Findings Of Fact The Respondent, John Edward Gonzalez, is licensed in the State of Florida as a life and variable annuity agent and as a life, health and variable annuity agent. During 1992, he was employed by Metropolitan Life Insurance Company (MetLife). The Respondent worked out of MetLife's Southeastern Head Office in Tampa under its marketing head, Rick Urso. Under Urso, the Tampa office developed a scheme for marketing whole life insurance to nurses as an "insured nurses' retirement" plan or program. The goal of the scheme was for the nurses to apply for a whole life insurance policy before they realized that the "insured nurses' retirement" plan or program consisted of nothing more than a whole life insurance policy. Under the marketing scheme, MetLife's Tampa office would mail unsolicited "pre-approach" letters to nurses informing them of a supposedly new retirement savings plan available to professional nurses. The "pre-approach" letter touted the retirement investment's high current interest rates, the availability of the investment's cash fund for emergencies and opportunities, the ability to make "deposits" monthly, an optional "disability benefit," and a guaranteed income at retirement. The wording of the "pre-approach" letter was designed to disguise the fact that the supposedly new retirement savings program was nothing more than a whole life insurance policy. The "pre-approach" letter allowed the recipient to tear off a form at the bottom of the letter to fill in and mail to MetLife for more information. In the spring of 1992, an unsolicited "pre-approach" letter was mailed from MetLife's Tampa office to Sharon Ward, a registered nurse living in Fort Worth, Texas. The letter was signed by the Respondent. If the "pre-approach" letter had given Ward notice that she was being solicited for life insurance, she would have disregarded it. She already had all the life insurance she wanted. However, she was interested in saving and investing for retirement, so she responded by requesting more information. Under the marketing scheme, responses from recipients of the "pre- approach" letter ordinarily would be referred to the MetLife insurance agent who mailed the letter. The agent would telephone to schedule an appointment. Ward's response was referred to the Respondent as the agent who signed the "pre- approach" letter to her. The Respondent was trained in MetLife's Career Success School (CSS) to telephone nurses responding to "pre-approach" letters to schedule an appointment. No information was intended to be imparted during this telephone contact; certainly, the agent was not to reveal that whole life insurance was being solicited. In accordance with his CSS training, the Respondent telephoned Ward during the spring of 1992 and scheduled an appointment to meet with her at her home in Fort Worth. If the Respondent had revealed to Ward that he was soliciting for life insurance, she would not have agreed to the appointment. However, as planned by the MetLife Tampa office and the Respondent, she agreed to an appointment to learn more about the "nurses' retirement savings" plan. CSS also trained the Respondent and other MetLife agents in how to deliver a scripted presentation to a nurse at the scheduled appointment. The script was carefully worded to entice the nurse to apply to be accepted in the "nurses' retirement savings" plan or program without revealing that it consisted of nothing more than a whole life insurance policy. Whole life insurance was not mentioned in the script; once in the eleven page script, it was mentioned that "the retirement account provides an insurance benefit to protect it." Otherwise, the script gave no indication that life insurance was involved. The script never mentioned insurance premiums; instead, it referred only to "deposits," "contributions," or "savings." While the "optional disability benefit" referred to in the "pre-approach" letter was nothing more than the standard life insurance "disability waiver of premium," those words were not used; instead, the script described how, in the event of a disability, "Met will keep saving for you." The word "policy" was not mentioned; instead, the script offered to have MetLife "open an account" for the prospect. One of the big selling points emphasized in the script was MetLife's reputation, assets and security. Another big selling point was flexibility. While informing the prospect that the retirement savings plan is meant for long- term investment, the plan is contrasted with IRA's and other investments that penalize withdrawal of cash before retirement. CSS trained the Respondent and other MetLife agents to use a "Track Book" for illustrative purposes while delivering the scripted presentation. Life insurance was mentioned in parts of the "Track Book," but the "Track Book" was to be shown to prospects during the course of a presentation in a manner designed to preserve the disguise of the nature of the "nurses' retirement savings" plan or program. When the Respondent met with Ward in the spring of 1992 at her home in Fort Worth, he followed the CSS scripted presentation exactly, and it worked as designed. When Ward agreed to "apply," she had no idea that she was applying for a whole life insurance policy; she thought she was opening a retirement savings and investment account. Had she known that the Respondent was soliciting life insurance, she would have declined. When Ward agreed to apply, the Respondent took information from Ward and filled out the application for her, as he was trained to do in CSS. Some of the information for the application--e.g., the names of beneficiaries--was consistent with a life insurance application, but also not inconsistent with information required for opening a retirement savings account. Other information was less consistent with opening a retirement savings account, such as health history; but that type of information may not have been considered to be inconsistent with the "insurance protection" and "disability option" the plan was supposed to have. After completing the information on the application, the Respondent had Ward sign. Under the marketing scheme, it was hoped that the nurse would sign the application without reading it to determine that it was an application for life insurance. On the other hand, a nurse who read the application and determined that it was a life insurance application might assume that it was an application for the "insurance protection" and "disability option" the plan was supposed to have. In Ward's case, the scheme worked to perfection. While the Respondent did not prevent Ward from reading the application, he did not encourage her to, and she did not read it. She did not know it was an application for life insurance. Had Ward known that it was an application for life insurance, and that the "retirement savings" program was nothing more than a whole life insurance policy, she would not have applied. In accordance with the CSS marketing scheme, the Respondent left a brochure with Ward before he returned to Tampa. The brochure reiterated the major selling points of the "Nurses Insured Retirement Plan." Like the other marketing literature, the brochure was worded so as not to reveal that the "retirement plan" consisted of nothing more than a whole life insurance policy. In accordance with the CSS marketing scheme, after the Respondent's return to Tampa, a letter was sent to Ward signed by the Respondent as "Account Representative," dated August 13, 1992, congratulating Ward on her "foresight in starting an insured retirement savings program." (The Respondent denied that he signed the letter or authorized it to be signed for him by someone else. But the Respondent knew the substance of the congratulatory letter sent to a prospect at this stage of the sales process, and he did not protest when he learned that one had been sent to Ward over his signature.) As with prior communications with Ward, the letter was worded so as not to alert her to the nature of the "program"--i.e., that it was nothing more than a whole life insurance policy. It never mentioned life insurance. In accordance with the CSS marketing scheme, the Respondent's manager also sent Ward a letter of congratulation later in August, 1992, advising her that her "plan" had been approved and that her "Account Representative" (the Respondent) would be telephoning to make an appointment to "review the benefits and flexibility of your Retirement Program in detail." As with the Respondent's August 13 letter, the manager's letter was worded so as not to alert Ward to the nature of the "program"--i.e., that it was nothing more than a whole life insurance policy. It never mentioned life insurance. When Ward received a whole life insurance policy in the mail, she filed it away without reading it. Had she read it, she probably would have been able to determine what it was. If she had made this determination within ten days of receipt of the policy, she might have been able to cancel it and get a full refund; on the other hand, she might have assumed that it was the "insurance protection" her "retirement savings plan" was supposed to have. After about a year of making her monthly payments as they came due, Ward changed jobs, and her new employer gave her the opportunity to begin a Section 401K retirement account. When she attempted to transfer her MetLife funds into it, she learned for the first time that her MetLife retirement "account" consisted of a whole insurance policy that had no cash value yet. Ward tried to contact the Respondent to complain but he did not return her calls. When she pursued it further with MetLife, MetLife initially refused to refund her money. MetLife asked for the Respondent's version of what had happened, and the Respondent reported essentially that he had followed the CSS training. The Respondent let MetLife handle the matter from there. It was not until after Ward requested the assistance of the Texas Insurance Commissioner that MetLife finally refunded her money. The Respondent did not question the legality of the marketing scheme devised by the Tampa office of MetLife. He assumed that MetLife and the Florida Department of Insurance had approved it. There was no evidence that the Department or even MetLife had in fact approved the scheme. The Respondent sold many whole life insurance policies using the CSS methods. (He received MetLife's Leader's Conference Award for high sales.) No customer other than Ward has filed a complaint against him.