Findings Of Fact Respondent Judy Louise Robinson is currently licensed by the Florida Department of Insurance as a general lines agent, a health agent, and a dental health agent and has been so licensed since November 21, 1984. At all times material, Respondent engaged in the business of insurance as Fleming Island Insurer. At all times material, Respondent maintained two business bank accounts in the name of Fleming Island Insurer: Account No. 1740043215 at Barnett Bank in Orange Park and Account No. 11630004614 at First Union Bank, Park Avenue Office. First Union Bank is currently First Performance Bank. All funds received by Respondent from or on behalf of consumers, representing premiums for insurance policies, were trust funds received in a fiduciary capacity and were to be accounted for and paid over to an insurer, insured, or other persons entitled thereto in the applicable regular course of business. Respondent solicited and procured an application for a workers' compensation insurance policy from Linda Smith on September 13, 1989, to be issued by CIGNA. Respondent quoted Ms. Smith an annual workers' compensation premium of two thousand six hundred four dollars and forty cents ($2,604.40). Linda Smith issued her check payable to Fleming Island Insurer in the amount quoted by Respondent on September 13, 1989, as premium payment for the CIGNA workers' compensation insurance coverage. On September 14, 1989, Respondent endorsed and deposited Linda Smith's $2,604.40 check into Fleming Island Insurer's business bank account No. 1740043215 at Barnett Bank, Orange Park, Florida. On September 17, 1989, Respondent forwarded her check in the amount of two thousand six hundred eighty nine dollars and forty cents ($2,689.40) to NCCI ATLANTIC for issuance of a workers' compensation policy with CIGNA for Linda Smith, Inc. The difference between the amount paid to Respondent by Linda Smith ($2,604.40) and the amount paid by Respondent to CIGNA via NCCI ATLANTIC ($2,689.40) amounts to $85.00 advanced by Respondent because she misquoted the premium amount to Linda Smith. On September 17, 1989, Respondent notified Linda Smith that another $85.00 was due. Linda Smith never paid this amount to Respondent. On September 19, 1989, CIGNA issued a workers' compensation policy for Linda Smith, Inc. Respondent's check was thereafter returned to CIGNA due to insufficient funds. On or about October 20, 1989, CIGNA notified Respondent that her agency check had been returned as unpayable and requested substitute payment within ten days to avoid interruption in Linda Smith, Inc.'s workers' compensation insurance coverage. Respondent asserted that she was injured in an automobile accident on October 1, 1989 and could not work through July of 1990 due to chronic dislocation of her right arm, but she also asserted that she never closed her insurance business and operated it out of her home. Respondent's home is the address at which CIGNA notified her on October 20, 1989 concerning Ms. Smith's policy. Respondent failed to timely submit substitute payment to CIGNA, and as a result, Linda Smith, Inc.'s policy was cancelled January 1, 1990. On January 4, 1990, Linda Smith forwarded her own check in the full amount of $2,689.40 directly to CIGNA and her policy was reinstated. Respondent did not begin to repay Linda Smith the $2,604.40 proceeds of Linda Smith's prior check paid to Respondent until May 1991. At formal hearing, Respondent maintained that she was never notified that Linda Smith paid for the policy a second time. Even if such a protestation were to be believed, it does not excuse Respondent's failure to account to either Linda Smith or CIGNA for the $2,604.40, which Respondent retained. Respondent also testified that Barnett Bank's failure to immediately make available to Respondent the funds from Linda Smith's check, which cleared, resulted in Barnett Bank reporting to CIGNA that there were insufficient funds to cover Respondent's check to CIGNA. From this testimony, it may be inferred that Respondent knew or should have known that she owed someone this money well before May 1991. On November 11, 1989, Lewis T. Morrison paid the Traveler's Insurance Company six thousand forty-three dollars ($6,043.00) as a renewal payment on a workers' compensation policy for Morrison's Concrete Finishers for the policy period December 30, 1988 through December 30, 1989. At the conclusion of the 1988-1989 policy period, Traveler's Insurance Company conducted an audit of Morrison's Concrete Finishers' account. This is a standard auditing and premium adjustment procedure for workers' compensation insurance policies. It is based on the insured's payroll and is common practice in the industry. This audit revealed that Morrison's Concrete Finishers was due a return premium of two thousand one hundred fifty-three dollars and eighty- seven cents ($2,153.87) from the insurer. On March 30, 1990, Traveler's Insurance Company issued its check for $2,153.87 payable to Fleming Island Insurer. This check represented the return premium due Morrison's Concrete Finishers from Traveler's Insurance Company. On April 6, 1990, Respondent endorsed and deposited Traveler's Insurance Company's return premium check into the Fleming Island Insurer's business bank account No. 11630004614 at First Union Bank. The standard industry procedure thereafter would have been for Respondent to pay two thousand two hundred forty-eight dollars ($2,248.00) via a Fleming Island Insurer check to Morrison's Concrete Finishers as a total returned premium payment comprised of $2,153.87 return gross premium from Traveler's Insurance Company and $94.13 representing her own unearned agent's commission. When Respondent did not issue him a check, Lewis T. Morrison sought out Respondent at her home where he requested payment of his full refund. In response, Respondent stated that she would attempt to pay him as soon as she could, that she was having medical and financial problems, and that the delay was a normal business practice. Respondent testified that on or about April 19, 1990, in an attempt to induce Mr. Morrison to renew Morrison's Concrete Finishers' workers' compensation policy through Fleming Island Insurer, she offered him a "credit" of the full $2,248.00 owed him. Pursuant to this offer of credit, Respondent intended to pay Traveler's Insurance Company or another insurance company for Morrison's Concrete Finisher's next year's premium in installments from Fleming Island Insurer's account. This "credit" represented the return premium Respondent had already received from Traveler's Insurance Company on behalf of Morrison's Concrete Finishers for 1988-1989 which she had already deposited into Fleming Island Insurer's business account. Whether or not Mr. Morrison formally declined Respondent's credit proposal is not clear, but it is clear that he did not affirmatively accept the credit proposal and that he declined to re-insure for 1989-1990 through Respondent agent or Traveler's Insurance Company. Respondent still failed to pay the return premium and commission which she legitimately owed to Morrison's Concrete Finishers. On June 28, 1990, the Traveler's Insurance Company issued a check directly to Mr. Morrison for the full amount of $2,248.00. Respondent did not begin repaying Traveler's Insurance Company concerning Mr. Morrison's premium until after intervention by the Petitioner agency. At formal hearing, Respondent offered several reasons for her failure to refund the money legitimately due Mr. Morrison. Her first reason was that the district insurance commissioner's office told her to try to "work it out" using the credit method outlined above and by the time she realized this method was unacceptable to Mr. Morrison, he had already been paid by Traveler's Insurance Company. However, Respondent presented no evidence to substantiate the bold, self-serving assertion that agency personnel encouraged her to proceed as she did. Respondent also testified that she did not know immediately that Traveler's Insurance Company had reimbursed Mr. Morrison directly. However, it is clear she knew of this payment well before she began to pay back Traveler's, and since Mr. Morrison did not reinsure through her or Traveler's she should have immediately known the "credit" arrangement was unacceptable to him. Respondent further testified that she did not want to repay Mr. Morrison until a claim on his policy was resolved. However, there is competent credible record evidence that the Traveler's Insurance Company 1988-1989 workers' compensation policy premium refund was governed solely by an audit based on payroll. Mr. Morrison's policy premium or refund consequently was not governed by "loss experience rating", and the refund of premium would not be affected by a claim, open or closed. Thus, the foregoing reasons given by Respondent for not refunding Mr. Morrison's money are contradictory or not credible on their face. They also are not credible because Respondent admitted to Mr. Morrison in the conversation at her home (see Finding of Fact 24) that she was having trouble paying him because of medical and financial difficulties. Further, they are not credible because Respondent testified credibly at formal hearing that she would have paid Mr. Morrison but for her bank account being wiped out by a fraudulent check given her by an unnamed third party. On August 10, 1992, Respondent was charged by Information with two counts of grand theft. See, Section 812.014(2)(c) F.S. The allegations in the Information charged Respondent with theft of insurance premiums from Linda Smith and Lewis T. Morrison, and arose out of the same facts as found herein. On December 17, 1992, Respondent entered a nolo contendere plea to only the first count of grand theft as to matters involving Linda Smith and the other count was "null prossed." Respondent secured a negotiated sentence on the first count. "Grand theft" is a felony punishable by imprisonment by one year or more. Adjudication was withheld pending satisfactory completion of probation, including community service and payment of restitution and court costs. Respondent has been complying with her probation, including restitution payments.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Insurance enter a final order finding Respondent guilty of violations of Sections 626.561(1), 626.611(7), (9), (10), and (13); 626.621(2) and (6) F.S. under Count I, violations of Sections 626.561(1), 626.611(7), (9), (10), and (13), and 626.621(2) and (6) under Count II, and violations of Sections 626.611(14) and 626.621(8) F.S. under Count III, finding Respondent not guilty of all other charges under each count, and revoking Respondent's several insurance licenses. RECOMMENDED this 23rd day of June, 1993, at Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of June, 1993. APPENDIX TO RECOMMENDED ORDER 92-2060 The following constitute specific rulings, pursuant to S120.59(2), F.S., upon the parties' respective proposed findings of fact (PFOF). Petitioner's PFOF: As modified to more correctly reflect the whole of the record evidence and avoid unnecessary, subordinate, or cumulative material, all of Petitioner's proposed findings of fact are accepted. Respondent's PFOF: Sentence 1 is accepted as a paraphrased allegation of the Second Amended Administrative Complaint. Sentence 2 is covered in Findings of Fact 4-18. Sentence 3 is accepted but subordinate and to dispositive. Sentence 4 is apparently Respondent's admission that she owed $2,604.40 to Linda Smith and paid her $500.00 of it. Accepted to that extent but not dispositive in that full payment was not made timely. Sentence 1 is accepted as a paraphrased allegation of the Second Amended Administrative Complaint but not dispositive. Sentence 2 is accepted but immaterial. Sentence 3 is rejected as argument and not dispositive. As stated, the proposal also is not supported by the record. Sentence 4 It is accepted that Mr. Morrison admitted he had a claim. However, the record does not support a finding that he requested Respondent to contact Traveler's Ins. Co. about it. Even if he had, that is subordinate and not dispositive of the ultimate material issues. Sentence 5 is rejected as not supported by the credible record evidence. Covered in Findings of Fact 23-28. Sentence 6 is rejected as not supported by the record and as argument. Sentence 7 Accepted. Sentence 8 Accepted. The "Descriptive Narrative" is accepted through page 4, but not dispositive. Beginning with the words "In summary" on page 5, the remainder of the proposal is not supported by the record in this cause which closed April 16. 1993. COPIES FURNISHED: Daniel T. Gross, Esquire Division of Legal Services Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300 Judy Louise Robinson 4336 Shadowood Lane Orange Park, FL 32073-7726 Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, FL 32399-0300
The Issue The issue in this case is whether Respondents have violated provisions of Section 627.837, Florida Statutes, through payment of alleged monetary inducements to insurance agents for the purpose of securing contracts which finance insurance premiums.
