The Issue The issue for consideration is whether Respondent's licenses and eligibility for licensure as a life agent, a life and health agent, a general lines agent, a health agent and a dental health care contract salesman in Florida should be disciplined because of the matters set forth in the Administrative Complaint filed herein.
Findings Of Fact At all times pertinent to the matters in issue herein, the Department of Insurance and Treasurer was the state agency in Florida responsible for the licensing of insurance agents and regulation of the insurance industry in this state. Respondent, Michael Charles Peppe was and is currently licensed and eligible for licensure in Florida as a life insurance agent, a life and health insurance agent, a general lines agent and a health insurance agent. He was an officer and director of M. Peppe Agency, Inc., a Florida corporation. During the period in issue herein, Respondent's agency had a brokerage agreement with William Sanner and Mary Lou Sanner who were employed as sub- agents. Constance Abraham, an 85 year old widow first met William Sanner when she moved to Ft. Lauderdale, some 20 or so year ago. They were neighbors in the same apartment building. At that time she was insured with Mutual of Omaha and her policy was transferred to him, an agent for that company, for service. Over the years she purchased quite a bit of other insurance from him. They were all different kinds of health insurance policies and over time, she estimates, she purchased somewhere around 50 policies. During the period between 1985 and 1991, Mrs. Abraham purchased numerous health policies for both herself and her son through Mr. and Mrs. Sanner, though she does not recall ever having dealt with Mrs. Sanner. Records disclose that her coverage was placed with nine different companies and provided coverage in such areas as Medicare Supplement, nursing home insurance, cancer insurance, and hospital expense - indemnity insurance. Over the years approximately 60 policies were issued through Respondent's agency to either Mrs. Abraham or her son. The applications were taken by Sanner who would collect the initial premiums and forward both to Respondent's agency for processing to the various insurers. Some policies were signed by Sanner as agent of record and some were signed by Respondent in that capacity. Only a few were signed by Mrs. Sanner. Mrs. Abraham claims she didn't realize how much health insurance she had. Mr. Sanner would come to her apartment and talk to her about a new policy and she would abide by his advice. Her purchases amounted to approximately $20,000.00 per year in premiums which she would pay by check to Mr. Sanner. At no time did she ever deal with or meet the Respondent, Mr. Peppe. She did not question Sanner deeply about why he was selling her so much insurance. Whenever she asked about a new policy, he would usually have what appeared to he to be a good reason for it such as something was lacking in her coverage. Even when she recognized he was selling her duplicate coverage, he told her it was a good idea to have more. At no time did he or anyone else tell her she had too much insurance. Mrs. Abraham claims to know nothing about insurance herself. However, she was cognizant of the nature of the policies she had, utilizing without prompting the terms, "indemnity", "supplemental", and "accident." Mr. Sanner would come to her home at least once a month She trusted him to help her with her health insurance and would talk with him whenever a policy came up for renewal. On some occasions he would recommend she renew and on others would recommend she drop that policy in favor of another. At no time was she aware, however, of the fact that she was duplicating policies. She also claims she never had to tell Mr. Sanner what she wanted from her coverage. He always seemed to know and would handle not only the purchase of her policies but also the filing of her claims. She can recall no instance where she asked for any coverage and he tried to talk her out of it. Mrs. Abraham denies she was the person who complained to the Department. It was her daughter who noticed what was going on and took matters into her own hands. At no time did either Sanner or the Respondent attempt to contact her after the complaint was filed. Mrs. Abraham and her husband had four children. Her son, Lewis, who is somewhat retarded, lives with her and she also purchased some policies for him. Over the years she has had many occasions to file claims under her policies. It is important to her that she have protection to provide full time care if necessary because she has no family locally to provide that care for her. She had coverage that provided nursing care, a private room in the hospital, and some policies which provided for extended or nursing home care. She recognizes that such care is expensive and wanted enough policies to give her total coverage without out of pocket expense if the care was needed. She keeps track of the policies she has on her personal computer and has been doing so for some six or seven years. She apparently is sufficiently computer literate that she knows what she has and what she is doing. Mrs. Abraham owns a condominium at the Galt Ocean Mile apartment in Ft. Lauderdale. The $20,000.00 figure in policy premiums she mentioned were for her policies only. Those for her son were extra. She has sufficient income from stocks and bonds to pay her premiums, pay her mortgage, and still live comfortably. Her son has his own income from a trust fund and his own investments. At one point in time, when Mrs. Abraham had some recurring health problems and was in and out of hospitals regularly, she received in benefits far more than her actual expenses and made a tidy profit. Nonetheless, she adamantly disclaims she purchased the policies she had for that purpose claiming instead that she wanted merely that both she and her son be able to pay for the best medical care possible in the event it is needed. To that end, Lewis Abraham has filed very few claims against his carriers. Most, if not all, of the companies which provided the coverage for Mrs. Abraham and her son have limits on the amount of total coverage any one policy holder can have in any line of insurance. The limit is cumulative and not limited to policies with a specific company. Taken together, the policies in force for Mrs. Abraham in some cases exceeded that limit and had the insurers been made aware of the totality of her coverage, their policies would not have been issued. This information was not furnished to the companies, however, by either Sanner or Respondent. In addition, on many of the policies the mental condition of a policy holder must be disclosed if that person is retarded or not fully competent. Respondent did not know of Lewis' condition though Mr. Sanner was fully aware of it both as it related to his retardation and his drop foot. On none of the policy applications relating to him, however, was either ever mentioned. Some companies indicated that if Lewis's mental and physical condition had been properly disclosed on the application, they either would not have issued the coverage or, at least, would have referred the matter to the underwriter for further evaluation and a determination as to whether to issue the policy and if so, at what premium. Even more, Lewis' physical and mental condition may have caused the company to decline payment of a claim within two years of issuance of any policy actually written. Respondent received monthly statements from the various insurers with whom his agency did business detailing the transactions for that month. Commissions on each sale were paid by the insurers to Respondent's agency and thereafter, pursuant to an agreement between Respondent and Sanner, the commissions were divided. The commissions paid to Respondent's company by the insurers on all these policies amount to in excess of $18,000.00. Respondent asserts that Mrs. Abraham knew exactly what she was doing and was, in effect, conducting if not a scam, at least an improper business activity through the knowing purchase of duplicative policies and redundant coverage. This well may be true, but even if it is, Mr. Sanner was a knowing accomplice and participant. In addition, while it is accepted that Respondent might not know the status of every policy purchased through his agency or the total activity with any particular client, when his name appears as signatory on policy applications forwarded to a company for whom he accepts or solicits business, as here, it is hard to find he did not have at least a working familiarity with the business written by his sub-agents . This finding is supported by the analysis done of Respondent's pertinent activities here by Milton O. Bedingfield, a 39 year insurance agent and broker for 10 companies, a Certified Life Underwriter, and an expert in life and health insurance. Mr. Bedingfield concluded, after a review of all the policies written for the Abrahams through Respondent's agency, there was a gross oversale of policies and repeated omissions of pertinent information on policy applications. He found a duplication of benefits and overlapping coverage, all without legitimate purpose, especially for an 85 year old woman. Since the average hospital stay is less than 2 weeks, she would not likely benefit from her insurance for the stay. He could not see where Mrs. Abraham would get back in benefits what she has paid in premiums. In Mr. Bedingfield's opinion, this is the worst case of oversale he has seen in his 39 years in the insurance business. He contends the agent stands in almost a fiduciary capacity to his clients - especially the aged who rely on their agent to properly advise them on adequate coverage. There is often an element of fear involved that the unscrupulous agent can profit from. Here, he feels, Respondent's practice falls far short of the state's standard of acceptability on the sale of Medicare Supplemental insurance. On balance, however, Mr. Bedingfield does not know if all the policies he saw stayed in force throughout the period of the policy. Many could have lapsed or been cancelled. In all fairness, as well, where insurance is brokered, as here, the ultimate placing agent normally does not meet the client but must rely on what he is told by the offering agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Administrative Complaint filed against the Respondent in this case, Michael C. Peppe, be dismissed. RECOMMENDED this 11th day of December, 1992, in Tallahassee, Florida. 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 11th day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-2708 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: 1. & 2. Accepted and incorporated herein. Accepted and incorporated herein. - 9. Accepted and incorporated herein. Accepted and incorporated herein. & 12. Accepted and incorporated herein. 13. & 14. Accepted and incorporated herein. 15. - 18. Accepted and incorporated herein. Accepted. Accepted. & 22. Accepted. Rejected as not supported by evidence or record except for the fact that Respondent sign and processed applications and premium payments and received a financial benefit from the sales. Accepted. FOR THE RESPONDENT: Accepted so far as it relates Ms. Abraham was well informed and aware of her coverage. Not established, but insufficient evidence of actionable misconduct. Accepted. - 6. Not proper Findings of Fact but more Conclusions of Law. Accepted. Not a proper Findings of Fact. COPIES FURNISHED: James A. Bossart, Esquire Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Thomas F. Woods, Esquire Gatlin, Woods, Carlson & Cowdrey 1709-D Mahan Drive Tallahassee, Florida 32308 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue for consideration is whether the Respondent's license as an insurance agent should be disciplined because of the misconduct alleged in the Administrative Complaint filed herein.