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance and Treasurer enter a final order finding the Respondent guilty of the violations charged and suspending his licenses and eligibilities for six months. DONE and ENTERED this 7th day of August, 1996, in Tallahassee, Florida. J. LAWRENCE JOHNSTON, 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 7th day of August, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-2220 To comply with the requirements of Section 120.59(2), Florida Statutes (1995), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-37. Accepted and incorporated to the extent not subordinate or unnecessary. Cumulative. Cumulative and argument. Respondent's Proposed Findings of Fact. 1.-2. Accepted and incorporated. 3. Conclusion of law. 4.-5. Accepted and incorporated to the extent not subordinate or unnecessary. 6. Accepted but subordinate and unnecessary. 7.-10. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence that the Track Book "consistently referred to life insurance" or that it was used as a "visual aid." It contained some references to life insurance but did not, and was not used so as to, make it clear that what the Respondent was selling was a whole life insurance policy. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence in that the entire marketing scheme gave him reason to believe it was illegal; accepted and incorporated that MetLife did not indicate to him that its scheme was illegal. In part, rejected as contrary to the greater weight of the evidence. See 13., above. In part, accepted and incorporated. See Finding 21, above. Cumulative. Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. Accepted but subordinate and unnecessary. Rejected as contrary to the greater weight of the evidence that he gave her "every opportunity"; otherwise, accepted and incorporated. Rejected as contrary to the greater weight of the evidence that all were sent out by MetLife management or that any were approved by the Department. Otherwise, accepted and incorporated. it.) Accepted but subordinate and unnecessary. (The Respondent identified Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. Accepted and incorporated. However, it was MetLife's explanation as to why she could not transfer funds from her MetLife "retirement account" that finally revealed to her that it was nothing more than a whole life insurance policy. Accepted but subordinate and unnecessary. Accepted and incorporated. COPIES FURNISHED: Willis F. Melvin, Jr., Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Stacey L. Turmel, Esquire Maney, Damsker, Harris and Jones, P.A. Post Office Box 172009 Tampa, Florida 33672 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue for consideration is whether Respondent's licenses as an insurance agent and his eligibility for licensure in various areas of insurance sales should be disciplined because of the matters set forth in the Administrative Complaint.
Findings Of Fact At all times pertinent to the allegations contained herein, the Department of Insurance and Treasurer was the state agency responsible for the regulation of and licensing of insurance professionals in Florida. The Respondent, Richard Lee Fast, was licensed and eligible for licensure in Florida as a life insurance agent, life and health insurance agent, home warranty association contracting sales representative, and solicitor-property, casualty, surety, and miscellaneous lines agent. In June, 1978, Fast & Co., an insurance sales firm, was organized under the laws of Florida. Corporate records and records maintained by the Florida Secretary of State's office reveal that at no time pertinent to the matters involved herein was Respondent listed as an officer, director or shareholder of the corporation. Notwithstanding, the evidence clearly indicates that Respondent was in charge of and dictated the daily operations of the firm. Richard Fast, Jr., the Respondent's son, was identified on the records as President of the firm yet had no managerial role whatever regarding the firm's activities. Both Respondent's wife and daughter were listed as corporate officers but the evidence also indicates that the majority of the company's accounts and business was generated and handled by the Respondent. At no time did Respondent dispute his control over the daily operations of Fast & Co. Therefore, though there may have been no direct evidence of who solicited or sold the policies to American and Sunniland banks, it is clear that Respondent was the guiding force for and architect of the company's business activities and knew at all times what major policies were in force and by whom they were written. Sydell Rubin was hired by Respondent as corporate secretary for Fast & Co. and indicated that during the lifetime of the corporation few if any formalities of corporate activity were observed. No shareholder, director, or officer meetings were held; no corporate minutes were kept; and only the Respondent could authorize the issue of checks drawn on the corporate bank account. Ms. Rubin, as corporate secretary, could sign corporate checks, but only with the Respondent's knowledge and consent, and he maintained complete control over the remittance of premium monies to insurers. In November, 1979, Fast & Co. entered into an agreement with Fidelity whereby Fast & Co. would serve as agent for Fidelity. This agreement was executed on behalf of Fast & Co. by Ms. Rubin and contained, in the various provisions thereof, the terms by which Respondent's company was to remit premiums earned to the insurance company. Specifically, at paragraph six, the agent, Fast & Co., was to provide Fidelity, before the 20th of each month, an account of all business written, renewed or cancel led during the preceding month and, thereafter, was to remit to the company, within 45 days after the end of the month for which the account was written, the net premium due. In the event the agent did not submit the account in a timely fashion, Fidelity was to submit its accounting to the agent for the preceding month, again, the net premium due was to be paid by 45 days after the end of the month for which the account was rendered. Paragraph eleven of the agreement provided that any monies collected on behalf of the company by the agent should be held in a fiduciary capacity and kept separate and apart from the agent's own funds and, consistent with paragraph fifteen of the agreement, the agreement could not be assigned without the consent of both parties. In October, 1985, a corporate resolution of Fast & Co. was executed by the Respondent which authorized certain individuals to have check signatory authority for the Fast & Co. business bank account with American National Bank. On this resolution, Respondent was identified as President of the corporation and signed the resolution as such. In fact, he was not President, but had he not appeared on the resolution as an officer, he would not have been allowed unlimited control over the corporation's accounts at American. In October, 1988, Fast & Co. received a check in the amount of $17,351.00 from American for the purchase of an insurance policy to be issued by Fidelity. In October, November, and December, 1988, Fast & Co. also received three checks from Sunniland Bank of Ft. Lauderdale, in the total amount of $19,478.75, also for the purchase of insurance policies from Fidelity. All these checks were endorsed and deposited into Fast & Co. `s business bank account. It was not shown who actually endorsed the checks or made the deposits. So much Of the payment as was not commission, however, was premium earned by Fidelity and under the terms of the agency agreement, should have been held for it in a fiduciary account kept separate and apart from Fast & Co. funds. It was not a Fast & Co. asset. The policy for American was issued by Fidelity effective October 1, 1988, and the Sunniland Bank policies were issued by Fidelity with an effective date of December 8, 1988. American's invoice was sent by Fidelity to Fast & Co. on November 9, 1988 and the invoice for the Sunniland Bank policies was forwarded by Fidelity on December 21, 1988. The net premium due on all policies, together, after deduction of commission due Fast & Co., was $30,012.40. The invoice forms were not, however, the account forms referred to by the agency agreement. The first account form on which the relevant policies appear was dated February 29, 1989. That statement referred to the policies effective in October, 1988 (American) and December, 1988, (Sunniland). Petitioner and Fidelity urge that the earlier notice as to each policy starts the 45 day period running. Respondent, of course, claims it is the later "statement of account." Since the "account statement" was sent by Fidelity, listing all outstanding balances due, consistent with the terms of the agency agreement which call for the submittal of an account by Fidelity in the event Fast & Co. does not do it, it is more reasonable to conclude that it is the latter. In late December, 1988, certain assets of Fast & Co. were sold by the Respondent to Loomis Management Company, (Loomis). The sale was consummated after an extended negotiation between Fast and Loomis during which time representatives of Loomis were given free access to Respondent's books and records. Included as an asset which was assigned to Loomis was the Fast & Co.'s agency agreement with Fidelity and according to the terms of the sales agreement, Loomis assumed "the duties and obligation of Fast & Co." Notwithstanding the provision of the agency agreement for notification of and obtaining consent to a transfer, no notice of the transfer was submitted to Fidelity by either Fast & Co. or Loomis, nor was Fidelity's consent to the transfer obtained prior to closing of the sale. The $30,012.40 premium held by Fast & Co. for Fidelity as a result of the sale of the American and Sunniland policies was not transferred to Loomis. It was not remitted to Fidelity, either, notwithstanding the provision of the agency agreement, which required Fast & Co. to remit earned premiums due the company in a timely fashion. The money in question was maintained by Fast & Co. and was not transferred to Loomis, and notwithstanding the fact that Fidelity contacted Respondent on several occasions throughout 1989 demanding remittance of the premium due, the money was not remitted. Finally, on December 30, 1989, after extended discussion with Fidelity regarding the delay in payment, Mr. Fast issued a check to Fidelity's agent in the amount of $30,012.40, drawn on the Fast & Co. corporate bank account, in full payment of the premium on the American and Sunniland policies. This check was dishonored by the bank upon presentation. To the date of hearing, the earned premium has not been remitted to Fidelity and as of the hearing date, those monies are unaccounted for. Respondent claims they are no longer in his custody and he disclaims any responsibility for their payment. He claims that because the agency agreement called for payment only at 45 days after the last day of the month for which the account was rendered, and since the accounting calling for payment was not sent by Fidelity until well after the policy effective date and the issuance of the preliminary invoices, the funds were not payable to Fidelity as of the date of the transfer of the corporate assets to Loomis and, therefore, the terms of the sale agreement between Fast and Loomis, calling for Fast to pay-only those obligations due and payable at the time of transfer, did not include that obligation. Respondent also shrugs off the issue of why, since the funds had been collected from the insured, they were not considered held in a fiduciary capacity to be transferred to Loomis by indicating Loomis representatives had ample opportunity to examine the books and the issue was not raised. His arguments are specious and without merit.