Findings Of Fact Petitioner is the Department of Insurance and Treasurer (Department). Respondents are Puritan Budget Plan, Inc., and Gibraltar Budget Plan, Inc., (Respondents). Findings contained in paragraphs 3- 23, were stipulated to by the parties. Stipulated Facts Common shares in Respondents' corporations were sold to insurance agent/shareholders for between $500.00 and $2,500.00 per share, depending on date purchased. Presently, and for the purposes of this litigation, marketing and/or administrative fees paid by Respondents to agent/shareholders range from $1.00 to $13.00 per contract produced, depending on the number of payments made, and the amount of the down payment. Each per contract marketing and/or administrative fee paid by Respondents to agent/shareholders is completely unrelated to the number of contracts produced by that agent/shareholder, and is based upon the characteristics of each contract, pursuant to the terms of the shareholder purchase agreement. Perry & Co., pursuant to a written agreement, manages the day to day activities of Respondents, including solicitation of new shareholder/agents. Alex Campos is currently President of Perry & Co. Perry & Co., Dick Perry or Alex Campos have no equity ownership, either direct or indirect, in Respondents corporations. No shareholder of Perry & Co. is also a shareholder in either Respondent, and no shareholder of the Respondents is a shareholder in Perry & Co. No officer or director of Perry & Co. is an officer or director of either Respondent, and no officer or director of either Respondent is an officer or director of Perry & Co. The individual management agreements between Perry & Co. and Respondents are terminable with proper notice by either party. Respondent Puritan Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Puritans' principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Respondent Gibraltar Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Gibraltar's principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Customers of Respondents are typically financing automobile insurance premiums. There is little if any variation among licensed premium finance companies in the State of Florida as to the interest rate charged to customers. In 1988, the Department inquired of Respondents' activities in relation to agent/shareholder compensation arrangements. After several meetings with representatives from Respondents, the Department closed the matter without taking any action. Also in 1988, the Department proposed the adoption of Rule 4-18.009, which in part would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes, but later withdrew the proposed rule. Again in 1994, the Department proposed a rule which would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes. After a hearing and adverse ruling by the hearing officer, the Department withdrew proposed Rule 4-196.030(8). Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in the unnecessary financing of contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in insurance agents adding or sliding unnecessary products to make the total cost of insurance more expensive and induce the financing of additional contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. An "inducement" is presently defined as "an incentive which motivates an insurance purchaser to finance the premium payment or which motivates any person to lead or influence an insured into financing the insurance coverage being purchased; or any compensation or consideration presented to a person based upon specific business performance whether under written agreement or otherwise." Rule 4-196.030(4), Florida Administrative Code (July 27, 1995). This rule is currently effective but presently on appeal. There is no evidence that Respondents unnecessarily financed any premium finance contracts or engaged in any "sliding" of unnecessary products to induce the unnecessary financing of contracts. Section 627.837, Florida Statutes, does not prohibit the payment of corporate dividends based on stock ownership to shareholders who are also insurance agents. According to the Final Bill Analysis for H.B. 2471, in 1995 the Legislature amended Section 627.837, Florida Statutes, relating to rebates and inducements. This section was amended to clarify that this statute does not prohibit an insurance agent or agents from owning a premium finance company. The statute, as amended, is silent on the issue of how owner-agents may be compensated. Other Facts Approximately 80 percent of Respondents' insureds will turn to the shareholder/agent to handle premium mailing and collection. When a shareholder/agent provides these valuable services and labor to Respondents through the servicing of the premium finance contract with an insured, payment for those services and/or recoupment of the expenses involved with their provision is made, at least in part, in the form of the marketing and administrative fees paid by Respondents to the shareholder/agent. The marketing and administrative fee payment by Respondents to shareholder/agents is made from the net profit of the corporation and represents payment of ownership interest (dividends) to shareholder/agents in addition to payment for shareholder/agent services or expenses. Respondents generally finance "non-standard" private passenger automobile insurance. Such insurance generally covers younger drivers and drivers with infraction points against their license. The average non-standard premium is $500 per year. Thirty percent of non-standard insureds will cancel their insurance prior to the renewal date. Cancellation of policies and financing arrangements by non-standard insurers require the agent to return unearned commissions, about $30 generally. In contrast, payment of an insurance premium in cash guarantees an agent his/her entire commission, an average of $90 per non-standard policy. Consequently, the financial interest of most agents is best served by cash sale of auto insurance as opposed to financing the insurance. The average amount generated by 95 percent of all premium finance contracts executed in Florida would yield an agent/shareholder approximately six dollars per contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered dismissing the Administrative Complaints. DONE and ENTERED in Tallahassee, Florida, this 28th day of November, 1995. DON W. DAVIS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1995. APPENDIX In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties. Petitioner's Proposed Findings 1.-11. Accepted to extent included within stipulated facts, otherwise rejected for lack of citation to the record. 12. First sentence is rejected as not substantially dispositive of the issues presented. Remainder rejected for lack of record citation if not included within stipulated facts. 13.-15. Rejected to extent not included within stipulation, no citation to record. Incorporated by reference. Rejected, no record citation, legal conclusion. 18.-19. Rejected, not materially dispositive. 20. Rejected, no record citation. 21.-23. Rejected, not materially dispositive. Rejected, record citation and relevancy. Rejected, weight of the evidence. Incorporated by reference. Respondent's Proposed Findings 1. Rejected, unnecessary to result. 2.-3. Accepted, not verbatim. 4. Rejected, unnecessary. 5.-7. Accepted, not verbatim. 8.-9. Rejected, unnecessary. 10. Accepted per stipulation. 11.-12. Rejected, unnecessary. 13. Accepted per stipulation. 14.-16. Accepted, not verbatim. Rejected, hearsay. Rejected, relevance. Rejected, unnecessary. 20.-22. Accepted per stipulation. 23. Rejected, unnecessary. 24.-57. Incorporated by reference. 58.-60. Rejected, unnecessary. 61.-62. Rejected, subordinate and not materially dispositive. 63.-67. Rejected as unnecessary to extent not included in stipulated facts. Accepted per stipulation. Rejected, unnecessary. Accepted per stipulation. 72.-76. Rejected, unnecessary. 77. Accepted per stipulation. 78.-79. Incorporated by reference. 80.-87. Accepted per stipulation. 88. Incorporated by reference. 89.-90. Accepted per stipulation. 91.-95. Rejected, subordinate. 96. Accepted. 97.-101. Rejected, unnecessary. 102. Incorporated by reference. COPIES FURNISHED: Alan Liefer, Esquire Division of Legal Services 612 Larson Building Tallahassee, FL 32399-0333 Steven M. Malono, Esquire Cobb, Cole & Bell 131 N. Gadsden St. Tallahassee, FL 32301 Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300
The Issue Whether proposed amendments to Rule 4-7.009, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority. Specifically at issue in this proceeding are the proposed amendments to Rule 4-7.009 which restrict, under certain circumstances, compensation paid to sellers of credit insurance products and which require premium refunds to some purchasers of credit insurance.