Findings Of Fact At all times pertinent to the issues herein, Respondent, Shirley Ann Cramer, was licensed as a life, health and general lines insurance agent in Florida, and was the sole owner and operator of Consolidated Insurance Associates, Inc., an incorporated general lines life and health insurance agency in Clearwater, Florida. The Department of Insurance was and is the state agency responsible for the licensing and regulation of insurance professionals in this state. In February, 1987, Mercedes Wescott went to the Respondent's agency in Clearwater where she spoke with whom she assumed to be an employee, an individual named Jack. "Jack" is Jack Jarr, Respondent's former husband and a licensed insurance professional who works in a different agency from Respondent, but who was licensed with Respondent's agency at the time in question as well. Ms. Wescott wanted a policy of life insurance, and after talking with Jack, wrote and delivered a check for $167.00, payable to Consolidated Insurance Associates, Inc., as initial down payment therefor. About a week later, she took the required insurance physical but never received the policy she had bought. She called the agency several times about the matter and was repeatedly told the policy was coming. Finally, in June, 1987, she received a letter from American Health and Life Insurance Company, the company with whom, apparently, she was to be insured, advising her that her application for insurance was being cancel led because certain required information was not received. When she called the agency, (Jack), to get her money back, he promised to send it but never did. As a result, she finally called Respondent who, in November, 1987, mailed her a check on the account of Consolidated Insurance Associates, Inc., dated November 24, 1987, in the amount of $117.00, $50.00 less than the initial payment. Ms. Wescott admittedly did not deposit that check immediately. For one thing, it was not for the correct amount, and in addition, she overlooked it. When she finally did deposit it for collection, it was dishonored and returned because of insufficient funds, and she was charged a $12.00 service charge. On January 9, 1988, Ms. Wescott wrote to Respondent outlining what had happened and requested a replacement check in the amount of $179.00, ($167.00 plus $12.00). In this letter, which was mailed to Respondent's home address since the agency had, in the interim, been sold, Ms. Wescott recited the lack of Respondent's response to prior calls and threatened to report the matter to the Insurance Commissioner. Even with this, she received no response from Respondent. Ms. Wescott determined that Respondent was working at a real estate office and when called there, too, failed to return calls. Ms. Wescott ultimately received a check for the entire amount from, she believes, the Department of Insurance. Though she is not sure from whom the check was received, she is certain it was not Respondent or Respondent's agency. When she contacted the new owner of the agency, her request for reimbursement was denied and the new owner suggested she contact the Department. Admittedly, Ms. Wescott dealt only with Mr. Jarr up until the time the cancellation letter was received. Only at that point did she talk with Respondent, and the check, purportedly in reimbursement for the premium paid, which was dishonored, was signed by Respondent. Respondent claims that she was only the subagent for the company with whom Mr. Jarr placed Ms. Wescott but paid Ms. Wescott back herself with a check she claims was good when written. However, since the check in question is dated November 24, and even though held by Ms. Wescott for a while, it had been deposited and dishonored by January 9, 1988 when Ms. Wescott's letter to Respondent was written. This accounts for a total time of 46 days from date of check to date of letter, and with mail times and bank processing times deducted, the time the check was held before deposit cannot be considered unreasonable. Ms. Cramer sold the agency in December, 1987 to an individual who was to assume all the agency liabilities. At the time she sent Ms. Wescott the check for $117.00, she was, she claims, unsure of the amount owed since she no longer had the books in her possession. Considering the probabilities of her testimony and it's corroboration or lack thereof by other evidence of record, it is considered unworthy of belief. On April 4, 1988, Thomas J. Secondo, who was, at the time, having a personal relationship with the Respondent, went to her to get insurance on his two automobiles. He wrote a check that day for $1,641.00 for what he believed was the total premium for the coverage sold and gave it to Respondent personally. He never received a policy of insurance for his money but on June 9, 1988, was notified that his coverage would be cancelled on June 18, 1988 for "underwriting reasons." Somewhat before that time, he also received a book of payment coupons, the reason for which he could not fathom, since it was his understanding he had paid for his policy in full by the check he had given Respondent. Documents introduced into evidence by the parties reflect that on May 18, 1988, Mr. Secondo's policy, purportedly with American United Insurance Company, was to be financed through Express Premium Finance, Inc. in Hollywood, Florida. Mr. Secondo denies having signed the premium finance agreement which bears what is purported to be his signature, and examination of that document clearly reveals that the signature thereon is not his. Just as all this was happening, Respondent contacted Mr. Secondo in writing on June 15, 1988 and requested he come to the office to sign a new application for the requested coverage. Enclosed with that request was a copy of an insurance binder for auto coverage with Bankers Insurance Company, to be effective on June 18, 1988. Again, Mr. Secondo was sent a premium finance notice by Bankers representing a total premium of $1,358.00. This notice, dated August 29, 1988, reflected the first premium of $14.30, due on August 12, 1989, the second in the amount of $193.34, and the remainder, also at $193.34, due on the 28th of each month thereafter. By memo of August 19, 1988, Bankers Insurance Company notified Mr. Secondo that his policy was being cancelled for nonpayment of the initial $14.30 premium. However, by notice of September 1, 1988, the company reinstated the coverage and included a new billing schedule reflecting a slightly higher monthly premium of $197.54. On August 16, 1988, Respondent wrote to Mr. Secondo informing him of a change in policies and noting that the new policy was somewhat less expensive than the former. Notwithstanding this, by letter dated September 25, 1988, she advised him of the need for him to pay an additional $171.31. Mr. Secondo did not understand the reason for this additional charge in light of the fact that the second policy, that issued, was less costly than the first which was never issued. This discrepancy was not successfully explained at hearing nor has it yet been clearly explained. Notwithstanding his confusion, on the advice of a representative from the Department's St. Petersburg office, Mr. Secondo paid the additional sum requested. Ms. Cramer claims that all she asked from Mr. Secondo at the time she sold him the insurance was the down payment on the policy. However, he insisted on giving her more money to impress her with how much money he had. She further claims she put the balance over the down payment in the account of ASAP Insurance, (not further identified). On examination, she claimed this was a unique situation and she never does business this way. Ms. Cramer has been licensed as an insurance agent in Florida for almost 20 years and claims never to have had a problem with the Department before now. There is no evidence of any prior complaints against her or of prior disciplinary action. She had known Mr. Secondo for about 3 months before he came to her for insurance on his vehicles. She admits to having received his check for $1,641.00 for the premium for that coverage. Because of some difficulty with his driver's license, which she discussed with him at the time, she processed the application, sending in only the required 30% down payment so that if the application was rejected, he would not have to wait to get back the full amount of his premium. She claims to have advised him at the time there might be a problem and that the policy, when issued, might carry a higher or lower premium. When she sent the deposit for the auto insurance to the broker with whom she was dealing, he required a premium finance agreement which she filled out and sent in without, she claims, affixing Mr. Secondo's signature thereto. She claims to have no knowledge as to who signed it, but this is unworthy of belief. The automobile insurance was not issued by the first company because of some underwriting problem. Respondent claims she told Mr. Secondo this but by then he had received a payment schedule and was upset about that. Ms. Cramer claims that Mr. Secondo had been fully advised that only a part of the $1,641.00 he had paid originally was to go to payment of premium, but she does not explain where the balance went, other than into the account of ASAP. She also claims to have procured insurance for him from Bankers Insurance Company without financing any part of the premium, but it is clear from the documents introduced that this coverage was financed as well. Her exculpatory comments are confusing and far less than convincing, and are not believed. Respondent asserts she made the premium payments for Mr. Secondo, (presumably from the sums deposited to ASAP), until she got an accounting from the company. She then wrote to Mr. Secondo, (their personal relationship having dissolved by then), and claimed the amount she felt was due her, (the $171.31). She admits that in the interim, while she was awaiting the refund from the first policy deposit, she neglected to make the initial $14.30 premium payment on the second policy, causing it to be cancelled. At that point, she made the payment to have the policy reinstated. The reinstatement notice, however, does not show the policy paid in full, but calls for continuing installments. Ms. Cramer now claims that the $1,641.00 figure she gave Mr. Secondo was tentative and subject to change and that he knew it. She claims the discrepancy involving his policy was a bookkeeping error, and at no time did she intend to take his money and not get him insurance. The evidence, however, shows otherwise.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Insurance Commissioner issue a Final Order in this case suspending Shirley Ann Cramer's license and eligibility for license as an insurance agent of any kind in Florida for one year. RECOMMENDED this 6th day of August, 1990, in Tallahassee, Florida. 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 6th day of August, 1990. COPIES FURNISHED: Robert V. Elias, Esquire Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 John L. Waller, Esquire 100 2nd Avenue, North Suite 210 St. Petersburg, Florida 33701 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell General Counsel Office of the Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Ralph Todd Schlosser, was licensed and eligible for licensure as a life and health insurance agent, health insurance agent and general lines agent - property, casualty, surety and miscellaneous lines by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was licensed as a life and health insurance agent for American Sun Life Insurance Company (ASLIC) and Pioneer Life Insurance Company of Illinois (PLICI). On March 2, 1987, respondent met with one Mildred H. Camp, then a resident of Clearwater, Florida, for the purpose of selling her an ASLIC long term care health insurance policy. After discussing the matter with respondent, Camp agreed to purchase a policy. She completed an application and gave respondent a check in the amount of $511.88. The check was deposited into respondent's business account at First Florida Bank in Clearwater the same day. Camp did not testify at hearing. Therefore, the only first hand version of what was discussed by Schlosser and Camp and the nature of any further communications between the two was offered by respondent. That version was not contradicted, and it is accepted as being credible. Within a week after executing the application, Camp contacted respondent by telephone concerning the policy. Pursuant to that telephone conversation, respondent did not process the application or remit the check to the company, but attempted instead to arrange another meeting with Camp to answer further questions about the policy. Although he telephoned Camp "every single Monday", respondent was unable to arrange an appointment with her until April 30, 1987. On April 30 Camp and respondent met for the purpose of him explaining in greater detail the benefits and coverage under the policy. Because two months had gone by since the application was first executed, it was necessary for respondent to update Camp's health information. Accordingly, Camp executed a new application the same date and Schlosser forwarded the check and application to ASLIC shortly thereafter. On May 5, 1987 ASLIC received the April 30 application and premium check, less respondent's commission. The application was eventually denied by ASLIC on the ground of "excessive insurance" and a refund check was forwarded by ASLIC to Camp on June 11, 1987. There