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be issued in this case revoking all Respondent's licenses and eligibility for licensure. RECOMMENDED in Tallahassee, Florida this 21st day of November, 1991. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of November, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 91-4320 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER; Accepted and incorporated herein. & 3. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. - 8. Accepted and incorporated herein. 9. & 10. Accepted and incorporated herein. 11. - 14. Accepted and incorporated herein. 15. Rejected as not a proper Finding of Fact. FOR THE RESPONDENT; Accepted and incorporated herein. - 4. Accepted and incorporated herein Accepted and incorporated herein. Accepted in the sense that he worked at Fast & Co. & 8. Rejected as implying Ms. Rubin was acting for American. Ms. Rubin completed the form for American, but it is clear she did so as an employee of Fast & Co. at the request of American. 9. & 10. Accepted and incorporated herein. 11. & 12. Accepted and incorporated herein. Accepted, but see (7. & 8.). - 17. Accepted and incorporated herein. Accepted. Rejected as contra to the weight of the evidence. 20.- 22. Accepted. Accepted. Accepted. & 26. Rejected. 27. & 28. Rejected as not pertinent to the issues of fact herein. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 Charles L. Curtis, Esquire 1177 Southeast Third Avenue Fort Lauderdale, Florida 33316 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neill Deputy General Counsel Department of Legal Affairs The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue Whether Respondents committed the violations alleged in the Administrative Complaints, and, if so, what penalties should be imposed on either or both of them.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Respondent, Eduardo Enrique Mendez ("Mendez"), at all times material to this matter, was a licensed insurance agent subject to the regulatory jurisdiction of the Petitioner. Petitioner issued Mendez license number A176292. Mendez is licensed as a 2-18 life and health agent and a 2-20 general lines agent for the sale of property and casualty. Mendez first started in the insurance business in 1969 while in Panamá. He came to the United States in 1988. In South Florida, he has been known as "Mr. Panama" in the insurance industry for approximately 20 years. Respondent, Insurance Resources of the Americas, Inc. ("Insurance Resources"), is and was, at all times material in this matter, a corporation registered as a Florida insurance agent subject to the regulatory jurisdiction of Petitioner, having been issued license number R054007. Mendez is the corporation's owner and president. Insurance Resources typically handles all kinds of property and casualty insurance, but for approximately the last six years has specialized in the used car dealer business by providing bonds for the car dealers to open their operation. Bass Underwriters ("Bass") is a managing general agent which works with insurance agents who purchase insurance for their customers. Bass has no direct relationship with the customers only with the retail agent who is responsible for collecting the premium. On January 22, 2003, Insurance Resources, as producer, and Bass signed a producer agreement which allowed Insurance Resources to sell insurance through Bass or certain carriers that Bass obtains as a wholesaler. Insurance Resources received commissions as compensation under the agreement. The agreement contained a provision which guaranteed the collection of additional premiums that might arise as a result of an audit of the insurance customers. The provision provided in relevant part: Producer shall be liable to Bass Underwriters, Inc. for the full amount of premium, fees and applicable sum taxes, less commission, including additional and/or adjustable premiums developed under audits or applicable rating plan on every insurance contract placed by Producer through Bass Underwriters, Inc. Producer shall remit Twenty Five Percent (25%) of the premium upon binding. The full amount of premium, fees and applicable state taxes, less commission is due to Bass Underwriters, Inc. not later than the 15th day of the first (1st) month after the effective date of such contract, audit, rating plan, or other adjustment. During the term of the producer agreement, three policies were issued that Bass determined additional premiums were owed by Insurance Resources. On June 29, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, L. Boulevard Café, in the amount of $6,955.00. L. Boulevard Cafe, a restaurant, obtained a Century Surety policy through Insurance Resources effective November 15, 2004. In making the application, the restaurant declared a certain amount of projected sales. The premium was based upon the total sales recorded by the customer. Century Surety did a self audit and determined that the amount of sales was significantly more than the coverage. Subsequently, the carrier went back and assessed additional premiums to make up the difference between the amount of coverage represented and the self reported amount, which totaled $6,955.00. Around August 2005, after receiving the Bass invoice with the additional premiums, Insurance Resources notified L. Boulevard Café about the invoice and explained that the additional insurance premium of $6,955.00 was owed because of the difference in the amount calculated from the audit. Mendez notified Rafael Garcia, prior owner of L. Boulevard Café, about the additional insurance premium but L. Boulevard Cafe was having financial problems. L. Boulevard Café never made the additional premium payment. On July 1, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Winner's Circle, in the amount of $418.00. Winner's Circle obtained a XL Specialty Insurance Company policy through Insurance Resources effective May 23, 2005. An inspection was performed after the policy quote was bound and issued. The subsequent inspection concluded that the construction code of the building was different from the construction code represented on the application. The difference triggered a premium increase of $418.00. When Insurance Resources found out about the additional premium for Winner's Circle, Mendez sent an invoice explaining the increase and requesting payment. Winner's Circle refused to pay the amount because the policy was issued under a lower premium. Winner's Circle decided not to keep the policy when Respondent requested that they make payment of the additional premium amount and the balance of the premium on the policy. Payment was never made. The policy was cancelled. The account was credited and the final total owed was $160.40, which Bass became responsible for with the carrier. On July 11, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Venecar, Inc., in the amount of $1,298.00. Venecar, a small used car dealership, obtained a Century Surety policy through Insurance Resources effective July 18, 2004. The insurance inspectors did an inspection after the policy was issued and determined that one more employee and driver than had been represented in the application existed and that employee generated a change in the rating for the premium, which Bass ultimately decided was an additional premium of $1,298.00. After Insurance Resources learned about the results of the inspection, Mendez called Bass and told Ms. Rodriguez, the accountant, that the premium increase of $1,298.00 was too high and could not be the proper rate for one driver because one driver should be around $400.00. Bass ignored Mendez's proposition. Subsequently, Mendez told Venecar about the outstanding premium amount owed and they refused to pay. Insurance Resources followed up and contacted Venecar several more times requesting the additional premium payment to no avail. Soon thereafter, Venecar closed. Mendez reported his efforts to Bass while he tried to collect the three changed premium amounts. Insurance Resources never collected the additional premium from L. Boulevard Café, Winner's Circle, or Venecar even though Mendez repeatedly sought to get the outstanding premiums from all three insured customers. Despite Respondents best efforts, they never received any of the additional premiums that accrued. Bass still expected Insurance Resources to pay the additional premiums pursuant to the producer agreement. On May 1, 2006, Bass sent Insurance Resources a statement of account. The invoice statement informed Insurance Resources that the premium due for the three different accounts totaled $8,021.39. The statement outlined the amount owed from each insured. After Bass made several demands for the three accounts, Bass submitted the account to collections and the matter ultimately ended in litigation. On November 5, 2007, a final judgment was entered against Insurance Resources in favor of Bass for the principal