Findings Of Fact Credit insurance is a form of group insurance marketed and sold to consumers by creditors or, in the case of motor vehicle financing, by vehicle dealers. The insurance can be purchased by a debtor at the time the debtor enters into a loan agreement. Credit insurance is purchased by debtors as protection against risk of loss caused by unexpected events occurring during the term of the insurance contract. Credit insurance provides for the payment of the balance of the debt upon the death or disability of the insured debtor. Otherwise stated, the benefit of such insurance to the debtor is the assurance that, if the debtor becomes unable, due to death or disability, to make the required periodic payments, the insurer will pay off the balance of a loan or other debt obligation. Sellers of credit insurance products are compensated in the form of commissions paid to sellers by insurers. Additional compensation is periodically paid by some insurers to sellers based upon the profitability of each seller's line of business. Beginning in late 1990, the Department of Insurance ("Department") proposed amendments to administrative rules relating to credit life and credit health and accident insurance products. The Petitioners have challenged the provisions of the proposed rule restricting the level of compensation paid to the sellers of credit insurance products and requiring insurers to make "experience refunds". As set forth in the Department's Notice of Change, published in the November 27, 1991 edition of the Florida Administrative Weekly (Vol. 17, No. 48), the proposed rule amendment provides in relevant part as follows: 4-7.009 Determination of Reasonableness of Benefits in Relation to Premium Charge General Standard. Under the Credit Insurance Law, benefits provided by credit insurance policies must be reasonable in relation to the premium charged. In determining whether benefits are reasonable in relation to premium, the Department shall consider loss experience, allocation of expenses, risk and contingency margins, and policy acquisition costs. This requirement is satisfied if the premium rate charged develops or may be reasonably expected to develop a loss ratio of not less than 1. (a) 55% for credit life insurance and 2. (b) 50% for credit accident and health insurance, and either the insurer does not pay compensation in excess of 30% of the net direct written premium based upon the applicable prima facie rates set forth in Rules 4-7.010 and 4-7.011, or the insurer demonstrates to the satisfaction of the Department that payment of compensation in excess of said 30% is actuarially sound. "Compensation" means money or anything else of value paid by the insurer and/or by any reinsurer to any agent, producer, creditor, or affiliated body. On the basis of relevant experience, uUse of rates not greater than those contained in Rules 4-7.010 and 4-7.011 ("prima facie rates") shall be deemed currently reasonable premium rates reasonably expected to develope the required loss ratio, subject to a later determination of experience refunds, if any, as described herein. An insurer may only file and use rates with such forms which are greater than the prima facie rates set forth in Rules 4-7.010 and 4-7.011 upon a satisfactory showing to the Department Commissioner that the use of such rates will not result on a statewide basis for that insurer of a ratio of claims incurred to premiums earned of less than the required loss ratio. Furthermore, the extent to which an actual rate is greater than that set forth may not exceed the difference between (a) claims which may be reasonably expected and (b) the product of the required loss ratio and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 for the coverage being provided. (2) The Department Commissioner shall, on a triennial basis, review the loss ratio standards set forth in subsection (1), above, and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 and determine therefrom the rate of expected claims on a statewide basis, compare such rate of expected claims with the rate of claims for the preceding triennium, determined from the incurred claims and earned premiums at prima facie rates reported in the annual statement supplement, and adopt the adjusted actual new statewide prima facie rates for Rules 4-7.010 and 4-7.011 to be used by insurers during the next triennium. The new rates will be set at levels that would have produced the loss ratios set forth in subsection (1), above. To make this comparison and redetermination, insurers shall report in the annual statement supplement format, each year, claims and earned premiums, separately, for business written with premiums based on Rules 4-7.010 and 4-7.011. * * * Insurers will calculate a dollar amount of loading each year based upon the insurer's earned credit life and credit accident and health premium in this state for the same year. Loading will be calculated as 45% of earned premium for life insurance and 50% of earned premium for credit accident and health insurance. For this calculation, earned premium shall be based on the rates set forth in Rules 4-7.010 and 4-7.011. Insurers shall calculate an Experience Refund Amount each year for credit life and credit accident and health insurance written in this state after the effective date of this rule. Experience Refunds can be positive or negative. Positive Experience Refunds are to be refunded in the following manner: Experience refunds are to be allocated to accounts which have positive Experience Refund Amounts in proportion to the ratio of each account's refund amount to the total of all positive refund amounts. For the purpose of this allocation, all individual policies are to be treated as one account. The Experience Refund Amount allocated to a particular account is to be refunded to all certificate holders or individual policyholders of such account in proportion to the premiums earned for each certificate holder or individual policyholder to the total of all premiums earned for such account. Earned premiums for Experience Refund purposes are to be equal to paid premiums for the calendar year less unearned premium reserves at the end of the calendar year plus unearned premiums at the beginning of the calendar year. Unearned premium reserves are to be calculated pro rata. Credit policies issued on a non-contributory basis are excluded. Non-contributory means that individual insureds pay no part of the insurance premium. Premiums are paid by the policyholder out of policyholder funds. Individual credit policies issued on a participating basis are to be excluded. All new loans insured after the effective date of this rule are subject to the Experience Refund calculation and distribution, if any. Individual refunds of less than $10 do not have to be made. Experience Refunds are to be determined for each calendar year as follows: Earned Premium, less Loading as determined above, less Incurred claims, less The sum of any carry forwards for the three previous years. An insurer that uses rates which are 10% or more below the rates set forth in Rules 4-7.010 and 4-7.011 shall not be required to calculate or make an Experience Refund. The Florida Bankers Association ("FBA") is the trade association of the Florida banking industry, many of whom sell credit insurance to their customers. The Florida Automobile Dealers Association ("FADA") is a trade association of franchised new car and truck dealers, approximately 65% of whom sell credit insurance. The Florida Recreational Vehicle Dealers Trade Association ("FRVDTA") is a trade association of recreational vehicle dealers, approximately 35% of whom sell credit insurance. The FBA, the FADA, and the FRVDTA are substantially affected by the proposed rule amendment at issue in this case. Specifically the FBA, the FADA, and the FRVDTA are substantially affected by the proposed regulation of compensation paid to sellers of credit insurance products and by the proposed requirement that, under some circumstances, refunds be made to credit insurance purchasers. The Consumer Credit Insurance Association ("CCIA") is a trade association of credit insurance companies, at least 50 of whom sell credit insurance in Florida. The CCIA is substantially affected by the proposed rule amendment provision related to premium refunds to some insureds. Credit insurance is priced and sold without regard to sex or age of the debtor. There is little underwriting of credit insurance risks. Due primarily to the age of the population and the effect of mandated coverages, Florida's credit insurance claims are higher than in other states. There are currently in excess of eighty million credit insurance policies in force in the United States. Credit insurance is sold under master policies issued by insurers to producers, such as banks and vehicle dealers. Producers sell the insurance product and maintain records of the credit insurance purchasers, who hold certificates issued under each master policy. Credit insurance premiums are based upon the amount financed by the debtor and are calculated according to rates established on a statewide basis by the Department. Credit insurers may not charge more than the prima facie rates for credit insurance, therefore, there is no benefit to consumers to "shop around" for credit insurance. Although credit insurers are not prohibited from charging less than the prima facie rates, there is no evidence that any insurer charges less than the Department's adopted rates. Since 1982, the Department-approved prima facie credit life premium rate was $.60 for every $100 financed. The rate was based on the Department's determination that a $.60 prima facie rate would result in insurers paying out approximately 60% of premium dollars in claims paid to insureds, and that a 60% "loss ratio" was reasonable. The "loss ratio" is the fraction of premium dollars paid out in claims. The $.60 prima facie rate did not yield a 60% loss ratio. The loss ratios for some insurers was substantially less that 60%. On September 1, 1991, the Department reduced the prima facie credit life and credit health and accident rates. In establishing new prima facie rates, the Department established a 55% loss ratio for credit life insurance and a 50% loss ratio for credit disability. The revised prima facie rates are based upon data from calendar years 1986, 1987 and 1988. Such data includes information related to paid claims, earned premium, and insurer administrative overhead expenses. The setting of such rates is an actuarial exercise intended to provide a reasonable projection of premium rates and loss ratios. There is no evidence that the revised prima facie rates result in premiums which are excessive in relationship to the amount of the loans insured. The revised prima facie rates are reasonably expected to yield the revised loss ratios. The rule provides a triennial review mechanism to ascertain whether the expected loss ratios are being met and to adjust prima facie rates if such is indicated. The review is a reasonable method of assuring that such loss ratios are met. Currently, commissions are paid by insurers to producers (i.e. banks and dealers) as compensation for selling the product. The amount of commission is determined by agreement between the insurer and producer. Commissions for the sale of credit insurance vary widely and, in some cases (generally involving the sale of credit insurance related to automobile purchases) may be as high as 60% of the premium paid by the consumer. In addition to payment of commissions, some insurers retrospectively compensate producers by periodically paying an amount based upon the profitability of each producer's business. Compensation levels largely determine which credit insurer's product a producer chooses to sell. The proposed rule limits total compensation levels, absent specific authorization by the Department, to 30% of the net direct written premium based upon the applicable prima facie rates. Compensation levels have no impact on the premiums charged to consumers purchasing credit insurance. Premiums charged are based on the Department's prima facie rates. The proposed rule permits a credit insurance company to exceed the 30% compensation restriction where the insurer can establish that the payment of compensation in excess of the 30% is "actuarially sound". The determination of whether payment of commission in excess of 30% is "actuarially sound" is left to the discretion of the Department. There is no statutory, rule, or commonly accepted definition of the term, although the Department's actuary stated that a product determined to be "actuarially sound" would be a "self-supporting" product, either profitable or "breaking even". He further opined that he would consider investment income in a determination of actuarial soundness, although the proposed rule does not require such consideration. The Department's purpose in enacting the proposed compensation restriction was to protect insurers from insolvency and financial instability. The commission restriction was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The commission restriction was not intended to, and will not, ensure that the loss ratios deemed reasonable by the Department will be met. In adopting a 30% compensation restriction, the Department calculated that, assuming the 55% loss ratio was met, $.55 of each premium dollar would be paid in claims. The Department assumed that $.15 of each premium dollar would cover overhead expenses and profit. According to the Department, the remaining $.30 is the most an insurer could pay as compensation to the producers without affecting the solvency of the insurer. In calculating the commission restriction, the Department did not consider the effect of an insurer's investment income on the ability to pay commission. There is no evidence that payment of commissions in excess of 30% of net direct written premiums has adversely affected the solvency of any credit insurer doing business in Florida. There is, in fact, no history of credit insurer insolvency in Florida. Nationwide, there has been little problem of insolvency in the credit insurer business, with no more than four insurers having become insolvent. In each of those cases, the insolvency resulted from poor management of assets, and was not related to payment of excess commissions to producers. The Department asserts that, absent such restrictions, insurers will pay excessive compensation in order to compete for producers, and that such excess compensation, coupled