Ranger proposal in error. Ranger notified the School Board of its intent immediately after the tabulations were released. Nonetheless, the Evaluation Committee was never informed of the error and no attempt was made by the School Board to negotiate with Ranger to improve the coverages offered, despite authority in the RFP for the School Board to negotiate with any of the proposers. (The language used in the RFP is "with one or more" of the proposers.) The Ranger proposal also fell short of the Gallagher proposal in the "scope of coverages/service offered" category because the Gallagher proposal was made in several ways. One way was as to only Excess GL/AL coverage. Another way included School Leaders' Errors and Omissions ("E & O") coverage. The E & O coverage was offered by United National in the Gallagher proposal together with the Excess GL/AL coverage in a "combined lines" package, similar to United National coverages already existing for the School Board. Furthermore, the Ranger proposal expressly excluded coverage for Abuse and Molestation, a needed coverage due to the School Board's prior claims history. On June 5, 1996, the Evaluation Committee submitted its recommendations to the School Board's Purchasing Department. With regard to GL/AL coverage, the Evaluation Committee recommended the purchase of the GL/AL/E & O "combined lines" coverage offered by Gallagher through United National. The School Board posted its Proposal Recommendation/Tabulations adopting the recommendation, two days later, on June 7, 1996. Ranger Seeks Redress from the Department Following the School Board's award, Ranger, thinking that it should have received the award under the RFP as the only authorized insurer to submit a proposal for Excess GL/AL coverage, sought redress from the Department. On June 14, 1996, Ranger personnel met with the head of the Department's Surplus Lines Section, Carolyn Daniels, alleging a violation of the Insurance Code's Surplus Lines Law. On June 18, 1996, Ranger reiterated its complaint in writing and asked Ms. Daniels to find a violation that day. On June 24, 1996, Ranger, now through its attorneys, met with Ms. Daniels and her supervisor. Again, on July 4, 1996, Ranger's attorneys wrote to Ms. Daniels, further pleading for her to find a violation and asking for an administrative hearing if Ms. Daniels did not find in favor of the Ranger position. On a fifth attempt, Ranger wrote Ms. Daniels on July 11, 1996, requesting that she adopt Ranger's position. Ms. Daniels reviewed Ranger's five complaints with her supervisor, the Chief of the Bureau of Property and Casualty Solvency and Market Conduct. In a letter dated August 14, 1996, to the School Board's Purchasing Agent, Ms. Daniels announced her determination: I did not find any evidence to indicate that Mr. David L. Marcus of Arthur J. Gallagher & Company or United National Insurance Company violated the Surplus Lines Law in providing a quote for the School Board. Intervenor's Ex. No. 2. Ms. Daniel's determination was based on a number of factors, including the School Board's position in the transaction as an "informed consumer," (Tr. 422-423,) and that the School Board had possessed a United National policy for 13 years. But, the determination was primarily based on the fact that Gallagher had received three declinations from authorized insurers to provide Excess GL/AL coverage and so had performed that which was required prior to deciding that the coverage was eligible for export and provision by a surplus lines insurer: due diligence. Due Diligence Section 626.916(1)(a), Florida Statutes, provides, [n]o insurance coverage shall be eligible for export unless it meets ... the following condition[]: ... [t]he full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers. (e.s.) The statute goes on to require that the diligent effort, "be reasonable under the particular circumstances surrounding the export of that particular risk." Reasonableness is assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by- risk basis. Section 626.916(1)(a), F.S. "'Diligent effort' means seeking coverage from and having been rejected by at least three authorized insurers currently writing this type of coverage and documenting these rejections." Section 626.914(4), F.S. Under this definition, the "producing agent should contact at least three companies that are actually writing the types of clients and the business in the area [that they are] wanting to write." (Tr. 268.) A specific form to help insurance agents document their three rejections is adopted by Department rule. The rule provides: When placing coverage with an eligible surplus lines insurer, the surplus lines agent must verify that a diligent effort has been made by requiring from the retail or producing agent a properly documented statement of diligent effort on form DI4-1153 (7/94), "Statement of Diligent Effort", which is hereby adopted and incorporated by reference. Rule 4J-5.003(1), F.A.C. Fully aware of the requirement for documentation of diligent effort to find authorized insurers, and cognizant that it would be unlikely that an authorized insurer could be found based on experience, Gallagher began soliciting proposals for coverage in the middle of April, 1996, several weeks before the School Board had issued the RFP. In fact, at the time that Gallagher started soliciting bids, the School Board had not yet assembled or distributed the underwriting data needed by bidders. Nonetheless, with good reason based on experience, Gallagher expected that the School Board would seek a "combined lines" package of GL/AL/E & O coverages like the School Board then received through United National, and that it would be unlikely that an authorized insurer would step forward to propose coverage. Gallagher, therefore, used the policy form current in April of 1996, that is the form providing Excess GL/AL/E & O coverage in a "combined lines" package, "as an example of what the School Board had been looking for this type of program and seeking a program similar to that and similar in coverage." (Tr. 242.) But it also sought Excess GL/AL without combination with E & O coverage. As Mr. Marcus testified, when seeking coverage from authorized insurers beginning in April of 1996, Gallagher "would be looking at a variety of different ways, whether they were package or not." (Tr. 243.) One authorized insurer, Zurich-American, declined to quote because it could not offer a combined line SIR program (a package of excess general liability and excess auto liability coverages) as requested by the RFP. Furthermore, the