is no record of any complaint made by Camp against Schlosser in ASLIC's files nor did ASLIC contact respondent regarding this matter. When Schlosser began representing ASLIC, he executed a general agent contract which contained the terms and conditions pertaining to his appointment as a general agent for the company. As is pertinent here, the contract provided that Schlosser had a responsibility "to promptly remit such funds" received by him to the company. According to a former second vice-president of ASLIC, Joyce Lynch, who worked for ASLIC when the Camp transaction occurred, the company expected in the regular course of business to have checks and applications remitted by agents to the home office within fifteen days after the application was written, and that the above provision in the general agent contract was interpreted in this manner. Lynch added that she knew of no reason why an agent would hold an application and check for sixty days before submitting it to the company, particularly since once an application is completed and signed, it is the "property" of the company and not the agent. She concluded that if a customer desired more information about a policy after an application had been signed, which is not unusual, the agent still had a responsibility to promptly forward the application and check to the company within fifteen days. At that point, the company, and not the agent, would cancel a policy and refund the premium if so requested by a customer. Therefore, Schlosser breached the general agent contract by failing to promptly remit such funds. On July 28, 1987 Schlosser visited one Maxine Brucker, an elderly resident of Sarasota, for the purpose of selling her a PLICI health insurance policy. He had telephoned Brucker the same date to set up an appointment with her. After discussing the matter with respondent, Brucker agreed to purchase a policy, executed an application and gave respondent a check for $680.00. The check was deposited into respondent's bank account the following day. After Schlosser departed, Brucker noted that Scholosser did not leave a business card and she immediately became "worried" about her money and the possibility of not getting the insurance she had paid for. She telephoned the Department the same day to check on his "reputation" and to verify that Schlosser was an insurance agent. On August 4, 1987 she wrote a letter to the PLICI home office in Rockford, Illinois to ascertain if her check and application had been received but she did not receive a reply. She wrote a second letter to PLICI on August 14, 1987 but again received no reply to her inquiry. After telephoning the home office a few days later, Brucker contacted the Department a second time in late August and requested that it assist her in obtaining a refund of her money. At no time, however, did Brucker attempt to contact respondent. In early September, Brucker received by mail a money order from respondent which represented a full refund of moneys previously paid. Brucker acknowledged that she was happy with her policy when it was initially purchased. She also acknowledged that she had never contacted respondent personally to request a refund of her money. It was only after she received no reply from the home office that she made a request for a refund. According to the agency agreement executed by Schlosser when he became a general agent for PLICI, respondent had the responsibility to "immediately remit to (PLICI) all premiums (collected)". Testimony by Ronald F. Bonner, a vice- president of PLICI, established that in the regular course of business an agent was required to forward the check and application to PLICI no more than twenty-five days after receiving them from the customer. Any application held more than twenty-five days was considered "stale", was presumably invalid and had to be returned to the customer. Even so, Bonner did not contradict respondent's assertion noted in finding of fact 11 that his failure to remit the application and check was based on instructions from the home office, and under those circumstances, was not improper. Respondent readily admitted he did not remit the Brucker application and check because of instructions from the home office received after Brucker had telephoned the home office. After unsucessfully attempting to speak with Brucker by telephone daily for about two weeks, Schlosser voluntarily sent Brucker a money order via mail in early September. A review of respondent's business bank account for the months of March and August 1987 revealed that after the checks from Camp and Brucker had been deposited, the balances in the account thereafter dropped below $511.88 and $680 during those respective months. This raises an inference that those moneys were used for other undisclosed purposes during that time. According to respondent, he submitted applications and premiums checks to the home office approximately two or three times per month. It was also his practice to wait ten days or so after receiving a check from a customer to allow it sufficient time to clear. Schlosser denied having converted insurance moneys to his own personal use. There was no evidence that Schlosser lacked reasonably adequate knowledge and technical competence to engage in insurance transactions authorized by his licenses, a matter requiring conventional factual proof. Similarly, there was no evidence to establish that Schlosser intended to willfully violate the law or that his conduct demonstrated a lack of fitness or trustworthiness to engage in the insurance business.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the administrative complaint filed against respondent be dismissed with prejudice. DONE AND ORDERED this 18th day of January, 1990, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 18th day of January, 1990.
The Issue The issue is whether respondent's license as a health insurance agent should be disciplined for the reasons stated in the administrative complaint.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Michael Halloran, was licensed and eligible for licensure as a health insurance agent by petitioner, Department of Insurance and Treasurer (Department). When the events herein occurred, respondent was licensed to solicit health insurance on behalf of National States Life Insurance Company (NSLIC) and Transport Life Insurance Company (TLIC). He was also under contract with Diversified Health Services of St. Petersburg, Florida until that firm terminated his agency appointment on May 5, 1989. This proceeding involves the sale by respondent of various health insurance policies to four customers in January and February 1989. In 1987, Raymond H. Koester, a Largo resident, purchased from respondent a supplemental Medicare policy for both him and his wife. Their first policy was issued by American Integrity. A year later, respondent persuaded the Koesters to replace that policy with one issued by Garden State Insurance Company on the ground the latter policy represented an "improvement" over their existing policy. On January 10, 1989 respondent met with the Koesters for the purpose of selling them new health insurance coverage. During their meeting, respondent advised the Koesters that a new NSLIC policy would provide unlimited custodial and home health care, a type of coverage desired by the Koesters. Relying upon respondent's representation, the Koesters agreed to purchase two new policies. They filled out an application and paid Halloran $2,628 which was the premium for the first year. When the application was completed, respondent answered "no" to the question of whether the new policies were intended to replace existing coverage. This was a false representation. In June 1989 the Koesters learned that they had a problem with their new policies. This advice was conveyed to them by petitioner's investigator who advised them that the policies sold by Halloran loran did not provide any custodial or home health care benefits. Had the Koesters known this, they would not have purchased the insurance. On January 18, 1989 respondent visited Grace Miller, an elderly resident of Venice, Florida, for the purpose of selling her a health insurance policy. At that time Miller had an existing policy in force since 1983 which provided supplemental Medicare coverage. Respondent advised Miller that her existing coverage was inadequate and that more coverage was needed. More specifically, Halloran represented that a new NSLIC policy would supplement her basic Medicare coverage and increase her overall health insurance coverage. Based on that representation, Miller agreed to purchase a replacement policy issued by NSLIC. As it turned out, the policy sold to Miller was of little or no value to a Medicare recipient, such as Miller, and simply filled in the gaps on a major medical policy. Had Miller known this to begin with, she would not have purchased the policy. Respondent also persuaded Miller to purchase a long-term care policy from TLIC. She allowed respondent to fill out the application using information from her old policy. Without telling Miller, respondent misrepresented on the application her date of birth as December 2, 1921 when in fact she was born on December 2, 1911, or ten years earlier. By doing this, Halloran was able to reduce Miller's premium from $1,159.92 to $441.72. Had Miller known that she was responsible for paying a much higher premium, she would not have purchased the policy. On February 25, 1989 respondent accepted another check from Miller in the amount of $773.00 for an unknown reason. At about the same time, respondent submitted to NSLIC an application for a medical-surgical expense policy dated the same date purportedly executed by Miller In fact, Miller had not executed the policy and her signature was forged. NSLIC declined to issue a new policy to Miller since she already had a policy of that type in effect. On January 20, 1989 respondent visited Gertrude Simms, an elderly resident of Fort Myers. Simms desired to purchase a hospital expense insurance policy with a provision for dental insurance coverage. Simms desired such coverage because she had a medical condition that required her to have her teeth cleaned frequently to avoid an infection. Respondent was aware of this condition. Nonetheless, Halloran prepared an application with NSLIC for a limited medical-surgical expense insurance policy which did not provide any dental coverage. Respondent accepted a $1,100 check from Simms which he represented to her was the first year's premium. In fact, the first year's premium was only $506. Although respondent was supposed to return to Simms' home to explain the policy provisions, he never returned. At about this same time, TLIC received an application on behalf of Simms for a long-term care insurance policy bearing the signature of respondent as agent. However, Simms had no knowledge of the application and did not wish to purchase such a policy. The information contained in the TLIC application misrepresented Simms' age so that the premium was lower than it should have been. Although TLIC issued a policy and sent it to respondent, Halloran never delivered it to Simms. On February 1, 1989 respondent visited Velma Sonderman, who resided in Venice, Florida, for the purpose of selling her a health insurance policy. She had become acquainted with respondent through Grace Miller, who is referred to in finding of fact 4. Sonderman was then covered by a supplemental medicare insurance policy issued by United American Medicare. According to Sonderman, respondent gave a "snow job" and represented he could sell her better coverage through NSLIC. Sonderman agreed to purchase a new policy for supplemental medicare coverage to replace her existing policy and signed an application filled in by respondent. However, the application submitted by respondent was for a NSLIC limited benefit health insurance policy rather than the medicare supplement insurance policy Sonderman believed she was purchasing. Respondent also convinced Sonderman to purchase a long-term nursing home care policy issued by TLIC. When filling out the application on her behalf, but without telling Sonderman, respondent misrepresented Sonderman's birth date as July 11, 1915 instead of the correct date of July 11, 1911. By doing this, Sonderman's premium was reduced from $999.36 to $599.04 per year.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent's license as a health insurance agent be REVOKED. DONE and ENTERED this 4 day of April, 1990, in Tallahassee, Florida. DONALD ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4 day of April, 1990. APPENDIX Petitioner: 1-3. Substantially used in finding of fact 1. 4-17. Substantially used in findings of fact 4, 5 and 6. 18-29. Substantially used in findings of fact 9 and 10. 30-33. Substantially used in findings of fact 2 and 3. 34-45. Substantially used in findings of fact 7 and 8. 46. Substantially adopted in finding of fact l. Copies furnished to: Honorable Tom Gallagher Insurance Commissioner Plaza Level, The Capitol Tallahassee, FL 32399-0300 James A. Bossart, Jr., Esquire 412 Larson Building Tallahassee, FL 32399-0300 Mr. Michael Halloran 2519 McMullen Booth Road Clearwater, FL 34621 Donald A. Dowdell, Esquire Department of Insurance Plaza Level, The Capitol Tallahassee, FL 32399-0300
The Issue Whether or not Petitioners are entitled to add an above-the-age-limits child, who became handicapped after their initial enrollment in the state insurance program, as an eligible dependent.