with administrative expenses and a 55% loss ratio, will threaten the solvency of the companies. The assertion is not supported by the greater weight of credible evidence. The proposed rule also requires insurers, under some circumstances, to make experience-based refunds to credit insurance purchasers. In determining whether a refund is required, an insurer first calculates whether the insurer has met or exceeded the 55% loss ratio for the prior year. If the loss ratio is met or exceeded, no refunds are required. If an insurer determines that the 55% loss ratio was not met, the insurer calculates the difference between targeted 55% loss ratio and the actual percentage of premium dollars paid out in claims. The insurer then identifies each producer account which had a loss ratio of less than 55%, determines the identity and location of each certificate holder (insured) in each producer's account, and makes a refund to each identified certificate holder. Individual refunds of less than $10 to an individual consumer are not required. The proposed rule permits insurers to carry excess losses forward for a period of three year, to offset years when the targeted loss ratio is not met. However, such excess losses may not be carried forward beyond the three year period. Whether a consumer receives a refund is unrelated to the premium paid by the consumer. An individual consumer ("A") purchasing a car and credit insurance at Dealer "A" may receive a refund, while a Consumer "B" purchasing the same car and credit insurance from Dealer "B" may not receive a refund, if Dealer A's line of business with the insurer meets the target loss ratio and Dealer B's line of business with the same insurer fails to meet the loss ratio. The benefit of the credit insurance is the assurance that, under certain conditions, the insurer will pay off the balance of a loan or other debt obligation. If Consumer A receives a refund and Consumer B does not, Consumer A pays more than Consumer B for the same insurance protection. The Department's purpose in enacting the proposed experience refund was to ensure that the 55% loss ratio would be met. However, the experience refund provision, combined with the three year limit for charging off excess losses, will eventually result in loss ratios which will exceed the 55% ratio which the Department has determined to be reasonable. There is no need for experience refunds when the prima facie rates established by the Department are appropriately set. Such rates are designed to produce an acceptable loss ratio. It is reasonable to believe that the Department's revised prima facie rates will result in acceptable loss ratios. The refund proposal was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The proposed rule provides that an insurer charging a premium based on rates at least 10% below the prima facie rates are not required to calculate the experience refund. There is no credible rationale supporting the use of 10% as the threshold under which an insurer escapes the refund calculation, although the resulting loss ratio likely approaches the 60% loss ratio suggested by the National Association of Insurance Commissioners. Of the actuaries testifying at hearing, one opined that a rate 10% less than the prima facie rate was viable, the other opined that it was not. Because the Department's revised prima facie rates are reasonably calculated to result in a 55% loss ratio, an insurer charging less than the prima facie rate will likely exceed the 55% loss ratio. In connection with the final version of the proposed rule, the Department did not prepare an economic impact statement. The Department did not estimate the costs of insurer compliance with the refund provisions. The expense required of insurers in order to establish experience refund payment systems is significant. Information management systems will require extensive modification to permit such data to be maintained. Substantial amounts of data, which is not currently provided to insurers, must be collected and accurately maintained to permit refunds to be made. Such costs were not included in administrative expenses considered by the Department when the revised prima facie rates were established. Presently, credit insurers maintain limited data related to insureds purchasing credit insurance in connection with installment loans. Although such data may be initially collected by producers, insurers are typically provided only with the name of the debtor and loan number. Data is transmitted to insurers either electronically or through paper files. In either case, data must be converted to usable form by insurers. In approximately seventy percent of credit insurance business, addresses of insureds are not transmitted to insurers. There is no credible evidence that current addresses of insureds are continuously maintained by either insurer or producer in installment debt insurance, since there is little need to question original data as long as periodic payments are being timely made. In a form of credit insurance known as "monthly outstanding balance" insurance, bulk accounts are received by insurers, who generally does not receive either names or addresses of insureds. Consumers whose monthly outstanding balance indebtedness is insured are more likely to provide producer/creditors with current addresses, but such data is not provided to insurers. As to credit insurers, although most insurers currently process refund checks, the additional expense of establishing or modifying systems capable of compliance with the proposed refund requirement could amount to as much as five percent of each premium dollar. One bank official estimated that, as to his bank, the expense of complying with the refund provisions would include an initial cost of $1.1 million and an annual cost of $350,000 to $500,000. A credit insurance information systems and processing executive estimated that the 31 producers writing business for his company would incur costs of $1,860,000 to comply with the rule, and that his own company's costs would be in the range of $4-5 million. The Department suggested that, rather than modify existing mainframe computer systems, such data could be maintained by insurers on personal computers and microcomputer networks. The Department asserted that such systems would be less expensive and require less modification than the process outlined by industry representatives. However, there is credible testimony establishing that significant resources would be involved in determining whether such conversion to microcomputers would be feasible or warranted. In any event, there is no evidence that such conversion could be accomplished in a timely manner permitting the insurers to comply with the proposed rule requirements. The greater weight of the evidence establishes that the expenses estimated by the industry representatives are reasonable based upon the existing management information systems maintained by the industry.
The Issue Should discipline be imposed by Petitioner against Respondent's licenses as a life agent (2-16), life and health agent (2-18), and health agent (2-40), held pursuant to Chapter 626, Florida Statutes (2004)?
Findings Of Fact Respondent in accordance with Chapter 626, Florida Statutes (2005), currently holds licenses as a life agent (2- 16), life and health agent (2-18), and a health agent (2-40). On June 24, 2003, in an Administrative Complaint brought by Petitioner against Respondent, also under Case No. 64776-03-AG, accusations were made concerning violations of Chapter 626, Florida Statutes (2003). On October 4, 2004, the parties resolved the earlier case through a settlement stipulation for Consent Order. On October 20, 2004, the Consent Order was entered. In pertinent part the Consent Order stated: The Settlement Stipulation for Consent Order dated October 11, 2004, is hereby approved and fully incorporated herein by reference; * * * (c) Respondent agrees that he has a continuing obligation for claims, which may not have arisen or otherwise be known to the parties at the time of the execution of the Settlement Stipulation for Consent Order and this Consent Order Respondent shall be responsible for satisfying claims that were covered under the Plans sold by Respondent, up to the amount covered by such Plan, less any applicable deductibles or co-payments. Respondent may attempt to negotiate with the providers for compromised amounts, but any such compromise must result in the release of the consumer from any responsibility for the amounts that would have been covered under the terms of such Plan, less any applicable deductibles or co-payments; * * * (f) Within ninety (90) days following the issuance of this Consent Order, the Respondent shall complete the Section 626.2815(3)(a), Florida Statutes, continuing education requirement relative to unauthorized entities; * * * Within thirty (30) days of the issuance of this Consent Order, Respondent agrees to pay to the Department, a fine, in the amount of ONE THOUSAND AND 00/100 ($1,000.00) DOLLARS. Within ninety (90) days following the issuance of this Consent Order, Respondent shall satisfy any unpaid claims for persons insured under the Local 16 Plans he sold, including claims which may not have arisen or otherwise be known to the parties at the time of the execution of the Settlement Stipulation for Consent Order and this Consent Order. Respondent shall only be responsible, however, for satisfying claims that were covered under the Plans sold by Respondent, up to the amount covered by such Plan, less any applicable deductibles or co- payments. Respondent may attempt to negotiate with the providers for compromised amounts, but any such compromise must result in the release of the consumer from any responsibility for the amounts that would have been covered under the terms of such Plan, less any applicable deductibles or co- payments; Within one hundred (100) days following issuance of this Consent Order, the Respondent shall provide proof to the Department that the full amount of claims or losses under all contracts or health plans solicited or sold by Respondent on behalf of Local 16 have been paid or satisfied. Failure of the Respondent to comply with this paragraph shall constitute a material breach of this Consent Order, unless otherwise advised in writing by the Department; Respondent in the future shall comply with all the terms and conditions of this Consent Order; and, shall strictly adhere to all provisions of the Florida Insurance Code, Rules of the Department, and all other laws of the State of Florida. The Respondent shall give the Department full and immediate access to all books and records relating to the Respondent's insurance business, upon request; If, in the future, the Department has good cause to believe that the Respondent has violated any of the terms and conditions of this Consent Order, the Department may initiate an action to suspend or revoke the Respondent's license(s) or appointments, or it may seek to enforce the Consent Order in Circuit Court, or take any other action permitted by law; Respondent paid the $1,000.00 administrative fine required by the Consent Order, but the payment was 20 days late. Respondent completed the continuing education on unauthorized entities. He completed the course on June 3, 2005, beyond the deadline called for in the Consent Order by a number of months. Respondent took the course at Florida Community College in Jacksonville, Florida, an institution that he was familiar with. He took the course to be completed on June 3, 2005, because it was the earliest course available at that school. Respondent was unfamiliar with other schools who may have offered the course at a time that would meet the due date set forth in the Consent Order. Consistent with the expectations in the Consent Order, Petitioner's employees have reviewed their files to determine whether Respondent has satisfied unpaid insurance claims in relation to the insurance plan for Local 16. Those employees involved in that review are Kerry Edgill, a legal assistant in the Legal Division in charge of complaint settlements and Pamela White who works with the Division of Consumer Services as a senior management analyst. Neither employee found any evidence that Respondent had satisfied the unpaid insurance claims as called for in the Consent Order. In correspondence from Respondent to Petitioner's counsel in this case, dated December 6, 2004, there is no indication that the unpaid insurance claims have been satisfied. Respondent in his testimony explained the extent to which he had attempted to determine who had outstanding unpaid insurance claims. Respondent went to the location where Local 16 union members were employed. His contact with union members had to be outside the building proper. He spoke to several members at that time. This contact took place on June 1, 2005. Respondent identified the persons contacted as James, Luther, Gregory, and Michael. Michael's last name may have been Williams, as Respondent recalls. Of the persons Respondent spoke with on June 1, 2005, none of them had an unpaid insurance claim which needed to be satisfied. Respondent provided correspondence to a person or persons whose name(s) was or were not disclosed in the testimony. The June 6, 2005, correspondence was addressed to the Amalgamated Transit Union, in reference to insurance claims for Local 16. Respondent's Exhibit Numbered 17 is a copy of that correspondence. In the body of the correspondence it stated: June 6, 2005 Amalgamated Transit Union Local 1197 P.O. Box 43285 Jacksonville, FL 32203 Re: Claims for Local 16 To union members and trustees, This letter is to follow up me meeting members at the station on June 1, 2005 to discuss any issues or concerns that you may be or have had relating to the unpaid claims with Local 16 National Health Fund. Although, I feel I am not responsible for the issue I would gladly help assist with resolving any problems or concerns that you may have. Should any members have any correspondents that need immediate attention please forward them to me at: David Bright, P.O. Box 441963, Jacksonville, FL 32222. Should you need to speak to me I can be reached at 904-207-0141. Thanks for your cooperation in this long due matter! In relation to what Respondent refers to as accounts for Local 16 which he was servicing, that refers to insurance coverage, it involved a couple of hundred insureds. Respondent in his testimony acknowledged that union members had insurance claims that were unpaid.