of $8,021.39, costs of $275.00, and prejudgment interest of $1,298.14, for a total of $9,594.53. The judgment remains unsatisfied. On February 15, 2008, Insurance Resources paid $1,919.00 on the judgment. On February 29, 2008, Insurance Resources paid $640.00 on the judgment. There is a balance owed of $7,035.53. Insurance Resources also had a relationship with AAPCO, a premium finance company that financed the balance of what an insured could not pay. Respondent Insurance Resources was an authorized entity to accept premium finance contracts utilizing AAPCO premium finance. Insurance Resources had the authority to write check drafts on AAPCO's bank account for the entire premium amount owed on a customer's insurance policy and remit it to the insurer. Respondent would then submit the policy application together with the premium down payment received from the consumer to AAPCO, which would finance the rest of the policy premium. In 2009, Insurance Resources was having problems financially. Mendez approached Mrs. Blanco, AAPCO's office manager, and told her Insurance Resources sales had dropped fifty percent. Mendez, on behalf of Insurance Resources requested to make a payment arrangement.1 Blanco refused to make any type of arrangements. She insisted that Insurance Resources pay everything up front. Mendez approached her several more times but she would not negotiate. At one point, Mendez even requested that AAPCO place the $4,000.00 in producers fees owed to Insurance Resources against the monies owed and she refused to pay Respondent the $4,000.00 In 2009, Mendez submitted three checks to AAPCO's as down payments for insureds' accounts. Check number 1347 was for $10,228.47. The check was from account number 2000034377804 Mr. Panama Inc.'s account. Check number 1342 was from the same account in the amount of $2,828.15. However, check number 159 was for $3,368.44 from Insurance Resources account number 2000040742805. Checks 1347, 1342, and 159 totaled approximately $16,425.00. The funds were intended to be premium down payments on insurance policies purchased by Florida insurance consumers. Insurance policies were issued for each of the checks for down payments for insured's accounts Insurance Resources submitted. AAPCO deposited the three checks and they were submitted to the bank for negotiation. Each check was returned for insufficient funds. AAPCO attempted to collect the money for the three checks that were returned for non-sufficient funds. AAPCO demanded payment of the funds and even called Mendez in an effort to collect the funds. Mendez admitted at hearing that the three checks bounced because he had used the funds for his business operating account since the business was doing bad financially. Insurance Resources had not yet repaid AAPCO their monies owed for the three checks. AAPCO has suffered a financial loss due to nonpayment. After nonpayment, AAPCO turned the matter over to AAPCO's legal department. After an investigation, Petitioner charged Respondents with numerous violations by separate Administrative Complaints dated April 21, 2010. The Charges: In Count I of the Administrative complaint filed against Mendez, Petitioner charges Mendez with violations of sections 626.561(1), 626.611(7), (9), (10), and 626.621(4), Florida Statutes, for failing to remit all premiums due to Bass. In Count II, Petitioner charges Mendez with violations of sections 626.561(1),626.611(7), 626.611(9) and (10), and 626.621(4) for submitting the three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand. In Count I of the Administrative complaint filed against Insurance Resources, Petitioner charges Insurance Resources with violation of sections 626.561(1),626.6251(5)(a),(d),(f),(j), and (k) for failing to remit all premiums due to Bass.2 In Count II Petitioner charges Insurance Resources with violations of sections 626.561(1), and 626.6251(5)(a),(d), (f),(j), and (k) for remitting three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand.
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 that: (a) finds Respondents not guilty as charged in Count I, of the Administrative Complaints; (b) finds Respondents guilty in Count II; (c) suspends Respondent Mendez's license for 12 months with reinstatement conditioned upon repayment to AAPCO; and (d) suspends Respondent Insurance Resources' license for three months with reinstatement conditioned upon repayment to AAPCO. DONE AND ENTERED this 28th day of February, 2011, in Tallahassee, Leon County, Florida. S JUNE C. MCKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 2011.
Appeal For This Case Unless expressly waived by a party, such as in a stipulation or in other similar forms of settlement, any party substantially affected by this final order may seek judicial review by filing an original Notice of Appeal with the Agency Clerk of the Department of Management Services, and a copy, accompanied by filing fees prescribed by law, with the Clerk of the appropriate District Court of Appeal. The Notice of Appeal must be filed within thirty (30) days of rendition of this order, in accordance with Rule 9.110, Fla. R. App. P., and section 120.68, Florida Statutes. Certificate of Clerk: Filed in the office of the Clerk of the Department of Management Services onthis ($7 day of January, 2014. LEZ Michael Sivitla, Agency Clerk
The Issue The issues in this case are whether the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA) failed to comply with applicable requirements and standards of Part I of Chapter 627, Florida Statutes, when it utilized a request for proposals (RFP) in autumn 1995 to arrive at its decision in early 1996 to contract with Intervenors, Audubon Insurance Company (Audubon), AIB Holdings, Inc. (AIB), and American International Insurance Company (AIIC), but not with the Petitioner, Bankers Insurance Company (Bankers), for insurance policy servicing work through the year 1999. Specifically, Bankers asserts: (1) that FRPCJUA improperly gave policy servicing work to AIB, which is not a licensed insurance company; that FRPCJUA violated Chapter 287, Florida Statutes, regarding competitive bidding requirements for state agencies; that, regardless whether Chapter 287 is applicable, whether FRPCJUA acted arbitrarily and in bad faith instead of using procedures equivalent to the procedures found in Chapter 287, Florida Statutes; and (4) that FRPCJUA violated the Government in the Sunshine Law, Chapter 286, Florida Statutes. The Respondent, the Department of Insurance (the Department), and the Intervenors oppose Bankers' assertions. After initially seeking maintenance of the status quo or a contract on the same terms as the others, Bankers now seeks money damages from FRPCJUA, including attorney fees and costs.
Findings Of Fact In response to Hurricane Andrew, which struck in September 1992, insurers either stopped or significantly curtailed writing residential property and casualty insurance in Florida, or in parts of Florida. In response to this crisis, the Florida Legislature enacted Section 627.351, Florida Statutes, which created the Intervenor, the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA). FRPCJUA is an unincorporated association of insurers licensed to write residential property and casualty insurance in Florida. In addition to the licenses held by its members, FRPCJUA itself also is required by law to be licensed by the Respondent, the Department of Insurance (Department), as an insurer in Florida. FRPCJUA is governed by a Board of Governors chosen in accordance with the statute; some members are appointed by the Insurance Commissioner. The Petitioner, Bankers Insurance Company (Bankers), was represented on the initial FRPCJUA Board of Governors. The FRPCJUA Board hires an executive director and other staff to conduct the day-to-day operations of FRPCJUA. The evidence indicates that Florida Representative John Cosgrove and his staff were the primary drafters of the FRPCJUA legislation and that the House Insurance Committee he chaired was its primary sponsor. Rep. Cosgrove believed that the legislation did not intend to authorize FRPCJUA to contract with non-insurers for policy and claims servicing. Rep. Cosgrove's primary reasons for wanting to limit policy and claims servicing to insurers were to ensure the financial backing of those doing the work and to maintain regulatory control over them. However, policy and claims servicing providers bear no policy risk, and the Department maintains regulatory control over FRPCJUA both under the Section 627.351 and under the statutes regulating licensed insurers. Insurance Commissioner, Tom Gallagher, and his staff also were involved in the enactment of the FRPCJUA legislation. Commissioner Gallagher believed that the legislation authorized FRPCJUA to contract with non-insurers for policy and claims servicing. He believed that the legislation was not designed to enable insurers, who had "created" the insurance crisis by refusing to write or curtailing the writing of, insurance, to keep the lucrative policy and claims servicing to themselves. Section 627.351 requires FRPCJUA to operate pursuant to a plan of operations approved by the Department. FRPCJUA's first plan of operations and its articles of association were approved by the Department in 1993. The First Amended Articles of Association were approved by the Department on December 29, 1993. Before approving them, the Department reviewed both of these documents and required FRPCJUA to make corrections or revisions. Both of these documents provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. In addition, they provided that FRPCJUA itself could provide those services. Bankers' President, David Meehan, was on the FRPCJUA Board when it produced the first two versions of FRPCJUA's plan of operations. Bankers never objected to the provisions for the use of non-insurers to provide policy and claims services. In accordance with the plans of operation, FRPCJUA formed the Shared Market Insurance Services, Inc. (SMISI) to provide policy and claims services for FRPCJUA. SMISI in turn contracted with other entities, including Intervenor, Policy Management Services Corporation (PMSC), which did policy servicing using a computer system it developed called the Point System. In addition to the SMISI contract, FRPCJUA also had policy and claims servicing contracts with five servicing carriers: Bankers; Diamond State Insurance Company; Fortune Insurance