Findings Of Fact Petitioners are Robin A.C. Fearn, SSN 269-36-8341, an employee at the Marion County Correctional Institution since May 23, 1986, and his wife, Mary Fearn, SSN 273-36-8629, an employee of the University of Florida since September 5, 1978. Effective June 1, 1986, Petitioners were enrolled in the Spouse Program under the State of Florida's Employees' Group Health Self Insurance Plan. Participants in the Spouse Program are entitled to family coverage for themselves and any eligible dependents. Petitioners are the parents of a son, Lee A. Fearn, SSN 264-39-0713 who was born on February 27, 1961. At the time of Petitioners' initial enrollment in the health plan on June 1, 1986, Lee was 25 years of age and had exceeded the maximum dependent age limit of 23 years of age provided under the plan. Lee has not, at any time, been covered as a dependent under the State of Florida Employees' Group Health Insurance Plan. Shortly after his 29th birthday, Lee Fearn was rendered disabled from injuries received in an automobile accident in March 1990. Since that accident, Lee has been dependent on Petitioners for support. The Federal Social Security Administration has accepted him as dependent on his parents, and Respondent does not dispute that Lee is "incapable of self-sustaining employment by reason of such mental or physical handicap and chiefly dependent upon the employee" as that term is used in Rules 60P-1.003(4)(c) and (d) F.A.C. [formerly Rule 22K- 1.103(4)(c) and (d) F.A.C.] Petitioners attempted to secure health insurance coverage for Lee during the open enrollment periods in 1991 and 1992 by listing Lee as an eligible dependent in the space provided for adding dependents on the bottom half of their annual open enrollment form. As a part of its insurance program, the Respondent permits State employees to enroll in the State of Florida Employees' Group Health Self Insurance Plan (Plan) within 31 days of employment or during an annual open enrollment period as described in its Rules 60P-2.002 and 60P-2.003 F.A.C. The annual open enrollment form is titled, "Annual Benefit Selection Form." All state employees are asked to complete and return this form during each annual open enrollment period. It provides, in pertinent parts, as follows: "You must make a decision on each benefit. . . . Add only those dependents not currently covered by your health insurance. Eligible dependents are those outlined in Rule 22K-1 F.A.C." (Emphasis supplied) Employees wishing to make changes in their current health insurance are permitted to do so during the open enrollment period by indicating those changes on the Annual Benefit Selection Form. No health examination or declarations, even of a preexisting condition, are required during this annual open enrollment period. Employees are given five options regarding their health insurance on the Annual Benefits Election Form: Make no changes; Cancel Enroll Change from HMO Plan to State Self-Insured Plan or vice versa; and Change from individual coverage to family coverage or vice versa. Petitioners separately completed their Annual Benefits Selection Forms during the 1992 open enrollment period by indicating they did not wish to make any changes in their health insurance coverage, that is, family PPC coverage. At the bottom of the Annual Benefits Selection Form, Petitioners added Lee as a dependent and authorized payroll deductions and stated "I understand my enrollment or coverage changes will be effective January 1, 1993 . . ." (Emphasis supplied) Petitioners claim they submitted a similar form in 1991 and never received notice from Respondent of the acceptance or denial of their 1991 open enrollment request to add Lee as their dependent. Petitioners did receive back a denial in the form of two memos via the University of Florida personnel department, which employs Mrs. Fearn, for their 1992 open enrollment request. Verla Lawson, Department of Management Services, [formerly Department of General Services] Division of State Employees Insurance, State Enrollment Administrator, testified as to how the open enrollment plan and applicable rules have been administered. She has been employed with the agency since 1986, but her involvement with the pertinent issues appears to have begun only with her assuming her present position in 1991. Ms. Lawson testified that to accomplish Petitioners' goal of adding Lee to their coverage as a dependent they "should have" checked the box for "I wish to change" at the top of the form, filled out the dependent information at the bottom of the form and then made out another form for PPC coverage. From this portion of Ms. Lawson's testimony, it is inferred that the annual open enrollment form a/k/a the Annual Benefits Selection Form also constitutes the "Health Care Option Selection Form" referenced in Rule 60P-2.002 F.A.C. Ms. Lawson also testified that even if Petitioners had made out both forms required, the agency would have denied coverage of Lee. According to Ms. Lawson, employee participation in the Plan is considered continuous unless an employee elects to discontinue participation or to change to an HMO. She stated that although employees are asked to return open enrollment Annual Benefit Selection Forms each year for administrative purposes, they are not required to re-enroll in the Plan during each open enrollment period. If an employee indicates no changes on an Annual Benefit Selection Form, that form is not transmitted by an employee's local personnel office to the Department of Management Services in Tallahassee. Ms. Lawson conjectured that is what happened to Petitioners' 1991 attempts to add Lee to their coverage. However, Ms. Lawson consistently referred to the Annual Benefit Selection Form as "the enrollment form" for the Plan, and Mr. Fearn testified credibly that he was advised by his supervisor that his coverage would be terminated if he did not turn in his form timely. The language on the form reflects the same compulsory instruction. (See FOF 7). It is accepted, pursuant to Mr. Fearn's testimony and within the parameters of Section 120.58(1)(a) F.S.. that Mrs. Fearn was told that submission of the annual open enrollment form was necessary to prevent termination of her coverage. Also, according to Ms. Lawson, the agency interprets its rules to permit employees to add additional eligible dependents within 31 days of the acquisition of that dependent or during the open enrollment period, and the Plan has been administered to permit above-the-age-limit handicapped children to be added only during the employee's or retiree's initial enrollment in the Plan. The agency interprets Rules 60P-2.001 and 60P-2.002 F.A.C. and Section 110.123(2)(b) F.S. to mean that only employees, retirees or spouses of deceased employees may apply for "enrollment" in the Plan, that eligible dependents merely "participate" in the Plan under an existing family coverage when added as dependents, and that consequently, dependents do not independently "enroll" in the Plan. The agency therefore decided that Petitioners' 1992 attempts to add Lee Fearn to his parents' existing family coverage as a dependent did not constitute an "enrollment" which by its own terms created the opportunity to enroll an above-the-age-limits handicapped child. Because under this interpretation Lee Fearn was not an eligible dependent, the agency felt he could not have been added to Petitioners' coverage. Ms. Lawson was not familiar with any case with facts similar to this one. According to Ms. Lawson, if Petitioners had been first employed in 1992 and enrolled in the Plan within 31 days of that first employment, their handicapped over-age son could have been covered, and if they had been employed in 1986 but waited until 1992 to enroll for the first time in the Plan, their handicapped over-age son could have been enrolled at that time. Ms. Lawson specifically stated she could not say how the agency would proceed if the Petitioners herein dropped their coverage for one year and then tried to enroll both parent employees and the over-age handicapped child during a new employee 31 day grace period or an annual open enrollment. Ms. Lawson was not clear on what the agency might do if one or both of Lee's parents accepted employment elsewhere and later returned to government service and applied for the Plan, except that state retirement rules possibly would govern the length of a permissible break in service. Ms. Lawson was not asked, and therefore the record is barren of any explanation of how, the agency would interpret its rules if one parent were employed without covering Lee and the other were later employed and wished to cover him as an over-age dependent handicapped child within the second parent's first 31 days of initial employment. However, the agency maintained that there is no provision in the Plan allowing an employee who is already enrolled in the Plan to add a handicapped over-age child and that its rules have never been interpreted to permit the adding of such a dependent at annual open enrollment. Rule 60P-1.003(4)(c) F.A.C., as interpreted by the agency, applies to a handicapped dependent child already in the Plan who then turns nineteen. Rule 60P-1.003(4)(d) F.A.C., as interpreted by the agency, applies only to a handicapped dependent child not in the Plan at the time of the parent- employee(s) initial enrollment. The word "enroll" as used in Rule 60P-1.003(13) F.A.C. is interpreted by the agency to mean "change or transfer plans" under the program, if an employee is already enrolled in any state insurance program at all (PPC Plan or HMO). The agency interprets the same word to mean "enroll" if the employee has never before been enrolled in any state insurance program. Under the provisions of Section 110.123(5), F.S. the Secretary of the Department of Management Services is given the responsibility for administering the state group insurance program. Inherent in that responsibility, but subject to prior legislative approval, is the authority to determine benefits and the contributions required therefor. Such determinations, whether for a contracted plan or a self-insurance plan, do not constitute "rules" within the meaning of Section 120.52(16) or "orders" within the meaning of Sections 120.52(11) F.S. The purpose of this exception to the Administrative Procedure Act is to afford the Department flexibility to make benefit changes or clarifications consistent with legislative approval. Respondent modified its January 1, 1993 edition of the Benefit Document to reinforce its interpretation that above-age-limits handicapped children could only be added during an initial enrollment, but this information was not provided to employee consumers until after the instant case was already in progress. There was no actuarial or expert insurance evidence to show that the legislature by its statutes or the agency by its rules had made a conscious and reasonable decision to treat the over-age handicapped children of longtime employees differently than the over-age handicapped children of brand-new employees or employees who have had a significant interruption in government service or that there is any reason or purpose for such a distinction.