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 Sections 626.611(7) and (13), and 626.621(2) and (3), Florida Statutes (2004), finding no violation of Section 626.611(9), Florida Statutes (2004), or 626.9521, Florida Statutes (2004), and suspending Respondent's respective licenses as a life agent (2-16), life and health agent (2-18), and health agent (2-40), for a period of six (6) months. DONE AND ENTERED this 7th day of October, 2005, 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 7th day of October, 2005.
The Issue Did Mr. Carter violate sections 627.4554(4)(a), 627.4554(4)(c)2., 626.611(5), 626.611(7), 626.611(9), 626.611(13), 626.621(2), 626.621(6), 626.9541(1)(a)1., and 626.9541(1)(e)1., Florida Statutes (2006, 2009, 2010); section 626.9521(2), Florida Statutes (2006, 2010); sections 626.9541(1)(k)2., 626.9541(1)(l), and 626.9521(2), Florida Statutes (2009, 2010); section 626.621(9), Florida Statutes (2010); and Florida Administrative Code Rule 69B-215.210? If so, what discipline should be imposed?
Findings Of Fact At all times material to this proceeding, the Legislature has vested the Department with the authority to administer the disciplinary provisions of Chapter 626, Florida Statutes. § 20.121(2)(g) and (h)1.d., Fla. Stat. (2011). At all times material to his proceeding, Mr. Carter was licensed by the Department as a Florida life (including variable annuity) agent (2-14), life including variable annuity and health agent (2-15), life insurance agent (2-16) and life and health agent (2-18). He has been appointed as an agent for several different life insurance companies, including Allianz, EquiTrust and Great American, but not RiverSource. Counts I through V--W.K. and J.K. 2006, J.K. and W.K., and the MasterDex 10 J.K. was born in 1937 in Madrid Spain, where she finished high school. Spanish is J.K.'s native tongue. She cannot write in English and does not speak or understand English well. When J.K. was 17, she met W.K., a member of the United States' armed services. They married in Spain. Six months after the marriage, the newlyweds moved to Brooklyn, New York, W.K.'s home. They later relocated to Florida. W. K. constructed a mall in New Port Richey containing 18 stores that included a restaurant and a frame shop. J.K. ran the frame shop. Wal-Mart eventually bought the mall. By 2006, J.K. and W.K. had accumulated approximately two million dollars in brokerage investments. Until the decline of his health and mental faculties in 2008, W.K. handled all financial matters for the couple. J.K. did not understand them or have any interest in them. In 2006, J.K. and W.K. met Mr. Carter, who began marketing annuities to them. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact, combined with the fact that W.K. had died several years before the hearing, limit the ability to determine what representations Mr. Carter made to J.K. and W.K. or what information or instructions they gave him. On July 25, 2006, W.K. applied for a MasterDex 10 annuity policy from Allianz Life Insurance Company of North America. He paid an initial premium of $603,470.34 for the policy. W.K. was 73 years old at the time. W.K. obtained the money to fund the policy from the couple's Merrill Lynch brokerage account. Mr. Carter knew this. As part of the annuity application process, Mr. Carter submitted an Allianz "Product Suitability Form" for W.K. Completion of the form is a prerequisite to processing the application and issuing the policy. The stated purpose of the form is "to confirm that your [the applicant's] annuity purchase suits your current financial situation and long-term goals." The form, signed by W.K. and Mr. Carter, stated that an annuity was the source of the funds for payment of the annuity's premium. This statement was not accurate. Mr. Carter knew that it was not accurate. Signing and submitting the application with the suitability form containing this known incorrect statement was a willful deception by Mr. Carter with regard to the policy. Signing and submitting the application with the suitability form containing this known incorrect statement was a dishonest practice in his conduct of the business of insurance. The suitability form also indicated that W.K. expected the annuity to provide him a steady stream of income in six to nine years. Allianz accepted the application and issued the policy. Mr. Carter received a commission of $66,381.73. The MasterDex 10 is a complex financial product with many difficult to understand restrictions, conditions, interest options, bonuses, penalties, and limitations. The MasterDex 10 that W.K. and J.K. purchased paid interest linked to the performance of the Standard and Poors 500 stock market index. It also guaranteed interest of at least one percent. A "Nursing Home Benefit" was one of the options the MasterDex 10 provided. The "benefit" permitted the policy holder to receive payments of the full "annuitization" value of the policy over a period of five years or more if the holder was confined to a nursing home for 30 out of 35 consecutive days. The "annuitization value" is the maximum value that the policy can reach. It is the total of all payments that would be made to the holder if he either (1) let the premium and interest earned accumulate for a minimum of five contract years and then took ten years of interest only payments, followed by a lump sum payment of the annuitization value or (2) equal payments of principal and interest over ten or more years. Policy holders could make additional premium payments to increase the policy value. The policy also permitted limited withdrawals without penalty. After holding the policy for 12 months after the most recent premium payment, a holder could, without penalty, withdraw up to ten percent of the premium paid once a year until a maximum of 50 percent of the premium had been withdrawn. This meant that after one year passed, W.K. could make five annual withdrawals of $60,347.03. The policy also provided for loans on the annuity. In the years following this transaction, Mr. Carter maintained contact with W.K. and J.K. by periodically asking them to join him at a restaurant for lunch. Decline of W.K.'s Health While visiting his mother in Greece in 2008, W.K. fell and hit his head. Afterwards his health declined. On June 3, 2008, W.K. was diagnosed with Alzheimer's disease and determined to be unable to make sound financial and medical decisions. From June 2008, forward, J.K. was very worried about W.K.'s health, caring for him, and making him as comfortable as possible. On November 5, 2008, W.K., at Mr. Carter's suggestion, executed a Durable Power of Attorney, prepared for her by a lawyer, giving J.K. broad authority to act on his behalf in financial matters. At some point, W.K. was admitted to the Bear Creek Skilled Nursing Center and resided there for a period of time. On April 4, 2010, he was discharged from Bear Creek. W.K. resided in Bear Creek for a period of time. Although there is some hearsay evidence about when W.K. entered Bear Creek, the evidence does not corroborate direct evidence or hearsay evidence that would be admissible over objection in circuit court, sufficient to prove when W.K. entered Bear Creek. Consequently, the evidence does not establish the length of time that W.K. spent in the facility and does not establish that W.K. would have been eligible for the "Nursing Home Benefit" described in paragraph 16. After W.K. returned home in April, J.K. engaged an enterprise called "Granny Nannies" to provide caretakers at home. The services cost approximately $12,000 per month. During this period J.K.'s health also declined markedly. Among other things, she had appendicitis and breast cancer. Treatment of the cancer required chemotherapy, which left her in pain and exhausted. During this time Mr. Carter obtained a copy of the power of attorney executed by W.K. in favor of J.K. On June 18, 2010, the court appointed Paula Rego as guardian for W.K and J.K. with authority to act on their behalf in all matters affecting property rights. On November 26, 2010, W.K. died in hospice care after a short hospital stay. The Events of 2010 In December 2009, J.K. met with insurance sales agents and sisters Kimberly Trotter and Chandra Valdez. J.K. had responded to a mail solicitation by them. During the meeting, J.K. and Mss. Trotter and Valdez realized that J.K. knew them because J.K. and W.K. had rented space to the sisters' parents. Capitalizing on the connection and J.K.'s concerns about paying the monthly costs of care for W.K., Ms. Trotter and Ms. Valdez began providing financial advice and marketing annuity products that they sold. They advocated liquidating W.K.'s and J.K.'s existing annuities, including the MasterDex 10. In December 2009, Ms. Trotter and Ms. Valdez sold W.K. and J.K. two annuities with Great American for approximately $661,098. On January 28, 2010, W.K. authorized J.K. and Ms. Trotter to access policy information. In January 2010, Ms. Trotter attempted to liquidate the MasterDex 10 policy and transfer the funds to Great American. Allianz notified Mr. Carter of this in February 2010. He intervened to stop the transfer. On March 3, 2010, Allianz received another request to liquidate the MasterDex 10 from J.K. Allianz sent her what it calls a "conservation letter." The purpose of the letter is to "conserve" the business with the company. The letter also identified needed information, including a copy of J.K.'s power of attorney for W.K. On March 4, 2010, Allianz notified Mr. Carter of the liquidation request. He contacted J.K. and began a successful effort to obtain a letter asking to reverse the liquidation. On March 17, 2010, Ms. Trotter or Ms. Valdez again convinced J.K. to liquidate the MasterDex 10 funds and transfer them to Great American. Again Mr. Carter acted to stop the liquidation. On March 23, 2010, J.K. signed a letter written by Mr. Carter asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to RiverSource, a company that issued another annuity policy of J.K's. J.K. did not know who Mr. Pearson was. She only signed the letter because Mr. Carter told her that it would help her save money. On March 26, 2010, J.K. submitted a liquidation request form for the MasterDex 10 signing it on behalf of herself and W.K. J.K. submitted the request at the urging of Ms. Trotter and/or Ms. Valdez. Allianz received the request on March 31, 2010. It began processing the full liquidation of the annuity policy. On April 1, 2010, Mr. Carter sent Allianz a letter saying that J.K. did not want to liquidate W.K.'s MasterDex 10 policy. The letter claimed that this was the second time that competing agents had tried to cancel the policy. Allianz reinstated the policy. On April 1, 2010, Mr. Carter sent a handwritten letter to Great American stating that J.K. did not want the MasterDex 10 policy canceled. The