Company; Intervenors, Audubon Insurance Company (Audubon); and American International Insurance Company (AIIC). In late 1994, Bankers objected to the growth of SMISI. When Bankers' President tried to persuade Commissioner Gallagher to abolish or down-size SMISI, he was informed that Gallagher himself supported SMISI. In response, Meehan said he was going to resign in protest. Gallagher told Meehan that he intended to ask all representatives of FRPCJUA's members to resign and asked Meehan to wait until all resigned for the sake of appearance. Meehan agreed. Approximately coinciding with Meehan's conversation with Commissioner Gallagher, the Department initiated a market conduct examination of Bankers. For various reasons, Bankers believed and alleged in this proceeding that Bankers was targeted for the market conduct examination and other punitive measures in reprisal for opposing SMISI and for arguing the issue with Commissioner Gallagher. Bankers' allegations were not proven by the evidence in this case, but Bankers' beliefs colored its perception of the Department's dealings with it from then on. They also caused Bankers to suspect that the Department also was trying to influence FRPCJUA to take punitive action against Bankers. But it was not proven that the Department's relations with Bankers had any effect on FRPCJUA's dealings with Bankers. In late 1994, Florida elected Bill Nelson to succeed Tom Gallagher as Insurance Commissioner in January 1995. Commissioner Nelson appointed William Wilson as new chair of the FRPCJUA Board and recommended that Wilson consider James W. (Jay) Newman, Jr., for appointment as new Executive Director of FRPCJUA. Wilson interviewed and hired Newman, who had impressive credentials (including service as Insurance Commissioner for the State of Virginia) and extensive and directly relevant experience. The Department approved FRPCJUA's Second Amended Plan of Operation on July 21, 1995. As with the earlier versions of the plan of operations, the Department reviewed the document and required FRPCJUA to make corrections or revisions before approving it. As with the earlier versions of the plan of operations, the Second Amended Plan of Operation provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. It also provided that FRPCJUA itself could provide those services. Although Bankers no longer was represented on the FRPCJUA Board, it knew of these provisions and voiced no objection to them. By September 1995, FRPCJUA had decided to reduce its business (so-called "depopulation") and thought that it soon would not need so many contracts for policy and claims servicing. It also thought it could save money by reducing the number of servicing contracts. Meanwhile, the contracts of the five servicing carriers were due to expire in February 1996, and the deadline for notice of non-renewal was approaching. (Bankers' contract would have expired in approximately June 1995, but it was extended.) Although all of the contractors were performing satisfactorily, Executive Director Newman thought FRPCJUA should give notice to the five servicing carriers that their contracts would not be renewed and should initiate a request for proposals (RFP) for new contracts. His desire was to reduce the number of contracts from five to either two or three. (The SMISI contracts and subcontracts were not due to expire, and no consideration was given to terminating those contracts at the time.) At the FRPCJUA Board meeting on September 19, 1995, which was noticed and conducted as an open meeting, Newman presented this idea, and the FRPCJUA Board agreed with him. It directed Newman to give notice of non-renewal to the five servicing carriers and to proceed with the RFP process. On October 18, 1995, FRPCJUA published notice in the Florida Administrative Weekly that it would be accepting proposals from insurance companies interested in servicing FRPCJUA policies and that the deadline for proposals would be December 4, 1995. The notice referred those interested to FRPCJUA staff from whom the RFP would be available at a later date. No specifics of the RFP were included in the notice. Prior to the Board's next meeting on October 25, 1995, Newman prepared Proposed Servicing Carrier Selection Criteria. At the Board's meeting on October 25, 1995, which was noticed and conducted as an open meeting, the Board decided to add a provision that FRPCJUA should reserve the right to reject all proposals and instead negotiate contracts apart from the RFP and that the criteria should allow all existing servicing carriers to be eligible for selection. The Board directed Newman to proceed with the RFP so that the Board would be in a position to make its selection decision at its December 1995 meeting. (It does not appear from the evidence that there was a November 1995 meeting of the Board.) Immediately after the meeting on October 25, 1995, Newman began the task of drafting an RFP with the help of FRPCJUA General Counsel Michael Colodny and FRPCJUA staff attorney Fred Karlinsky. At some point in the drafting process, Colodny noticed that, by its terms, the draft RFP only solicited proposals from servicing carriers (insurers) and could be construed to prohibit servicing providers (non-insurers) from responding. To include servicing providers, other modifications to the RFP also would have to made. Newman, Colodny, and Karlinsky re-drafted the RFP to accommodate proposals by servicing providers and issued the re-drafted RFP on November 7, 1995. Bankers did not object to the eligibility of non- insurers to respond to the re-drafted RFP. Instead, it proceeded to prepare its response. On November 17, 1995, FRPCJUA published an amended notice in the Florida Administrative Weekly that it would be accepting proposals from both insurance companies and non- insurers interested in servicing FRPCJUA policies and that the deadline for proposals would be December 6, 1995. The RFP provided for a pre-bid conference to answer any questions on the services to be rendered under the RFP; it also provided an opportunity for written inquiries after the pre-bid conference. The pre-bid conference was held on November 28, 1995. Bankers attended and asked questions about the applicability of Chapter 287, Florida Statutes, and Newman answered that it did not apply. Bankers also asked questions on how to present compensation proposals and how different proposals would be scored. Newman explained that the intent was to encourage creative responses. Questions also were asked at the pre-bid conference about the requirements for a non-insurer to act as a servicing provider. Newman explained the terms of the RFP and confirmed that proposals from non-insurers were welcomed. Bankers did not object then or at any time prior to submission of its proposal. The RFP provided that proposals would be evaluated by FRPCJUA's executive director and staff. Newman asked FRPCJUA Chief Operating Officer, Robert Sklenar, Colodny, and Karlinsky to assist him in evaluating the proposals. Sklenar had extensive (35 years) experience in the insurance industry, mostly as vice-president of personal lines for Travelers Insurance Company. His experience included the design and preparation of competitive scoring processes for vendor selection by Travelers. Newman asked him to prepare the documents to be used for scoring RFP responses (the score sheets). Proposals were received on December 6, 1995. Proposals were received from Bankers, AIIC, Audubon, PMSC, Fortune, Hartford Fire Insurance Company, Mobile America Insurance Group, Inc., National Con-Serv, Inc. (NCSI), American Southern Insurance Company, and Intervenor, AIB Holdings, Inc. (AIB), which had a subcontract for policy and claims servicing with Diamond State. The RFP provided that submission of a response signified acceptance of the terms and conditions of the RFP. Newman, Sklenar, Colodny, and Karlinsky met in Tallahassee to evaluate the responses on December 6, 1995. First, the four jointly evaluated the proposals to determine whether they met seven mandatory criteria. They determined that all ten proposals met the mandatory criteria. Then each evaluator independently scored the ten proposals on each of seven technical criteria, using a numerical point scale of 1 to 5 for each criterion. Then they compared their scores, discussed any differences, and attempted to reach consensus scores for each technical criterion. Then they added the consensus scores given on all technical criteria for each of the ten proposals. At this point in the process, the evaluation team observed that 15 points seemed to be a natural break point and reasoned that American Southern Fortune, Mobile America, and NCSI should be eliminated from further consideration because they got less than 15 points on the technical criteria. Of the proposals still under consideration, Hartford scored 23 on the technical criteria, PMSC scored 22, Audubon scored 21, AIIC scored 20, Bankers scored 18, and AIB scored 17. The evaluators then discussed the top two scorers, Hartford and PMSC. The team did not think FRPCJUA should enter into a contract under the RFP with either Hartford or PMSC. By this time, the evaluation team was aware that the SMISI contract would terminate as of December 27, 1995, for "breaches and defaults of the agreements and obligations owing to the FRPCJUA by SMISI," in accordance with correspondence from FRPCJUA Board Chairman Wilson, dated November 14, 1995; however, it was anticipated that PMSC would continue to handle the SMISI business--fully half of FRPCJUA's total book of business--under a direct contract with FRPCJUA. Due to capacity concerns, the team did not think additional business should be directed to PMSC until those concerns were allayed. Meanwhile, Hartford's proposal disclosed that it would not be in a position to handle a large number of policies for some time, and it proposed either delaying initiation of services or subcontracting with PMSC in the interim. The evaluation team did not think either alternative was acceptable. Evaluation of the mandatory and technical criteria took approximately six hours and was not completed until 1 or 2 a.m. on December 7, 1995. The evaluators decided not to review or evaluate the compensation proposals; however, the other three evaluators persuaded Newman to at least look at the compensation proposals and generally advise the group as to the general nature and parameters of the compensation proposals