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered enrolling Lee Allen Fearn SSN 264-39-0713 as an eligible dependent of Robin A.C. Fearn and Mary E. Fearn in the State Health Plan effective January 1, 1993 and that all eligible claims for his medical expenses after January 1, 1993 be paid. RECOMMENDED this 1st day of April, 1994, 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 1st day of April, 1994. APPENDIX TO RECOMMENDED ORDER 93-5859 The following constitute specific rulings, pursuant to S120.59(2), F.S., upon the parties' respective proposed findings of fact (PFOF). Petitioners' PFOF: Petitioners' proposed recommended order does not comply with the rules of the Division of Administrative Hearings as to designating proposed findings of fact and conclusions of law separately or numbering same. It appears to present only conclusions of law or a final recommendation. It is rejected as proposed findings of fact. As proposed conclusions of law and legal argument it has been covered but not necessarily adopted in the recommended order's conclusions of law. Respondent's PFOF: 1-2 Accepted. 3 Accepted in part and rejected in part as legal argument or mere recitation of one person's testimony. Covered in FOF 17. 4-5 Accepted. 6-10 Rejected as legal argument or mere recitation of testimony, covered in FOF 17-25. COPIES FURNISHED: Robin A.C. & Mary E. Fearn 3241 NW 41st Avenue Gainesville, FL 32605 Augustus D. Aikens, Jr., Esquire DMS/Division of State Employees Insurance 2002 Old St. Augustine Road B-12 Tallahassee, FL 32301-4876 William H. Lindner, Secretary Department of Management Services Knight Building Suite 307 Koger Executive Center 2737 Centerview Drive Tallahassee, FL 32399-0950 Sylvan Strickland General Counsel Department of Management Services Knight Building Suite 309 Koger Executive Center 2737 Centerview Drive Tallahassee, FL 32399-0950
The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times relevant to this proceeding, Respondent, Barrett Chambers Miller, was licensed as an agent with Independent Life and Accident Insurance Company in the State of Florida. On March 11, 1981, Respondent signed a Combination Agent's Contract Form 1-7759 with the Independent Life and Accident Insurance Company. Part I, Article 2, of the contract requires the agent to "pay over all monies collected to the manager of the district" or to his representative and forbids the agent to retain any monies collected for any purpose. Part I, Article 1, of the contract requires the agent to "keep true records of the business on the books [and] to forward to the company on company forms a true account each week of his business. Among the "company forms" routinely used by agents in the conduct of their business are: (1) the Premium Receipt Book, (2) the Collection Book, (3) the Ordinary Remittance Report, (4) the Field Accounting Route List, and (5) the Balance Due Account Deficiency Sheet. The Premium Receipt Book is used to record the premium paid by the policyholder; is annotated whenever a premium is paid; and bears the premium paid, the date paid, and the signature or initials of the agent receiving the payment. The Collection Book page bears the name and address of the premium payer, the policy number(s), the type of plan, some statistics as to the insured, the death benefit, and the date on which the premium is paid each month. The Ordinary Remittance Report carries, as to each policy on the agent's debit (list of policyholders to be serviced), an account of the periodic premium collections recorded during the week covered by the report. The Field Accounting Route List is used by the agent to indicate weekly collections on weekly premium payments, and the Balance Due Account Deficiency Sheet is used to charge back deficiencies to the agent's account that are found in his collections turned in weekly. Count I: On May 26, 1981, Annie McKibben, owner of Policies A 39189 on the life of Carol L. Cox, A 39190 on the life of Ronny Cox, Jr., and A 39191 on the life of Stacey Cox, paid to the Respondent by check payable to Independent Life the amount of $13.96, total premium for the three policies listed. The premium card for that policy reflects an altered payment of $13.98 with the signature "B. C. Miller" for the May 1981 payment on the 26th of that month. The Collection Book page reflects collection on May 26, 1981. The Ordinary Remittance Report for the week of May 25, 1981, shows collection of $13.96. There is no Field Accounting Route List in evidence for this account, but the Balance Due Account Deficiency Sheet for the week of August 17, 1981, reflects deficiencies for money not turned in for all three policies for the collections made thereon on May 26, 1981. The check with which Mrs. McKibben paid the premiums in question was subsequently deposited to the account of Independent Life at the Florida First National Bank of Jacksonville. Respondent denies any wrongful withholding on this account. Count II: On some date in June, 1981, Wilma L. Robinson, owner of Policies B 03628 and A 67660, both in her name, wrote Check No. 348 on the Flagship Bank of Jacksonville in the amount of $48.68, payable to Independent Life Insurance and reflecting the notation "Ins. June." Someone, she is not sure who, gave that check to a representative of the company. Her payment book reflects a payment of $23.03 received by B. C. Miller on June 16, 1981. The Collection Book reflects collection on June 16, 1981. The Remittance Report reflects collection on June 16, 1981. The Deficiency Account Sheet, however, reflects a deficiency for money not turned in in the total amount of $23.03. Mrs. Robinson is not sure to whom her check was given. She was sick during that period, and it may be that her husband actually delivered the check; and in early 1981, she began mailing her payment checks in. However, to the best of her knowledge, she had never seen Respondent until he came to her home on January 4, 1983. Count III: In June, 1981, Mrs. Evelyn Reynolds had four policies with Independent Life: 017872 on Debbie Spivey, A0037496 on Angela Reynolds, A0010351 on Sherry D. Reynolds, and A14776 on Robert Reynolds. Though she cannot identify to whom she made her payment that month, her routine practice was to make the payment monthly, sometimes by check and sometimes by cash. On some occasions, Respondent and a Mr. McGroarty from the company both came to get her payment. On some occasions, she left the payment with her mother and does not know to whom it was made. Mrs. Reynolds' payment book shows a payment of $24.02 made on June 9, 1981, with the initials "BCM" reflected in the block for the signature of the agent. The Collection Book page shows collection on June 9, 1981; and the Remittance Report does as well, but the Deficiency Sheet shows a deficiency of $24.02 for monies not turned in but collected that date. Mr. Miller unequivocally denies the initials in the payment book were put there by him, nor was any entry on the Collection Book page relating to this account put there by him. Count IV: Mrs. Evie Bennett does not recognize the Respondent. She has only seen him once before in her life, on New Year's Day, 1983, when he came to her house. She did not meet with him on August 4, 1981, and did not make any payments to him. Her payment book for Policy No. B0000499 in her name reflects a premium payment in the amount of $9.51 made on August 4, 1981; and the entry in the block for the signature of the agent reads "Receipt Miller." The Collection Book page for this account reflects a collection on August 4, 1981, of $9.51. Other pertinent documents reflect a deficiency by reason of monies not turned in of $9.51 for this collection. Mr. Miller denies the entries in both the Payment Receipt Book and the Field Report were made by him. Mr. Edward Cooper owned Policies 05 18285A on Edward Thomas; and 0536115A and 0536115B, both on Mary Cooper. He normally paid his premiums by check once a month to whatever agent came to collect. He does not know to whom he made the payment on July 7, 1981, nor does he know whether he paid on that day by check or cash, notwithstanding his written statement on November 24, 1981, witnessed by Mr. Pat McGroarty, indicates he paid the payments on his Premium Receipt Book to the Respondent. The payment card for these policies reflects that on July 7, 1981, an individual who used the signature "B. C. Miller" received payment of $20.80, representing premiums of $4.16 for each of five weeks including June 