School Board risk was too large for Zurich-American to handle. A second authorized insurer, American International Group, declined to quote due to the School Board's adverse loss experience. A third authorized insurer, APEX/Great American, declined to provide a quote to Gallagher due to the large size of the School Board account. The responses of these three authorized insurers were listed in a Statement of Diligent Effort provided to Ms. Daniels, which she considered in determining that Gallagher and Mr. Marcus had committed no violation of the Surplus Lines Law. Gallagher also provided Ms. Daniels with a second Statement of Diligent Effort. The statement documented the attempt to attract quotes by adding a school leaders errors and omission component to the Excess GL/AL coverage. It, too, was used by Ms. Daniels in making her determination of no violation of the Surplus Lines Law by Gallagher. The same three insurers refused to quote for the "combined lines" program. Attempts by other Authorized Insurers Gallagher requested that any responses to its requests for quotes be submitted by May 10, 1996, so that it could prepare and submit its proposal by the RFP's deadline for submission of original proposals by all vendors, 2:00 p.m. May 16, 1996. One insurer, Discover Re/USF&G attempted to submit a quote on May 15, 1996, one day before the RFP deadline but five days after May 10. By then, Gallagher had already started printing its 625 page proposal. Furthermore, the company failed to provide the required policy forms until the day after the School Board's deadline for filing proposals. Coregis Insurance Company offered coverage of up to $700,000 for each claim and for each occurrence, but like Discover Re/USF&G, failed to provide the required policy forms until after the RFP deadline. Furthermore, definitive coverage under the Coregis policy would only be provided on the condition that the Florida Legislature pass a Legislative Claims bill, a limiting condition not authorized in the RFP or requested by Gallagher. American Home Assurance Company never responded to Gallagher with the School Board's required quote or policy forms. Rather, the company merely provided an "indication" that the company declined to provide a quote. An "indication" consists of an approximate premium rate, without any terms or conditions. A "quote," on the other hand, includes the terms and conditions of a policy. The Department places with the producing agent the responsibility of determining whether an insurer's communication constitutes and "indication" or a "quote." An agent, according to Ms. Daniels, can only violate the Surplus Lines Law if the agent receives a reliable quote. Gallagher even requested a quote from Ranger, despite never having been appointed to transact insurance on its behalf. But Ranger declined. In response to a request by Gallagher's minority business partner, McKinley Financial Services, Ranger, through E. Michael Hoke on American E & S letterhead, wrote in a letter dated May 6, 1996, "[w]e have received a prior submission on this account so we are returning the attached." Intervenor's Ex. No. 7. The Petition Ranger's petition for formal administrative hearing is the letter dated June 19, 1996, to the Director of Purchasing for the School Board under the signature of E. Michael Hoke, CPCU, Assistant Vice President of AES/Ranger Insurance Company. The letter asks its readers to "bear[] in mind we are not attorneys," p. 1 of the letter, before it outlines three protest issues. The third protest issue is the one about which Ms. Daniels made her determination that no violation of the statute had been committed by Gallagher or its employees: "3) Florida Statute 626.901 (Representing or aiding unauthorized insurer prohibited)." The other two issues deal not with the propriety of Gallagher's actions but the legality of the School Board's award to an unauthorized insurer, United National, when coverage was available from an authorized insurer, Ranger: Florida Statute 626.913 (Surplus Lines Law). . . Our Position * * * Ranger Insurance Company is an admitted authorized insurer ... Its proposal for excess general and auto liability is proof that the Board requested coverage was procurable. United National Insurance Company is an unauthorized insurer under the laws of the State of Florida ... . The United National Insurance Company proposal and/or its offer to extend it's current policies appear to us as "unwarranted competition." Ranger Insurance Company is protected from unwarranted competition from United National Insurance Company in accordance with the Florida Statute 626.913. Florida Statute 626.913 (Eligibility for Export) ... Our Position * * * Ranger Insurance Company is an admitted authorized insurer under the laws of the State of Florida. ... It's proposal for excess general and auto liability is proof that the Board requested amounts were available. The proposal and/or contract extensions offered by United National are for the full amount of coverage sought and not excess over the amount procurable from Ranger, an authorized insurer. The petition, therefore, set in issue not just whether Gallagher acted illegally but whether the School Board acted illegally when it made the award to United National, an unauthorized insurer when Ranger, an authorized insurer, had also submitted a proposal. Extension As soon as the School Board was made aware of the Ranger protest, it extended the existing insurance contracts procured under RFP 92-080S, awarded approximately five years earlier. The extension was on a month-to-month basis until resolution of the protest. The extension was necessary to avoid a lapse in the School Board's coverage during this proceeding.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the award to United National under the Gallagher proposal in response to RFP 97-072S be rescinded. DONE AND ENTERED this 28th day of January, 1997, in Tallahassee, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1997. COPIES FURNISHED: Paul R. Ezatoff, Esquire Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman, Marks, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302-1877 Edward J. Marko, Esquire Robert Paul Vignola, Esquire Office of the School Board Attorney K.C. Wright Administrative Building 600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301 A. Kenneth Levine, Esquire Blank, Risby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068 Dr. Frank Petruzielo, Superintendent Broward County School Board 600 Southeast Third Avenue Fort Lauderdale, Florida 33301-3125