without identifying the proposers. Colodny was unable to meet again on December 7, 1995. Newman, Sklenar, and Karlinsky met briefly to review the proposals, but it was decided that Newman would conduct a more thorough review and report his findings and recommendations to the others by telephone. Although Newman knew the team would not recommend either Hartford or PMSC, he evaluated their compensation proposals for information and comparison. Hartford offered a flat 18.42% fee. PMSC offered two alternatives. One was a very favorable flat fee of 14.9%; the other proposed flat dollar amounts. Bankers proposed an 18% fee for six-month policies, and an 18.45% fee if FRPCJUA returned to annual policies. The other compensation proposals were tiered by volume (either net written policies or policies in force). AIB structured its compensation proposal as follows: 18% fee for $25 million net written policies (NWP); 17.75% for $25-$30 million NWP; 17.50% for $30- $35 million NWP; 17.25% for $30-$40 million NWP; and 17.00% for more than $40 million NWP. Audubon proposed a 17.9% fee for up to 50,000 policies in force (PIF), 17.5% for up to 100,000 PIF, and 16.9% for over 100,000 PIF. AIIC structured its proposal: 20.0% for up to 50,000 PIF; 19.5% for up to 100,000 PIF; 19.0% for up to 150,000 PIF; 18.5% for up to 200,000 PIF; 18.0% for up to 250,000 PIF; and 17.5% for over 250,000 PIF. In order to evaluate the tiered proposals, Newman had to exercise professional judgment as to future volume in light of FRPCJUA's "depopulation" efforts and intention to replace five contracts with just two or three. Newman did not score the Hartford and PMSC compensation proposals since he knew the team would not be recommending that FRPCJUA should enter into contracts with either under the RFP. In Newman's judgment, based on a 15 point scale, the Audubon and AIB compensation proposals deserved scores of 14, Bankers' proposal deserved a score of 10, and AIIC deserved a score of 9. Adding these scores to the technical scores, Audubon's proposal would be scored the best, with 35 points, AIB would score 31 points, AIIC would score 29 points, and Bankers would score 28 points. As agreed, Newman telephoned the other evaluators to discuss the compensation proposals and Newman's scoring of them. All agreed with Newman's assessments. They decided to recommend that FRPCJUA contract with Audubon and attempt to negotiate with the others to accept Audubon's compensation proposal. Sklenar wanted to recommend that FRPCJUA contract with Audubon and one other; Newman thought it would be more prudent to contract with three. It was agreed to recommend that FRPCJUA first attempt to negotiate with AIB and AIIC to accept Audubon's compensation proposal and to negotiate with Bankers (and, if necessary, those previously eliminated from consideration) only if either AIB or AIIC refused to accept Audubon's compensation proposal. The recommendation of the evaluation team was put in writing on December 11 and was presented to the FRPCJUA Board at its meeting on December 14, 1995, which was noticed and conducted as an open meeting. The evidence was that the Board had a full and open discussion of the recommendation. Ultimately, the Board voted unanimously to accept the evaluation team's recommendation, and it instructed Newman and his staff to proceed with contract negotiations. Section 24 of the Second Amended Plan of Operation provided a means for resolving disputes with respect to any decision of the FRPCJUA Board. Section 24 provided: Except as to any dispute, cause of action, claim or controversy arising under, or out of, any contract or Agreement pertaining to bonding or borrowing by the Association, any person or entity aggrieved with respect to any action or decision of the Board of the Association, or any Committee thereof, (other than matters regarding Assessments which appeals are governed by Sections 15, 16 and 17 hereof) may make written request of the Board for specific relief. All written requests for relief or redress shall be deemed Appeals and shall be delivered to the Executive Director. The Executive Director shall schedule any Appeal for hearing at the next regularly scheduled Board meeting occurring, not less than ten (10) days nor more than forty (40) days from the Executive Director's receipt of the Appeal. Any person or entity whose Appeal for relief is denied by the Board may appeal to the Insurance Commissioner in the manner provided by § 627.371, Florida Statutes. A transcript of any Appeal items shall be made at the time of hearing. In accordance with Section 24 of the Second Amended Plan of Operation, Bankers and Fortune appealed from the FRPCJUA Board's action taken at its meeting on December 14, 1995. Before the next scheduled meeting of the FRPCJUA Board on February 7, 1996, Newman was able to successfully negotiate contracts with Audubon, AIIC, and AIB. However, the contracts were not finalized and executed by the time of the meeting. Bankers also indicated its willingness to accept the terms being offered to the other three if FRPCJUA would agree to contract with Bankers as well. At the Board's meeting on February 7, 1996, which was noticed and conducted as an open meeting, the Board fully and openly discussed several subjects relevant to the RFP contracts, including capacity concerns and whether to contract with Bankers, Fortune and Hartford. Ultimately, a motion was made to reject the RFP process and negotiate contracts with the five existing servicing carriers--i.e., Audubon, AIIC, Bankers, Fortune, and Diamond State--with new contract provisions and a blended compensation rate. The Board voted to approve the motion with only member Diaz voting "no." Bankers and Fortune indicated that the Board's action was acceptable to them, and Chairman Wilson announced that the Board's action mooted the appeals of Bankers and Fortune. Audubon, AIIC, and AIB did not indicate whether the Board's action was acceptable to them. Before the next regular meeting of the Board, all three appealed from the Board's action under Section 24 of the Second Amended Plan of Operation. The next regular meeting of the FRPCJUA Board was held on February 29, 1996, which was noticed and open to the public. The Board considered a motion by member Ricciardelli to rescind its action on February 7, 1996. After a full and open discussion, the Board voted to approve the motion; members McGriff and Burgess voted "no." As part of its attempt to prove improper influence by the Department and arbitrary and capricious action by the FRPCJUA Board, Bankers introduced as evidence that Insurance Commissioner Nelson contacted Board member McGriff once by telephone prior to the meeting on February 29, 1996, to ask him to support the FRPCJUA staff's recommendation made on December 14, 1995. But there also was evidence that Bankers' representatives contacted McGriff several times to ask him to vote to uphold the Board's action on February 6, 1996, and it is self-evident that Commissioner Nelson's telephone contact did not influence McGriff at all. In accordance with Section 24 of the Second Amended Plan of Operation, on February 29, 1996, Bankers filed an appeal of the Board's actions of that date, and Bankers presented its appeal to the Board at a meeting on April 7, 1996, which was noticed and open to the public. After hearing and discussion, the Board denied the appeal. On April 24, 1996, Bankers appealed the Board's decision to the Department of Insurance. It is found from the evidence presented that the FRPCJUA's actions in connection with the RFP were neither arbitrary nor capricious. The Board and its staff set about to reduce the number of servicing contracts it had (other than the SMISI contract) from five to either two or three in order to save money. FRPCJUA thoughtfully adopted a reasonable RFP process for achieving its objective and implemented the RFP in a thoughtful and reasonable manner. The result achieved the objective. FRPCJUA replaced the five existing servicing contracts with three new contracts and has saved FRPCJUA millions of dollars a year in servicing fees. Bankers presented the testimony of an expert in business valuation, RFP processes, and gaming theory in an attempt to prove that the RFP process and the scoring of the proposals was so flawed as to be arbitrary and capricious. But Bankers' evidence itself was flawed. First, Bankers' expert questioned RFP specifications that Bankers accepted. Second, the expert questioned the points given by the evaluators on the scoring scale they used without ever reviewing or considering any proposals other than those submitted by Bankers, Audubon, AIIC, and AIB. Third, while the expert conceded that it was important to understand the thought processes of the evaluators in assessing the validity of their judgments, he had absolutely no evidence and no knowledge about the judgments of Colodny or Karlinsky. Fourth, while the expert criticized the scoring system as not being sophisticated enough to indicate "fractional differences" between proposals, and criticized the team's failure to use a "tie-breaking" mechanism, he conceded that the consensus scoring used by the team was a valid and acceptable way to assess relatively small differences between proposals and to break scoring ties. Fifth, much of the expert's criticism amounted to disagreements as to how to evaluate aspects of the proposals; meanwhile, as the expert admitted, in most cases the evaluation required the exercise of professional judgment, and the evaluation team had more and better expertise. The expert's testimony did not prove that the RFP process and the scoring of the proposals was arbitrary or capricious.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order denying Bankers' appeal and claim for money damages and attorney fees. DONE AND ENTERED this 10th day of November, 1998, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of November, 1998. COPIES FURNISHED: Douglas A. Mang, Esquire Wendy Russell Wiener, Esquire Mang Law Firm, P.A. Post Office Box 11127 Tallahassee, Florida 32302-3127 Michael H. Davidson, Esquire Division of Legal Services 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Seann M. Frazier, Esquire Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. Post Office Drawer 1838 Tallahassee, Florida 32302 Perry Ian Cone, General Counsel AIB Insurance Group, Inc. 2500 Northwest 79th Avenue Miami, Florida 33122 Michael Colodny, Esquire Stuart B. Yanofsky, Esquire Colodny, Fass & Talenfeld, P. A. 2000 West Commercial Boulevard Suite 232 Fort Lauderdale, Florida 33309 Fred E. Karlinsky Associate General Counsel Florida Residential Property and Casualty Joint Underwriting Association 101 North Monroe Street Suite 1000 Tallahassee, Florida 32301 Zollie M. Maynard, Esquire William C. Owen, Esquire Panza, Maurer, Maynard & Neel, P.A. 215 South Monroe Street, Suite 320 Tallahassee, Florida 32301 Mitchell B. Haigler, Esquire Paul R. Ezatoff, Esquire Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302 J. Stephen Menton, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that all charges in Counts I and II against Respondent be DISMISSED. DONE AND ENTERED this 24th day of September, 1981, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of September, 1981. COPIES FURNISHED: David A. Yon, Esquire 428-A Larson Building Tallahassee, Florida 32301 J. Charles Shores, Esquire 310 Southeast 13th Street Fort Lauderdale, Florida 33316 Mr. George Edison 2090 S.W. 29th Avenue Fort Lauderdale, Florida 33312