29, 1981; July 6, 1981; July 13, 1981; July 20, 1981; and July 27, 1981. The Field Accounting Route List for this Respondent in the period in question reflects a remittance of $16.64 with a shortage of $4.61, which shortage is also reflected on the deficiency page. Mr. Miller admits the signature on the payment card is his, but contends the card was altered. Mr. Kerry Fossett is a field auditor for Independent Life Insurance Company and in November, 1981, was requested to conduct an audit of Respondent's agency. As a part of the audit, he checked policyholders' receipt books and compared them to the agent's account. His audit showed discrepancies on 19 premium receipt cards for a total shortage of $141.75, of which amount the sum of $100.98 occurred when Respondent had the agency. The remainder of the shortage occurred either before or after Mr. Miller was in the job. During the course of the audit, Mr. Fossett found at least one instance where Mr. McGroarty made a collection on Mr. Miller's account and failed to turn it in. In the opinion of the auditor, the shortages in the account of $30 before Mr. Miller took over, when it was handled by Mr. McGroarty, were theft. Mr. McGroarty was discharged from employment with Independent Life and Accident Insurance Company approximately one week after the audit was completed. Mr. Baucom, assistant vice president of the company and custodian of the personnel records, indicated the audit done on Respondent's records revealed a shortage of $361.50. This was subsequently adjusted to $126.18 as a result of the company withholding commissions due Respondent. On February 4, 1983, Mr. Baucom wrote to the Department of Insurance, State of Florida, requesting to withdraw a charge of deficiency against Respondent previously submitted on December 7, 1981, on the basis that the company was not satisfied with the documentation of the alleged deficiency. Thereafter, on April 5, 1982, he again wrote the Department of Insurance reinstating the charge based upon subsequent receipt of "satisfactory documentation" and Mr. Miller's "attitude." Gracie Williams, a policyholder with Independent Life, experienced somewhat of a problem with the company when she and her husband tore down a house on which they had been paying premiums. When the house was removed, they mentioned the fact to Mr. McGroarty, but he did nothing about it. As a result, they paid several months' premiums on property that did not exist. In fact, when Respondent complained about this to Mr. McGroarty, he was told to collect the money or McGroarty would take it from another policy. Jennie L. Wilder also had difficulties on her policy with Independent Life's agent named "Alligood" (sic). She had paid her premiums for six months in advance, but because the agent delayed remitting the premium, she got credit for only three months. On the other hand, Catherine C. DiPerna and her husband have been insured with Independent Life for quite a while. Part of that time, the Respondent was her agent/collector. On June 16, 1981, just about the time of the other alleged shortages in Respondent's remittances, she paid her premium payment to Mr. Miller by check. The check was cashed, she did not receive a notice of lapsed policy, nor did she have any problem with her policy, even though on the Ordinary Remittance Report for the same period used by the Petitioner in the allegations relating to Mrs. Robinson shows no money received from the DiPernas. On March 11, 1981, upon the recommendation of Mr. R. Brenner, an investigator with the Department of Insurance, Respondent went to work for Independent Life as a debit agent in Jacksonville, Florida, under the supervision of Mr. Pat McGroarty, who, also, had had the debit (account) before. After the basic company indoctrination course, Respondent underwent on-the-job training under McGroarty. He never, during the entire time he worked for the company, accepted total responsibility for the account because, in his opinion, there were large discrepancies between the premium receipt cards and the company records when he was assigned the account. Respondent discussed these difficulties with McGroarty and other officials of the company, such as Mr. Ivanoski, Mr. Tharpe, and Mr. Baucom. In April, 1981, Miller saw that his signature as agent was forged on a policy owned by the Petitioner's witness Cooper on the life of Cooper's nephew, Edward Thomas, who, at all times pertinent, was an inmate in the state penitentiary. When Respondent mentioned this to McGroarty, McGroarty told him that Cooper had forged the names and Respondent was with McGroarty when he delivered the policy to Cooper. This is one of the policies which form the allegation in Count V of the Complaint and about which there is an obvious alteration on the Premium Receipt Book showing an increase in the weekly premium of one cent because of a change from a health policy to a life policy. Other difficulties with this particular account were brought by Miller to the attention of the district manager who forced McGroarty to make up the shortage from his own pocket. During a part of the time Respondent worked with the company, he also handled fire policies on a temporary license. He found so many irregularities and such out-and-out corruption, he states, that he intentionally failed the state examination for an industrial fire license. Even after instructions came from the home office terminating Respondent's work in fire insurance, the district manager instructed him to continue to collect fire premiums and turn them over to McGroarty. As a result of all of this, deficiencies show up on his fire accounts for periods after the time he ceased fire business. In fact, documents show collections by Miller on his accounts, even after he left the employ of the company. Respondent unequivocally denies any wrongdoing with regard to his accounts.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law stated above, it is RECOMMENDED: That the Administrative Complaint against the Respondent dated August 27, 1982, and amended on September 24 and December 28, 1982, be DISMISSED. RECOMMENDED this 28th day of February, 1983, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings Department of Administration 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 1983. COPIES FURNISHED: Rhoda Smith Kibler, Esquire David Yon, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 S. Perry Penland, Esquire Penland, McCranie & Shad, P.A. Suite 1103, Blackstone Building Jacksonville, Florida 32202 The Honorable Bill Gunter State Treasurer and Insurance Commissioner The Capitol Tallahassee, Florida 32301
Findings Of Fact At all times relevant to these proceedings, the Petitioner was an applicant for licensure as a life including variable annuity and health insurance agent. On or about February 2, 1994, the Petitioner was scheduled to take the life including variable annuity and health insurance agent examinations at Florida Technical College in Orlando, Florida. On February 2, 1994, the Petitioner chose to take only the life including variable annuity examination. He did not receive a passing grade on this examination. On February 4, 1994, the Petitioner returned to the Florida Technical College after the test had started. He attempted to use another test admittance authorization card to be able to re-test. At that time, the Petitioner was advised by Tom Bastedo, Test Site Computer Operator, that he could not use the authorization card to gain admittance to the examination since the Petitioner had already taken the life including variable annuity examination and the computer scoring system would report that the examination had already been scored. The Petitioner became angry and tore up the card. The Petitioner then discussed his personal situation with Tom Bastedo, which included a reference to some "emeralds" that the Petitioner owned. The Petitioner removed from his briefcase what appeared to be real emeralds and offered them as a bribe to Mr. Bastedo if he would make it look like the Petitioner had passed the examination which he had previously failed on February 2, 1994. Mr. Bastedo refused the offer and advised the Petitioner that he must reapply to be tested. The Petitioner hung around the testing site for awhile and then left the area. This incident was reported immediately by Mr. Bastedo to his supervisors. On or about March 9, 1994, the Petitioner's application for license as a life including variable annuity and health insurance agent was denied because of the events which had occurred at the Florida Technical College on February 4, 1994. Petitioner's explanation of the events that occurred on February 4, 1994 is not credible.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter an Order denying the license application of Dario Albert Alvarez for licensure as a life including variable annuity and health insurance agent. DONE AND ENTERED this 27th day of September, 1994, in Tallahassee, Florida. DANIEL M. KILBRIDE 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 27th day of September, 1994. APPENDIX Petitioner did not submit proposed findings of fact. Respondent's proposed findings of fact. Accepted in substance: paragraphs 1-7. COPIES FURNISHED: Dario Albert Alvarez 13329 Laver Lane Orlando, FL 32824 John R. Dunphy, Esquire Division of Legal Services 612 Larson Building Tallahassee, FL 32399-0333 Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, Esquire General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, FL 32399-0300
The Issue The issue is whether Respondent committed the offenses alleged in the Administrative Complaint and, if so, what disciplinary action should be imposed on his licenses and appointments as a life and variable annuity contracts agent, a life, health and variable annuities contracts agent, health agent, and general lines agent.