letter refers to having previously provided the power of attorney. Mr. Carter signed the letter. J.K. signed the letter on behalf of W.K. and herself. On April 7, 2010, Great American received a typewritten letter addressed to "To Whom It May Concern" stating that J.K. and W.K. wanted to transfer their funds to Great American since "December and January" and that J.K. did not see Mr. Carter on April 1 and did not sign a letter that he sent. On April 9, 2010, Mr. Carter wrote and sent a letter, signed by J.K. at his request, asking Great American to cancel the policies sold by Ms. Trotter and Ms. Valdez and waive all surrender charges. The letter states that J.K. is fighting cancer and that the agents forced her to sign the policy documents. Mr. Carter included with the letter a Withdrawal/Surrender Request Form completed by him and signed by J.K. On April 23, 2010, Mr. Carter wrote a letter to Allianz stating that J.K. needed more than ten percent of the value of the MasterDex 10 policy (the penalty-free withdrawal permitted) to provide the funds needed to take care of W.K. The letter states that W.K. and J.K. wished to change ownership of the policy to J.K. only and then to fully surrender the policy. Mr. Carter's letter is signed by J.K. on her behalf and on behalf of W.K. Mr. Carter enclosed forms with the same date, which he prepared for J.K.'s signature, requesting the change of ownership and liquidation. Allianz sent J.K. a letter, with a copy to Mr. Carter, on April 29, 2010, identifying alternatives to liquidating MasterDex 10 for getting the money needed to care for W.K. The Allianz letter also disclosed that liquidating the policy would result in a substantial loss of money. In part, the letter stated: We understand you wish to surrender your annuity policy. As we review your request, we want to be certain you are aware of all the alternatives that are available to you. This information can help you make an informed decision based on your best financial interests. It is possible for you to access a portion of your policy's value while your policy remains in deferral. This would allow its value to continue to grow tax-deferred, and still provide the cash you need. Your annuity may permit you to take a free withdrawal, policy loan, or partial surrender. Finally, it's important to realize exactly how much you will be giving up should you decide to fully surrender your policy. Your policy's current Accumulation Value is $751,566.07 and its Surrender Value is $585,014.49. By surrendering your policy now, you are giving up the difference between these two values [$166,551.58]. Any one of these options could provide you with needed cash while allowing you to receive your full accumulation value in cash after your policy's 10-year surrender charge period. The letter provided a ten-day period, called a conservation period, during which J.K. could withdraw her request to liquidate the policy. Mr. Carter called Allianz on April 30, 2010, and spoke to Amber Hendrickson. In the recording of the conversation, Mr. Carter sounds agitated and speaks forcefully. J.K. participated in the telephone call. She is quiet and deferential. In the call, J.K. waives the ten-day "conservation" period. Mr. Carter insists that Allianz process the surrender swiftly. Allianz processed the liquidation of the MasterDex 10 on April 30, 2010. It wired funds from the liquidated annuity to J.K.'s Regions Bank account the same day. On April 30, 2010, J.K. signed a check for $475,000 to EquiTrust Life Insurance Company to purchase an annuity. Mr. Carter wrote the check. Also on April 30, 2010, J.K. signed an EquiTrust annuity application completed by Mr. Carter. The form indicates that the policy is not replacing an existing annuity contract. This is not an accurate representation. On April 30, 2010, Mr. Carter also completed an Annuity Suitability Questionnaire for J.K. to sign and submit with the EquiTrust application. He indicated that J.K. had income from a pension. Mr. Carter knew that this was not accurate. Mr. Carter also indicated that J.K.'s income was adequate to cover all expenses, including medical. He knew this was not accurate because he was fully aware of the cost of W.K.'s caregivers and J.K.'s concern about them. The form, as completed by Mr. Carter, is misleading about the source of the funds for purchase of the annuity. He made the technically correct representation that the funds come from a checking account. But the funds were from the liquidation of the MasterDex 10 and were placed in the checking account the same day the application was completed. The funds were actually from the liquidation of the MasterDex 10 annuity. The form also stated that the proposed annuity would not replace any product. Mr. Carter knew this was not accurate also. He knew that the EquiTrust annuity was replacing the MasterDex 10, albeit in a lower amount, because J.K. kept some cash and lost a good deal of money in surrender costs. A letter Mr. Carter sent to EquiTrust on August 16, 2010, when it was investigating complaints about J.K.'s purchase of the annuity, demonstrates that he knew the EquiTrust annuity was replacing the MasterDex 10. Mr. Carter's letter described the surrender and purchase this way: "An amount of $475,000 was placed into the EquiTrust Annuity (Market Power Bonus Index's Fixed account), the remaining balance of $110,038.75 was sent to her checking account, plus two other accounts valued at $50,000 that were closed, and a Jefferson National check that wasn't cashed for $3,500." Also, on April 23, 2010, J.K. signed, on behalf of herself and W.K., a Surrender/Withdrawal Request to RiverSource asking for the full withdrawal of the net accumulation value of their annuity contract with RiverSource. RiverSource sent J.K. a check for $26,430.07. It deducted $2,158.32 for a withdrawal charge and $295.98 for a "rider charge" from the full value of $28,884.37. On May 5, 2010, EquiTrust received J.K.'s policy application documents and check. EquiTrust required additional documents including a financial needs analysis form. Mr. Carter sought an exception to the requirement for a financial needs analysis form. He did not receive the exception. On May 6, 2010, Mr. Carter sent EquiTrust the required financial needs analysis form. He completed the form for J.K., who was 72 at the time. J.K. also signed this form. The form repeats some of the incorrect statements of the previous forms. It is also includes additional incorrect statements. The instructions for the section about "Replacements" states, "complete if an existing life insurance policy or annuity contract will be used to fund this product." Mr. Carter checked "no" as the response to the question: "Is the agent assisting you with this annuity purchase the same agent on the life insurance policy or annuity contract being replaced?" This indicates he is aware that the policy replaces the MasterDex 10. The response was also a representation that he knew to be false, because he was the agent on the policy being replaced. Mr. Carter also indicated on the needs analysis form that the source of funds for the EquiTrust annuity purchase was "Stocks/Bonds/Mutual Funds." Mr. Carter knew that this representation was not correct. It was also inconsistent with the statement on the suitability questionnaire that the funds came from a checking account. On May 18, 2010, J.K. signed a letter, written by Mr. Carter, asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to Genworth, a company holding another annuity policy of J.K's. J.K. did not know who Mr. Pearson was and only signed the letter because Mr. Carter told her that it would help her save money. J.K. signed a letter, dated May 20, 2010, instructing EquiTrust to cancel the annuity she had with it. On May 23, 2010, Mr. Pearson submitted a form, signed by J.K., using the power of attorney, asking Genworth to liquidate an annuity held for W.K. On May 26, 2010, EquiTrust received the request to cancel J.K.'s policy and advised Mr. Carter. On May 31, 2010, Mr. Carter sent EquiTrust a letter saying that J.K. did not want to cancel and enclosed a letter he prepared, dated May 26, 2010, and signed by J.K. asking EquiTrust to withdraw the cancelation request. The letter also stated that an agent who provided her untruthful information initiated the request. On June 2, 2010, at Mr. Carter's urging, J.K. sent EquiTrust a letter saying she wanted to keep the EquiTrust policy. On June 2, 2010, Mr. Carter sent, by facsimile, a letter written by him and signed by J.K. asking Great American to make Peter Gotsis her annuity agent. J.K. did not know Peter Gotsis and only signed the letter because Mr. Carter asked her to. On June 29, 2010, EquiTrust received a check for an additional $90,302.19 premium for J.K.'s policy. In July 2010, with the assistance of employees at her bank and others, J.K. contacted an attorney. The attorney, Joan Hook, contacted Mr. Carter and the various companies with annuities. Due to the efforts of Ms. Hook, J.K.'s guardian, Ms. Rego, Ms. Karen Ortega of the Department, and others, the series of transactions were undone and J.K. returned to her position before the liquidation of the MasterDex 10 annuity. From December 2010 forward, it was clear to Mr. Carter or anyone else having regular dealings with J.K. that she is confused, uninformed about financial matters, compliant, reasoning poorly, and not capable of making sound decisions. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact combined with the fact that W.K. died several years before the hearing, makes it impossible to determine what representations Mr. Carter made to W.K. and J.K. and to determine what information or instructions they gave him. Much of the evidence related to Counts I through V is hearsay evidence that would not be admissible over objection in a civil action. In addition, there is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of W.K. and J.K., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the various products promoted by Mr. Carter or of the liquidation of the MasterDex 10. Mr. Carter willfully misrepresented information with regard to the applications for the Allianz and the EquiTrust annuities. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz and EquiTrust. Count VI--G.D. and K.D. G.D. lives in New Port Richey, Florida, where she moved from New York about 40 years ago. She was born on January 17, 1935, and has a ninth-grade education. G.D. had worked as a courier. Her investment experience consists of funding certificates of deposit (CDs), placing money in a mutual fund, and purchasing a Transamerica annuity. She is frugal and a conservative investor. G.D. is married to K.D. who was born April 12, 1927. Both are retired. G.D. met Mr. Carter in January 2010, when she responded to a postcard that he sent suggesting that he could save her money on taxes on social security payments. At that time, G.D. was 75 years old and K.D. was 83. G.D. was and is in bad health due to having suffered four strokes. She had difficulty speaking to Mr. Carter during his sales presentations. G.D. and K.D. disclosed to Mr. Carter that their total monthly family income, including social security and K.D.'s pension income, was approximately $2,400.00. They also disclosed that their assets included approximately $325,000.00 in CDs held with Suncoast Schools Federal Credit Union. G.D. and K.D. each owned an annuity, one with Hartford and one with Transamerica, which they told Mr. Carter about. Together, the annuities had a value of approximately $85,000. G.D. and K.D. also had approximately $66,000 in a money market account. Mr. Carter convinced G.D. and K.D. to liquidate their CDs to purchase two Allianz annuities called a MasterDex 10 Plus. One required payment of a $38,219.39 premium. The other required payment of a $287,365.00 premium. The couple applied for the annuities for G.D., with K.D. as the beneficiary, because he was the older of the two. Mr. Carter completed the applications, which they signed. Part six of the applications is titled: "Replacement (this section must be completed)." It asks two questions. The first is: "Do you have existing life insurance or annuity contracts?" Mr. Carter checked "no" as an answer. This was not correct, and he knew it. The second question asks: "Will the annuity contract applied for replace or change existing contract or policies?" This Mr. Carter correctly answered "no." Section six also asks for the amount of coverage in force. Mr. Carter did not provide this information. Mr. Carter also completed the Florida Senior Consumer Suitability Form Questionnaire for G.D. and K.D., which they signed. The form accurately reflects the couple's net worth, liquid assets, and income. It reports correctly that they owned or had owned CDs, fixed annuities, and variable annuities. The completed form also accurately reflects the couple's desire for guaranteed income. The form discloses that the annuity must be owned a minimum of 15 years to receive its maximum value. The MasterDex 10 Plus annuity is a complicated financial product with a ten percent "bonus" that the buyer does not receive unless she holds the policy for 15 years. In fact, holding the policy for 15 years is the only way to get the full benefit of the policy. While money may be withdrawn earlier, that results in losses of the benefits and in some cases penalties. For instance, if a policy holder chooses to liquidate the policy, the value she receives is only 87.5 percent of the premium paid with one percent interest for the period held. These provisions have a substantial financial effect on the benefits of the annuity. For example, in the fifth year, the cash surrender value of the $38,219.49 premium policy is $36,027.00. About ten months after purchasing the annuities, G.D. and K.D. began having second thoughts about the purchase of the annuities. G.D. consulted with the financial advisor "Wayne" at her bank. G.D. later concluded that she had also misunderstood the interest rate. Mr. Carter had shown her sales material with the ten percent "bonus," which generated a high interest rate of 13.3 percent for one year. But G.D. did not understand that the interest rate only applied in one year, and the money was not immediately available. On November 17, 2010, G.D., with Wayne's help, composed a complaint letter to Allianz that summarized her complaints and requested that her premium payments be returned without fees. On November 28, 2010, Carter responded with a letter to Allianz defending his annuity sales. On December 17, 2010, Allianz's employee, Mary Lou Fleischacker, advised G.D. by letter that the "free look" period for cancelling the contracts had passed. But Fleischacker did request further information about the sales. By two letters dated January 10, 2011, Allianz advised G.D. that she would suffer over $80,000 in penalties if she canceled the contracts. G.D.'s efforts to terminate the annuities prompted Carter to come uninvited into G.D.'s home and insistently demand that G.D. telephone Allianz and cancel her attempt to rescind the contracts. He also asked her, without explanation, to wait one week before liquidating the policies. G.D. refused. Carter repeatedly telephoned G.D. and returned uninvited to the house several times making the same demand. G.D. refused to answer her door. Mr. Carter came to G.D.'s daughter's house uninvited one evening, told her that her mother was going to lose a lot of money, and revealed her mother's financial matters to her. Mr. Carter demanded that G.D.'s daughter deliver to her mother for signature a letter he wrote rescinding the liquidation requests. G.D.'s daughter agreed to get Carter to leave. G.D.'s daughter feared for her mother's safety because of Mr. Carter's harassing telephone calls to her and her mother. She urged her mother to call the police. G.D. called the police and a New Port Richey officer told Mr. Carter to cease the harassment, and then filed a report on January 13, 2011. Mr. Carter did not contact G.D. or her daughter after that. Eventually, with the assistance of Department Investigator Ortega, G.D. was able to obtain the return of her funds from Allianz. There is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of G.D. and K.D., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the liquidation of the CDs and purchase of the MasterDex 10 Plus annuities as promoted and sold by Mr. Carter. Mr. Carter willfully misrepresented information with regard to the applications for the MasterDex 10 Plus annuity. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz. Mr. Carter's repeated, persistent, and overbearing efforts to require G.D. to speak with him about the cancelation and withdraw it demonstrate a lack of fitness to engage in the business of insurance. Count VII--G.B. G.B. was born on January 14, 1930. She has a high school education. G.B. worked at and retired from Lucent Technology wiring telephone boards. She receives a small pension. Her husband, K.B., managed their financial affairs before he died ten years ago. Before K.B.'s death, the couple maintained investment accounts with Schwab. After K.B.'s death, Schwab employee, Barry Tallman, recommended that G.B. seek financial advice from Christopher Trombetta, CPA. She did so. Mr. Carter and a colleague, Christopher Drew, met with G.B. on June 29, 2010. She was 70 years old, timid, and easily confused. G.B. had responded to a promotional postcard she received from them purporting that the law governing taxes on social security income had changed and that they could lower her taxes. Mr. Carter was the person who presented G.B. information and persuaded her to purchase an annuity in the course of a meeting that lasted one to two hours. The evidence does not permit a determination of what representations and information Mr. Carter presented in his sales meeting with G.B. Her memory of the meeting was not distinct. She was confused about the meeting and did not remember facts precisely or explicitly. Mr. Carter completed applications for EquiTrust annuity products. G.B. signed the applications. Mr. Carter also completed financial needs analyses. G.B. signed them also. A box that asks if the applicant is aware that the annuity may be "a long-term contract with substantial penalties for early withdrawal" was checked "yes." The form also accurately represented that the source of funds for the annuity premium was stocks, bonds, or mutual funds. The other representations in the form were accurate. Mr. Carter persuaded G.B. to purchase two EquiTrust Market Power Plus annuities. G.B. signed two EquiTrust annuity contracts ending with 29F (E-29F) and 30F (E-30F). The initial premium for E-29F was $458,832.71. The initial premium for E-30F was $118,870.34. Both annuities were designed to provide G.B. with income in 2036. The funds for the premium came from the liquidation of her stock brokerage account. Both contracts had 20 percent surrender charges for the first two years of ownership. G.B. could not have surrendered the contract with its full financial benefits without a penalty until she was 95 years old. Mr. Carter delivered the annuity contracts to G.B. on August 6, 2010. The contracts provided G.B. the right to cancel the annuity by returning it within 15 days of the date she received it. Soon afterwards, Barry Tallman notified G.B. that her Schwab accounts had been liquidated. Transamerica Agent William Pearson had liquidated the accounts to transfer the money for purchase of the EquiTrust annuities. She was surprised. G.B. grew concerned about the annuities and consulted Mr. Trombetta and a financial advisor named Judith Gregory on September 20, 2010. With their assistance, G.B. wrote a complaint letter to EquiTrust asserting that Mr. Carter had assured her, among other things, that the annuities would protect her money should she enter a nursing home. G.B. wanted to cancel the annuities and have her full premium returned. G.B.'s letter to EquiTrust said, "I do not want any calls or visits from the agent or the agent's office." Mr. Carter learned of the effort to cancel the annuities. On November 15, 2010, at Mr. Carter's suggestion, he and Mr. Drew returned to G.B.'s home uninvited and unannounced. Mr. Carter insisted on entering and speaking to G.B. Mr. Carter began loudly and forcefully arguing with G.B. She telephoned Mr. Trombetta and asked that he speak to Mr. Carter. Mr. Carter yelled at Mr. Trombetta. Mr. Trombetta credibly describes part of the conversation as follows: And before I could barely get that out, Rick exploded on me. He snapped and he started cursing up and down. F'n me up one side and down the other. And "you don't F'n know what you are talking about. You don't care about this person. You don't f'n know what you are doing;" and this and that. When G.B. returned to the telephone to speak with Mr. Trombetta, he advised her to call the police if Mr. Carter did not leave her house within five minutes. Mr. Carter and Mr. Drew left. EquiTrust eventually returned over $600,000 to G.B. There is no expert testimony evaluating and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of G.B.'s life expectancy which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the two annuities Mr. Carter sold G.B. Mr. Carter's conduct, in his unannounced visit to G.B. to try to persuade her to change her plans to liquidate the annuities and his conversation with Mr. Trombetta, demonstrated a lack of fitness to engage in the business of insurance.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order revoking the licenses of Richard Edward Carter. DONE AND ENTERED this 28th day of November, 2012, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 2012.