Findings Of Fact Respondent, International Medical Clinic, Inc. (IMC), is a health maintenance organization organized under the laws of the State of Florida. At all times material hereto, IMC held certificate of authority number 0087028000, issued by Petitioner, Department of Insurance and Treasurer (Department), pursuant to Chapter 641, Part II, Florida Statutes. Pursuant to an agreement dated June 5, 1985, between IMC and International Medical Centers, Inc. (Medical Centers), Medical Centers agreed to provide all medical provider and management services for IMC. Consequently, whether IMC had the capability to provide comprehensive health care services to its subscribers was dependent upon the ability of Medical Centers to perform its obligation under its existent contract with IMC. Pursuant to an order dated May 14, 1987, the Circuit Court of the Second Judicial Circuit, Leon County, Florida, the Department was appointed receiver of Medical Centers. Due to the insolvency of Medical Centers, it was no longer capable of providing medical provider and management services for IMC, and its contract was therefore cancelled. IMC offered no proof that, in light of such cancellation, it was currently capable of providing comprehensive health care services to its subscribers. Mr. Miguel Recarey, Jr., is a member of the Board of Directors as well as the president of both IMC and Medical Centers. Pursuant to an indictment filed April 8, 1987, under Case No. 87-0217 CR - Nesbit, United States District Court, Southern District of Florida, Mr. Recarey was charged, inter alia, with bribing a union official to secure a contract between IMC and the union. Consequently, the Department asserts it has reason to believe that the control of IMC is under the direction of a person whose practices demonstrate conduct detrimental to the public. IMC was not present at hearing to address those concerns. IMC has permitted its professional liability coverage under the IMC Self Insurance Trust Fund to expire as of February 24, 1987, and has allowed its general liability coverage through National Union and Fire Insurance/Hartford Insurance Company to expire on June 30, 1987. IMC has, therefore, failed to provide continuing evidence of adequate insurance coverage or an adequate plan for self insurance to respond to claims for injuries arising out of the furnishing of comprehensive health care. IMC has permitted its insolvency protection coverage with State Mutual Insurance Company to expire on August 1, 1987. IMC has, therefore, failed to provide continuous insolvency protection. In addition to the foregoing, IMC has failed to fulfill its continuing obligation to provide for periodic review of its medical facilities and services, to provide a grievance procedure that will facilitate the resolution of subscriber grievance that includes both formal and informal steps, to establish an internal risk management program, to maintain a current list of all hospitals which are routinely and regularly used by the organization along with all primary care physicians, and to provide inpatient hospital services.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the certificate of authority granted to Respondent, International Medical Clinic, Inc., to operate a health maintenance organization in the State of Florida be revoked. DONE AND ENTERED, in Tallahassee, Leon County, Florida, this 3rd day of February, 1988. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of February, 1988. APPENDIX Petitioner's proposed findings of fact are addressed as follows: 1. Addressed in paragraphs 1-7. COPIES FURNISHED: Rainell Y. McDonald, Esquire Department of Insurance and Treasurer Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 International Medical Clinic, Inc. c/o Recarey Enterprises, Inc. 1505 N.W. 167th Street Miami, Florida 33169 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Findings Of Fact In April 1987, the Department of Administration (DOA) submitted recommendations to the 1987 Florida Legislature which included proposed changes in the state employees group insurance program. Among the recommendations was a proposal that the Legislature authorize the Department to competitively bid health maintenance organization (HMO) participation in the state health program based on cost, service area, plan benefits, and accessibility. The stated objective of the recommendation was to encourage HMOs in a geographic location to structure their premiums to reflect actual cost experience and to provide the lowest possible cost for the state and state employees, while at the same time changing the current concept of the state's contribution to HMOs. It further stated that if the recommendation was approved, effective January 1, 1988, the Department would require the same state and employee contribution for every employee, regardless of whether participation was in the state plan or an HMO. If the individual employee elected to participate in an HMO under contract with the state which had a higher total premium than the state plan, the employee would be subject to paying the additional cost. It was thus envisaged by the Department that projected savings to the state and the majority of employees would be almost $6,000,000 annually which, if realized, would produce reduced monthly premiums which would benefit approximately 73 per cent of the 110,000 employees enrolled in the health program. At that time, the Department currently had sixty-four contracts with HMOs, covering employees in forty counties, and it was a further objective of the proposed legislation to reduce the number of HMOs which the state had to deal with in the program. (Testimony of Nye, Petitioner's Exhibit 47) At the time of the DOA legislative recommendation, existing state law provided that persons eligible to participate in the state group health insurance program could exercise an option to elect membership in any qualified HMO engaged in providing basic health services in the HMO service area where the employee resided, in lieu of participating in the state plan. Section 110.123(3)(d), Florida Statutes, Rule 22K-1.103(21), F.A.C. A "qualified" HMO was defined as an entity qualified under the federal Public Health Service Act, 42 U.S.C. 300e-9, or which was certified under Part II of Chapter 641, Florida Statutes, had entered into a contract with the state, and had achieved a designated level of participation by state employees. Rule 22K-1.103(21), F.A.C. By Chapter 87-156, Laws of Florida, effective October 1, 1987, Section 110.123(3)(d) was amended to add the following: (3) STATE GROUP INSURANCE PROGRAM.-- * * * (d) * * * 2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organizations to participate in the state group health insurance plan through the competitive bid process based on cost, service area, plan benefits, and accessibility. Effective January 1, 1988, all employees participating in the state group health insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total premium, regardless of the state or employee's share. Dennis Nye, the DOA Director of the Office of State Employees Insurance, administers the state health insurance program and was directly responsible for implementing the new legislation regarding contracts with HMOs. He determined that procurement of HMO contractual services is governed by Section 287.057, Florida Statutes. He further determined to obtain the contractual services through competitive sealed proposals. The request for proposals for health maintenance organization coverage was issued on July 31, 1987, as "Bid No. 88-05" with a contemplated date of award of contract on September 14, 1987, and an effective date of contract of January 1, 1988. (Testimony of Nye, Petitioner's Exhibit 1) Although only one request for proposals was issued for state wide HMO services, a stated objective of the RFP was to award a number of contracts to HMOs in individual service areas consisting of each county or contiguous groups of counties. (Petitioner's Exhibit 1) Section IX of the RFP states the following criteria for evaluation of the proposals: Premium Cost Extensiveness of Service Areas - by County and/or contiguous Counties. Note: The State's objective is to award no more than two contracts per services area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Plan Benefits as follows: Covered services Limitations and exclusions Copayments, deductibles and co-insurance features Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures Accessibi1ity as follows: Reciprocal agreements Provider locations Number of primary care physicians and specialists, in relation to membership Completeness of proposals The RFP did not provide information as to the relative importance of price and other evaluation criteria, as required by Section 287.012(11), F.S. Section VI of the RFP, concerning Required Benefits and Services, listed the minimum benefits that must be provided, and also required that a complete list of all other services intended to be provided for each service area be provided. Section X was a questionnaire with forty-nine questions for the proposers to answer, including questions regarding the proposer's license status, corporate structure, reserving practices, reinsurance contracts, service area, employee membership and staff, listing of hospitals and other care facilities, listing