Findings Of Fact Respondent received a Bachelor's degree in business administration from the University of Florida in 1969. From the time of his graduation until 1985, he worked in the contracting business, both for himself and others. For nine years, including the years of his employment with Prudential, Respondent taught courses designed to prepare candidates for the Florida contractor's examination requirements. Respondent began work for Prudential in April 1985; this was his first employment in the insurance industry. Respondent worked continuously for Prudential until 1994, when he resigned. Respondent's resignation was prompted by Prudential's decision to exit the property and casualty market in Florida after Hurricane Andrew affected the scope of insurance products that could be provided. Currently, Respondent is an independent insurance agent and the major part of his business now involves group health insurance and working with employers and employee groups. Immediately upon his employment with Prudential in 1985, Respondent attended a Department-required 40-hour training course administered by Prudential, after which he took the required examination, and received his Department license to sell life and health insurance. He received other licenses within the next year, including property and casualty, and the federal licenses necessary to sell investment-based insurance products. At all times material and relevant to this matter, Respondent was a duly licensed life and health, life and variable annuity, and property and casualty insurance agent in the State of Florida, having been first licensed by the Department in June 1985. After receiving his initial license, Prudential required that Respondent, as a new agent, to undergo approximately six months of training. During this training period, Respondent was assigned to work with a more experienced agent, Mr. Herb Wagner, whom he accompanied on sales calls. Generally, Respondent and Mr. Wagner split any commissions earned on sales that they made together. Also, Respondent was paid for service calls made to his assigned Prudential clients. The Walter Richards, Ronald Richards, and Ann Munkittrick sales discussed below were made during this time. Although Respondent was the newly assigned servicing agent for each of these three policyholders, Mr. Wagner either made or participated in each of the sale presentations. Respondent's intent with regard to each sale he made, including those at issue in this proceeding, was to benefit the customer. Respondent approached the business of insurance sales as a teacher; he tried to make each person he talked to about insurance aware of the things that he would want to know if he were in the position of the customer, both in servicing and in sales. During sales presentations, Respondent habitually informed customers to whom he offered a financed insurance option that loans were the mechanism by which cash values could be taken from the old policy by a statement to the effect that, "There are only three ways to take values from an insurance policy: the first is to die, which you don't want to do; the second is to cash surrender the policy, which you don't want to do; and the third is to take a loan against the policy, and that is the way we will get the money to pay the premium on the new policy." This statement was made as part of each of the sales at issue here. Respondent's presentation included: (1) a review of existing coverage and an update of existing policies, using the Ordinary Policy Service Record (OPSR) cards; (2) a review of the insured's other assets and policies; (3) a discussion of insurance needs; (4) a discussion of the cost of insurance that would meet their needs; (5) a determination that the older policies were held for their death benefit, not for a lifetime or savings need, if the policyholder expressed an unwillingness or inability to pay the premium cost; (6) a statement of the option to use values from the old policy to pay the premiums on a new policy; and (7) an explanation of how a financed insurance program could work, if the policyholder was interested. The OPSR cards used by Respondent during presentations summarized an insured's policy and was provided by Prudential to the agent responsible for servicing the customer. The OPSR cards contain such information as: the face amount of the policy; the guaranteed cash value of the policy; the dividend option; the amount of accumulated dividends; the cash value of paid-up additional insurance (if the paid-up additional insurance dividend option had been chosen); the most recent dividend; the amount of any paid-up additions; the beneficiary; the amount of the premium; the frequency of premium payment; any outstanding loan balances; and the loan interest rate contained in the insurance contract. When Respondent presented an option for financed insurance, to aid in explaining the proposal, he started with the guaranteed cash value block and the dividend value block on the OPSR card to show the customer the values available in the old policy. In each of the six sales presentations at issue in this proceeding, and in all of Respondent's 1985-1986 presentations, Respondent used Prudential's computer-generated illustrations to show how the proposed policy would perform based on certain assumptions. The illustration included a statement that the illustration was based upon the assumption that the then current dividend scales would remain the same; that dividends were not guaranteed; and that a decline in dividend scales would result in the necessity to pay premiums for a longer period of time before dividends would reach the point where the dividends would fully fund the policy's own premiums. With respect to each sale Mr. Ricketts reviewed orally with the customer the disclosures relating to dividend fluctuations. With respect to each sale in this case, Respondent, using the illustration, would explain the various columns, including an oral review of the fact (a) that dividends can change; (b) that the columns on the illustration marked with an asterisk were affected by dividends; (c) that values in the old policy would support an additional policy in the face amount suggested for a specific number of years, based on current dividends; (d) that if the abbreviated payment option were elected, there is a point at which the past, current and future dividends will take care of remaining premiums; and (e) that because dividends are not guaranteed, the abbreviation point could be a greater or lesser number of years depending on whether dividend scales rose or fell. "Dividend scales" in connection with mutual life insurance policies refer to the entire list of dividends paid on a class or type of policy. The term does not refer to a rate or a formula, but to the dollar results within classes of policies of the division of company profits in a mutual insurance company. The illustrations used by Respondent during his presentations were usually left with the insured and when the policy as issued differed from the illustration, Mr. Ricketts would deliver a new illustration with the policy. If after the presentation described in paragraph 9, the policyholder was interested, the presentation would continue with a description of the mechanics of the financed insurance plan: (a) using the OPSR cards again, the values, both dividends and cash values, would be explained; (b) the recitation of the ways to access the values (to die, to surrender, or to take loans); (c) a statement that the old policies were valuable and should never be surrendered; (d) an explanation that when the annual premium due notice came, the policyholder should call Respondent, who would prepare a loan form or request a loan check; and (e) an offer to re-explain the plan at the anniversary date if requested. In each of the instances involved in this case, Respondent used the same presentation. In those cases where Mr. Wagner made the sales presentations, the substance of the presentations was also the same. When a policy was issued, it was sent to the agent for delivery, and Respondent (or in the case of the sales with Herb Wagner, Respondent and Mr. Wagner) personally delivered the policy, repeated the foregoing explanation, and reviewed the policy itself. Respondent offered the option of financed insurance to each of the complainants only when he determined they met certain criteria: (a) the customer had need for increased death benefits; (b) the customer held his old policy not for any lifetime or "savings" need, but for its death benefit; (c) the customer was unwilling or unable fully to pay the premiums of the new policy out of pocket; and, (d) the ability of the existing policy or policies to carry the new policy for a finite number of years, at which time there was a viable plan to pick up the premium at the end of the financing period. During interviews with clients, if a person otherwise a candidate for financed insurance told Respondent that his or her old policy was intended or held to provide funds for a lifetime or savings need, Respondent did not suggest or offer the financed insurance option. In July 1985, Walter Richards had a life insurance policy with Prudential which was issued in 1965 or 1966, with a face value of $5,000. This policy was purchased by his mother when he was 19 or 20 years old. On or about July 15, 1985, Respondent and Herb Wagner, met with Walter Richards, his wife, his brother and mother. The meeting included the standard presentation by Respondent, resulting in a determination that Walter Richards was an appropriate client who might benefit from financed insurance. Respondent explained how such a policy would work as detailed in paragraph 9 above. After Respondent's standard presentation, Walter Richards believed that he could purchase a $30,000 policy with the premiums on the new policy being paid for by the $5,000 policy. Moreover, Walter Richards believed that at the end of seven years the $5,000 policy would “fade away” or “lapse,” and the $30,000 would make enough to pay its own premiums. At the conclusion of the presentation, and based on Walter Richards' interpretation of Respondent's presentation, Walter Richards signed an application for the $30,000 policy. Respondent received a first-year commission of approximately $146.26 from the sale of the $30,000 policy issued to Walter Richards. At hearing, Walter Richards testified that Respondent did not discuss the fact that loans would be taken from the $5000 policy to pay the premium on the $30,000 policy or that there was the possibility that there would not be enough money in the $5,000 to pay off the $30,000 policy in the projected seven-year period. Also, Walter Richards testified that he never requested loans on either of the insurance policies and was never told that checks he received from Prudential were loans against the old or new policies. Walter Richards' memory is taxed about some details of the transaction. For example, Walter Richards did not remember which of the agents did most of the talking at the meeting. Herb Wagner's name was familiar, but he could not remember whether Mr. Wagner was the other agent at the initial meeting even after being informed that Mr. Wagner had signed his brother's application at that time. While he had in his possession a 1989 illustration of the $30,000 policy, Walter Richards does not know how it came into his possession. He remembers tables and charts from the first meeting with Respondent, but he could not recall what they were or any specifics about them. During the initial year following the purchase of the $30,000 policy, premium payments for the policy were made from loans taken against Mr. Walter Richards' $5,000 policy. In 1990, 1991, and 1992, the funds in the $5,000 policy were insufficient to pay for the $30,000 policy. As a result, values from the $30,000 policy were used to pay the premium during those years. These loans were authorized by the Disbursement Request Forms used by Prudential. The signature of the policyholder on the Disbursement Request Form was not required for a loan check to be disbursed. Agents of Prudential were allowed to request such disbursements. However, all checks disbursed pursuant to these forms were mailed directly to the owner of the policy. Printed on the back each check immediately above the line designated for the endorsee’s signature was the following or similar language: This check is for the net proceeds of the LOAN made under the contract and described on the statement of loan attached to the check. By endorsing this check, YOU, the payee(s) (1) confirm the payee(s) application for the LOAN; (2) agree to pay interest on the LOAN at the contract