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
The Issue The issue for determination is what amount of attorney's fees and costs should be awarded to Petitioner for costs incurred in prosecuting the rule challenge case, Security Mutual Life Insurance Company of Lincoln, Nebraska vs. Department of Insurance and the Treasurer, DOAH Case No. 97-1132RU.
Findings Of Fact On March 11, 1997, Security Mutual Life Insurance Company, filed a Petition challenging three statements of Respondent, the Department of Insurance and the Treasurer, as unpromulgated rules. See Security Mutual Life Insurance of Lincoln, Nebraska vs. Department of Insurance and Treasurer, DOAH Case No. 97-1132RU. According to the Petition, the first statement concerned the Department's requiring that annuity contracts contain a table of guaranteed values. The second statement alleged to be an unpromulgated rule was that the Department disapproved contract forms labeled as "single premium annuity" contracts which permit additional contributions after the initial premium is made. The third statement challenged by Security Mutual as an unpromulgated rule involved a requirement of the Department that annuity contracts include a demonstration of compliance with Actuarial Guideline 33 to avoid form/rate denial. Throughout the proceeding below and in the Final Order issued pursuant thereto, the second and third challenged agency statements were referred to as the "Single Premium Statement" and the "Guideline 33 Statement." At the commencement of the final hearing in the proceeding below, pursuant to a stipulation, Security Mutual withdrew its challenge to the Department's alleged statement requiring that annuity contracts contain a table of guaranteed values. On May 19, 1997, the Final Order in the proceeding below, dismissed Security Mutual's petition as to the "Single Premium Statement," but determined that the "Guideline 33 Statement" should have been adopted by the rulemaking process. See Security Mutual Life Insurance of Lincoln, Nebraska vs. Department of Insurance and Treasurer, DOAH Case No. 97-1132RU. In the proceeding below, Security Mutual was represented by Sharon A. DiMuro, Esquire, of Ganger, Santry, Mitchell, and Heath, P.A. (law firm). The hourly rate of Ms. DiMuro and one other lawyer who worked on the rule challenge case was $175.00. The hourly rate of two other lawyers in the firm who worked on the case was $150.00. Ms. DiMuro expended a total of 180 hours in prosecuting the underlying rule challenge case; 172.2 of these hours were expended on issues on which Security Mutual prevailed. The remaining 7.8 hours were spent on matters related to the "Single Premium Statement" on which Security Mutual did not prevail. Thus, these 7.8 hours are deducted from Ms. DiMuro's total number of hours. The three other attorneys in the law firm expended a total of 12.7 hours on the underlying proceeding, all of which were attributable to work related to the "Guideline 33 Statement," the issue on which Security Mutual prevailed. The attorney, other than Ms. DiMuro, who earned $175.00 an hour worked on the rule challenge case 4.1 hours. The two attorneys, whose hourly rate was $150.00, worked a combined 8.6 hours on the case. With respect to its successful claim in the underlying case, the law firm expended a total of 184.9 hours. Of the total hours expended, 176.3 were billed at $175.00 an hour, and 8.6 were billed at $150.00 an hour. The $150.00 and $175.00 are reasonable hourly rates for the attorneys. Likewise, the time expended in prosecuting the underlying proceeding, 184.9, is reasonable. Based on the foregoing, Security Mutual incurred attorney's fees of $32,142.50 in maintaining and prosecuting the claim on which it succeeded. Security Mutual also incurred reasonable costs of $1,270.29 in connection with the underlying rule challenge proceeding. Moreover, in the instant proceeding, Security Mutual incurred taxable costs in the amount of $1,051.50 for the preparation and hearing time of its expert witness, Kenneth Oretel, of the law firm of Oretel, Hoffman, Fernandez and Cole, P.A. These costs were reasonable and necessary.
Findings Of Fact Respondent, Frank Alvin Lashman (Lashman), was at all times material hereto a licensed insurance agent in the State of Florida. Lashman is qualified for licensure and/or licensed as an Ordinary Life, including Health Agent, Dental Health Care Service Contract Salesman, and Legal Expense Insurance Agent. At all times material hereto, all funds received by Lashman from consumers or on behalf of consumers representing premiums or monies for insurance policies were trust funds received in a fiduciary capacity. Such funds were to be paid over to the insurer, insured, or other persons entitled thereto, in the regular course of business. On or about July 1, 1985, Lashman, as a general agent for American Integrity Insurance Company (American), solicited Martha Lunsford to purchase a medicare supplement insurance policy. On July 31 1985, Lashman secured an application for the subject insurance policy from Ms. Lunsford, and delivered to her a "certification" document which provided: That, I am a licensed agent of this insurance company and have given a company receipt for an initial premium in the amount of $189.20 which has been paid to me by ( ) check (x) cash ( ) money order. The proof establishes that Lashman did not receive the initial quarterly premium of $189.20 from Ms. Lunsford, or give a company receipt for any monies. Rather, Lashman collected $25.00 on July 3, 1985 with the intention of submitting the application to American once he had collected the entire initial premium. Over the ensuing months Lashman visited Ms. Lunsford on a number of occasions to collect the balance due on the initial premium. While the proof is uncontroverted that the full premium of $189.20 was never paid, there is disagreement as to the total amount Ms. Lunsford paid to Lashman. The premium installments Ms. Lunsford paid to Lashman were in cash. Lashman kept no record of the amount or date of payment, and gave no company receipt for the monies collected. The only evidence of payment Lashman provided to Ms. Lunsford was a brief note on the back of his business cards stating the amount received. The last business card he gave to Ms. Lunsford reflects a payment of $60.00, and a balance due of $9.00. On balance, the proof establishes that Ms. Lunsford paid to Lashman $180.20 toward the initial premium of $189.20. Under the terms of Lashman's general agent's contract with American, he was: . . . authorized to solicit applications for insurance for (American), to forward these applications to (American) for approval or rejection, and to collect only the initial premium payment due on such applications. While American averred that Lashman's contract did not permit him to collect the initial premium payment in installments, there is no such prohibition contained in the agreement or proof that Lashman was otherwise noticed of such a prohibition. Accordingly, there is no proof that Lashman committed any offense by collecting the premium in installments, by failing to remit any monies to American until he was in receipt of the full initial premium, or by failing to submit the application to American until the initial premium was paid in full. Although Lashman is free of wrongdoing in the manner in which he strove to collect the initial premium and his delay in submitting the application to American, the proof does establish that Lashman breached a fiduciary relationship by failing to safeguard and account for the monies collected. On November 22, 1985, Ms. Lunsford filed a criminal complaint against Lashman for his failure to secure the subject insurance policy. Incident to that complaint, Lashman was interviewed by a criminal investigator with the State Attorney's Office and served with a subpoena duces tecum which required the production of: ANY AND ALL RECORDS PERTAINING TO THE INSURANCE POLICY SOLD TO . . . MARTHA D. LUNSFORD ON JULY 3, 1985 BY FRANK LASHMAN, ACTING AS AGENT FOR AMERICAN INTEGRITY INSURANCE COMPANY. During the course of his interview, Lashman told the investigator that he had not procured the policy because the initial premium had not yet been paid in full. Lashman further stated that although he kept no records of the payments made, all funds received from Ms. Lunsford had been deposited in his account with Florida National Bank. As of December 20, 1985, Lashman's account with Florida National Bank carried a balance of $5.81. At hearing Lashman averred that he had erred when he advised the investigator that he had deposited the monies he received from Ms. Lunsford in his account with Florida National Bank. According to Lashman, he put the money, as he collected it, into an envelope, which he kept in the file with Ms. Lunsford's insurance papers. Lashman's explanation for not exhibiting the envelope and money to the investigator when questioned was ". . . he didn't ask me for that." Lashman's explanation is inherently improbable and unworthy of belief. On January 12, 1986, the investigator advised Lashman's attorney that a warrant had been issued for Lashman's arrest on the complaint filed by Ms. Lunsford. On his counsel's advice, Lashman sent Ms. Lunsford a cashier's check in the sum of $149.00, as a refund of premiums paid. Ms. Lunsford did not negotiate the check, nor was it of a sufficient sum to represent a return of all premiums paid by Ms. Lunsford.