of participating physicians, utilization review, and other information regarding the proposer's case management, control mechanisms, statistical reporting, and the like. One of the questions directed each proposer to submit audited financial statements for the last two fiscal years, together with financial statements for the first quarter of 1987. Section XI dealt with cost proposals and provided a form for completion as to proposed premium rates. By an undated addendum to the RFP, a question 50 was added to the questionnaire to provide information concerning specified proposed services and co-payments or deductibles to be used in a brochure which would provide a comparison of benefits offered by the various HMOs. (Petitioner's Exhibit 1) The, pre-bid conference was held on August 12, 1987, attended by representatives of HMOs. The minutes of the conference reflect that Nye informed the participants that the two criteria of cost and benefits would be weighed on an equal basis. He also advised that the state would enter into a two year, non-experience rated contract, subject to renewal which would be tied to the Consumer Price Index for Medical Care Services. He explained that proposers should quote a specific rate for the first year of the contract, and a percentage increase or decrease for each of the following three years. However, he noted that the state would evaluate cost solely on the basis of the premium for the first year. He indicated that two HMOs per service area would be awarded contracts based on the receipt of the highest number of points as a result of the bid evaluation, and not based upon the type of HMO, such as an individual practice association (IPA) or staff model. In response to a question as to whether some factors would be weighed higher than others, his response was that benefits and cost would be weighed higher and that after the bidding process, "you can look at them." (Testimony of Nye, Petitioner's Exhibit 18) Three proposals for the Leon County service area were submitted to the state in response to the RFP by the August 28, 1987 deadline for submission of proposals. The three proposers were Capital Group Health Services of Florida, Inc., d/b/a Capital Health Plan (CHP), MetLife Health Care Network of Florida, Inc. (MetLife), and HealthPlan Southeast (HPSE), all of which were currently under state contract to provide health care services to state employees. (Petitioner's Exhibits 2-4) The evaluation of the proposals submitted by HMOs throughout the state for approximately seven service areas was initially accomplished by some fifteen employees in Nye's office. He was assisted in his selection by Marie Walker, state benefits analyst in his office. Nye and she decided which employees could best evaluate the proposals based on the established criteria, including familiarity with benefits and the request for proposal process. The employees selected for these duties had varying degrees of knowledge concerning health plan benefits, HMOs, and bid evaluations. None had any technical expertise in the health care field other than resolving questions concerning benefits under the state health care program. Three employees were designated to evaluate the proposals in each service area. Those designated to evaluate the proposals in the Leon County service area were Andrew W. Lewis, a state benefits analyst; Aviedell Holley, personnel technician II; and Jeffrey Griswold, research associate. These employees have had differing experience in various aspects of the state health insurance program. Only one of them had previous experience in evaluating proposals, but such experience did not involve HMOs. (Testimony of Nye, Walker [Petitioner's Exhibit 22], Holley [Petitioner's Exhibit 20], Lewis [Petitioner's Exhibit 21], Yates [Petitioner's Exhibit 19], Rowe [Petitioner's Exhibit 27], Griswold, Petitioner's Exhibit 26). After the proposals had been received, Nye had a meeting with the employees who were to evaluate them. At this time, he explained to them how to complete an evaluation form that he had designed which provided for the scoring of the five criteria stated in the request for proposals of premium costs, plan benefits, accessibility, extensiveness of service area, and completeness of proposal. The evaluators were instructed to score all criteria using a ten point system and then weight the various criteria according to a point system reflected on the evaluation form. The scoring method required the evaluators to use a certain degree of subjectivity in determining the award of points, and the results differed to some degree among the various evaluators in comparing the three proposals. The results of the evaluation ranked HPSE first, MetLife second, and CHP third in the scoring. (Testimony of Nye, Griswold, Holley [Petitioner's Exhibit 20], Lewis [Petitioner's Exhibit 21], Petitioner's Exhibits 5, 7, 26, 44). By memorandum, dated September 11, 1987, Nye informed Augustus Aikens, DOA General Counsel, of recommendations for awarding the state's HMO contracts. It was recommended that all three HMOs in the Leon County service area be awarded contracts because of the high number of state employees in the service area and because the point spread was very close. Aikens was unavailable at that time and William Frieder, a DOA senior attorney, was serving as Acting General Counsel. He reviewed the evaluation process and found that the evaluators had used inconsistent methods to score the proposals. He discussed the situation with DOA Secretary Adis Vila and, by memorandum of September 23, 1987, she directed Nye to "...continue the evaluation process to its conclusion by documenting each ranking and each score which contributed to the ranking in the most complete and the most objective fashion possible." She also expressed concern over the financial soundness of HMOs and asked him to keep that aspect of the evaluation in mind when making his final recommendation. (Testimony of Vila, Frieder [Respondent's Exhibit 8], Petitioner's Exhibits 9-10, Respondent's Exhibit 12). Nye proceeded to design another evaluation form which made it much simpler for the evaluators to score the proposals. It used a different method for awarding points based on premium costs and reduced the need to search the proposals for information; however, the same criteria as used in the first evaluation were the ones that were scored. As one evaluator put it, the second evaluation form focused on things one could count and was mechanical in nature, such as "bean counting." The three evaluators for the Leon County service area checked with one another and arrived at an identical number of points for each proposal. (Testimony of Nye, Griswold, Holley [Petitioner's Exhibit 20], Lewis [Petitioner's Exhibit 21], Petitioner's Exhibits 6, 26). After receiving Nye's memorandum of October 6 concerning recommended awards, Secretary Vila was concerned about Nye's comment that CHP should be retained as the only staff model in the area in order to meet federal requirements. She asked General Counsel Aikens about this matter, and he informed her that the federal requirement was not applicable because a state was not included within the definition of "employer" under the applicable federal law. This was an accurate statement. She also asked Nye if two HMOs could provide the necessary services in the Leon County service area and he told her that based on the proposals, HPSE and MetLife had indicated their ability to service the additional employees. (Testimony of Vila, Nye, Aikens, Petitioner's Exhibit 41, 45, Respondent's Exhibit 7). By letter of November 4, 1987, Secretary Vila advised John Hogan of CHP that, using the criteria of Section IX of the RFP, it was the intention to award contracts to HPSE and MetLife in the Leon County service area, and advised him of the right to contest the decision by filing a notice of protest pursuant to Section 120.53(5), Florida Statutes. By letter of November 13, 1987, to Nye, CHP filed its notice of protest, pointing out that the notification letter of November 4 had not been signed by Secretary Vila and made available to CHP until November 12, 1987. CHP subsequently filed its formal notice of protest and request for administrative hearing, dated November 23, 1987. Thereafter, on December 9, 1987, HPSE filed a petition to intervene which was granted by order dated December 11, 1987. (Testimony of Hogan, Petitioner's Exhibits 25, 28; Joint Exhibit 1 [Pre-hearing Stipulation]) By letters dated November 15, 1987, Secretary Vila advised HPSE and MetLife that their companies had been selected to provide HMO service to state employees. (Respondent's Composite Exhibit 13) The second or "final evaluation" of the proposals was solely based on the five criteria contained in the RFP, i.e., premium cost, extensiveness of service area, plan benefits, accessibility, and completeness of proposals. DOA initiated rulemaking under Chapter 120, F.S., in October 1987 to implement Chapter 87-156, Laws of Florida, which amended Section 110.23, F.S. Although Nye had overall responsibility for the rulemaking process, he delegated the actual work to William Seaton of his office. Mr. Seaton prepared two draft proposed amendments to Chapter 22K-1, F.A.C., which were thereafter approved by Nye and the Secretary of DOA. In response to a requirement of Chapter 87-156, it was proposed that the definition of "Qualified health maintenance organization," as set forth in Rule 22K-1.103(21) be amended to change subparagraph (b) therein from "Enters into contract with the State of Florida" to "Enters into contract with the State of Florida through the competitive bid process." The proposed rule amendments were noticed in the Florida Administrative Weekly on November 20, 1987. Seaton was not instructed to nor did he ever consider drafting more specific guidelines for the competitive bidding process with respect to HMOs. (Testimony of Nye, Aikens, Seaton [Petitioner's Exhibit 26], Petitioner's Exhibit 38, Respondent's Exhibit 10) The economic impact statement prepared in connection with the proposed rule stated that, other than costs associated with publication, printing, and distribution of the rile, there was no cost associated with the rule to persons directly affected. It further stated that the rule amendments did not affect competition in the open market for employment, and will have no impact on small business. (Petitioner's Exhibit 38)