rate; (3) agree that INTEREST NOT PAID when due will be added to the LOAN amount and the INTEREST charged on it will be the same rate(s) as the LOAN itself; (4) assign to The Prudential the contract and all benefits due or to become due or granted under it in order to secure payment of the LOAN with INTEREST; (5) certify that no proceeding in bankruptcy or on account of insolvency are filed or pending, and that the contract is free and clear of any encumbrance or other assignment. Walter Richards received notices from Prudential documenting the loans as well as checks with notices attached thereto. During the time relevant to this proceeding, Walter Richards endorsed several “loan checks.” Sharon Richards, wife of Walter Richards, acknowledged that checks from Prudential were mailed to her home and that after she or her husband endorsed the checks, she would deposit the checks and write checks to Prudential for the premium payment on the $30,000 policy. Prior to depositing the checks, Ms. Richards did not read the language on the checks nor the language on the notice attached to the checks. The plan submitted to Walter Richards resulting in the sale of the $30,000 policy to him was that his existing $5000 policy's values would support an approximately $500 annual premium on a $30,000 policy for 7 years, after which the dividends on the additional policy would be sufficient to cover its own premiums. Because of the reduced dividend scales beginning in 1990, the plan did not work as contemplated, and two and part of a third premium payment were financed from the values that were building up in the $30,000 policy rather than being fully funded by the old policy. Notwithstanding the reduced dividend scale in 1990, 1991, and 1992, Mr. Walter Richards has continuously achieved at least $36,000 in net death benefits with no additional out-of- pocket payment for ten years, demonstrating that the plan proposed in 1985 was a conservative and reasonable plan. Walter Richards filed a complaint with the Department and instituted legal action against Prudential after he read an article in the Tampa Tribune which stated that Prudential had been sued for "churning." Mr. Walter Richards then concluded that what was described in the article was the plan he was using to fund his $30,000 policy. Notwithstanding his filing a complaint, Walter Richards stated at hearing. "My policy was working the way it was supposed to. But my brother's policy had not come out at all the way it was supposed to." At all times relevant to this proceeding, Ronald Richards had a life insurance policy with the Prudential which was issued in 1966 with a face value of $5,000. On or about July 15, 1985, the Respondent and Herb Wagner visited the home of Ronald Richards in Valrico, Florida, for the purpose of servicing Ronald Richards' existing Prudential life insurance policies. The appointment was set up by an agent for Prudential as Respondent had only recently began working for Prudential. Present at the meeting were Ronald Richards; his brother, Walter Richards; their mother; and Sharon Richards, Walter’s wife. After Respondent reviewed Ronald Richard’s insurance policy and inquired as to Mr. Richard’s needs relative to insurance, Respondent made the standard presentation detailed in paragraph 9, Ronald Richards was offered and expressed an interest in purchasing a $30,000 policy. This appeared to be a reasonable plan to assist Ronald Richards to achieve a recognized need for additional death benefits. Ronald Richard’s understanding of Respondent's presentation was that $500 a year would come out of the old policy for seven years; at the end of the seven years, no additional premiums would be due on the $30,000 policy; and that after the seven years, the $5,000 policy would “disappear.” Both Ronald and Walter Richards' understanding that their $5,000 policies would disappear or lapse as a result of their financed insurance program was erroneous. At the conclusion of the July 15, 1985, meeting and presentation, Ronald Richards decided to purchase the $30,000 policy. The new policy was issued on October 2, 1985. The Respondent received a first-year commission of approximately $254.79 from the sale of the $30,000 policy to Ronald Richards. At the time of the application, there was no indication that there would be any problems with Ronald Richards' policy. However, Prudential's underwriting department refused to issue the policy as applied for at standard rates because of Ronald Richards' health history. Because the policy was rated and issued at Prudential's highest risk category, when Ronald Richards' policy was issued by Prudential, it was offered at an increased premium of about $900 per year, rather than the approximate $500 standard rate. In 1985, when Ronald Richards' policy was returned rated with a higher annual premium, Respondent and Mr. Wagner delivered the policy and, at that time, told Ronald that the proposed program of insurance payments would not work for him. Respondent and Mr. Wagner also informed Ronald Richards that an additional policy with a face amount of $10,000 could be supported by the values in the 1966 policy if he would like to reduce the face value. Ronald refused this alternate plan, insisted that his documented blood pressure problem did not exist, and further insisted on obtaining $30,000 coverage like his brother, Walter. In reaction to the fact that the old policy would not support the $900 premium for more than two or three years, Mr. Ronald Richards responded that he would "cross that bridge when I get there." Ronald Richards claims that he was unaware that loans from the value of the old policy were used to pay the new policy. However, during the time period relevant to this proceeding, Ronald Richards received routine loan notices as well as "loan" checks. These checks, which contained the language clearly indicating that the proceeds were loans, were endorsed by Ronald Richards. In or about December 1985 Prudential mailed a "loan" check to Mr. Ronald Richards from the old policy in the amount of $926.50, representing the first year's premium. Mr. Richards endorsed the "loan" check from Prudential, deposited the check in his bank in Tampa, and wrote a check from his own account to pay the $926 first year's premium on the $30,000 policy. In October 1986, Ronald Richards, unsuccessfully sought a reduction of his rating, on the grounds of a weight loss, addressing one of the reasons for the special rating of his policy. This application was suggested to Mr. Richards by Respondent in an attempt to reduce the premium payment to the $30,000 policy. Respondent and Mr. Wagner, again, suggested at the next two anniversary dates that the policy be reduced to $10,000, but Mr. Richards refused. In the third year of the policy being in force, Ronald Richards was informed by the Respondent that he would have to pay a premium of $900 for the $30,000 policy because the values in the $5,000 policy had been used up. In 1987, Mr. Ronald Richards allowed the $30,000 policy to lapse. As expected, the values in the old policy were insufficient to finance another year's premium. In 1989, two years after the policy lapsed, Respondent prepared for Mr. Richards an application for reinstatement of the policy at a reduced $10,000 face amount. Ronald Richards signed the application for reinstatement at the reduced amount and Respondent was successful in getting Prudential's approval for the reinstatement. However, Mr. Ronald Richards did not pay the necessary premium and the reinstatement was not accomplished. Ronald Richards testified that he did not remember receiving the information that his policy was rated and that the old policy would not support a new policy in the amount of $30,000. He further stated that he only realized his policy required a $900 payment in the third year, when the value in the old policy would not sustain the third $900 premium. These statements conflict with accounts given by Respondent as well as those of Walter Richards who was present when Ronald's policy came back with a higher risk rating because of health problems and when the problems with Ronald's policy were explained to him by Respondent and Mr. Wagner. Also, a letter was mailed to Ronald Richards' home notifying him of the special rating required because of his elevated blood pressure and weight. This letter required the signature of Ronald Richards acknowledging that he was aware that the proposed policy could not be issued as initially presented due to the special rating. Ronald Richards acknowledged that Respondent and Mr. Wagner "probably explained the details" and "how the program would work". Nonetheless, Mr. Ronald Richards testified that he filed a complaint with the Department DOI after seeing television reports in about 1995, involving a lawsuit against Prudential for the "churning." In October 1997, Ronald Richard's $5,000 policy was reinstated and all loans against it were canceled by Prudential. In August 1985, Ann M. Munkittrick had a life insurance policy with Prudential, which was issued November 11, 1964, with a face value of $2,000. On or about August 5, 1985, Respondent and another Prudential agent, Herb Wagner, met with Mrs. Munkittrick. This meeting took place during Respondent's initial training period. Also present at the hour-long meeting was Mrs. Munkittrick's husband. During the hour-long meeting, Respondent made the standard presentation as described in paragraph 9. During the meeting, Respondent or Mr. Wagner explained to Ms. Munkittrick that she could purchase an additional $6,000 policy at no out-of- pocket costs to her. This offer was made based on Mrs. Munkittrick's responses to Respondent's inquiries after which Respondent determined that Mrs. Munkittrick was an appropriate candidate for financed insurance and was interested in such policy. Based on the standard presentation made to her during the August 5, 1985, meeting, Mrs. Munkittrick understood that the new policy was not free but rather would come from values in her old policy's value and dividends. After Respondent's standard presentation, Mrs. Munkittrick signed an application for the $6,000 policy, which was issued on August 24, 1985. Respondent received a first-year commission of approximately $91.26 from the sale of the Mrs. Munkittrick's $6000 policy. The premium payments for Mrs. Munkitrrick's new policy were paid by loans taken against her old policy. To accomplish this, Prudential routinely provided Mrs. Munkittrick with Disbursement Request Forms which she signed, and notices which reported (1) that loan(s) had been taken against her old policy; (2) that the loan(s) paid the premium on her new policy; (3) the rate of interest; (4) the interest accrued; and (5) the total outstanding loan principal. In addition to the Prudential notices concerning loans and interest on such loans, Mrs. Munkittrick received "loan" checks from Prudential which she endorsed, and sent back to Prudential. The acknowledgment on the back of the checks endorsed by Mrs. Munkittrick clearly stated that the funds were the proceeds of a "loan" and also indicated the corresponding conditions. At hearing, Mrs. Munkittrik admitted that she received the notices attached to the checks, but was unsure if she read the notices. According to Mrs. MunKittrick, if she read the notices, she did not "absorb" the fact that the loans were taken against her policy. As to the actual sales presentation, Mrs. Munkittrick acknowledged in her testimony at hearing that the events occurred "a long time ago" and, consequently, she could not recall many of the details of the meeting with Respondent. Specifically, Mrs. Munkittrick could not recall or simply doubted: whether Respondent reviewed her old policy with her during the August 1985 meeting; whether Respondent used an illustration; whether Respondent told her how much value was available from her old policy; whether Disbursement Request Forms were filled out when she signed them; and whether she read the print on the back of Prudential loan checks she endorsed. In September 1986, John Anderson Jr., then a resident of Plant City, Florida, had three life insurance policies with Prudential. These policies were issued November 17, 1961, November 6, 1969, and June 6, 1979, with face values of $5,000, $3,000, and $6,000, respectively. In September 1986, Betty Anderson, wife of John Anderson Jr., then a resident of Plant City, Florida, had a life insurance policy with Prudential. The value of the policy, issued on June 6, 1979, was approximately $6,920.00. On or about September 18, 1986, the Respondent met with John Jr., and Betty Anderson (Andersons), at their home in Plant City, Florida. Respondent was the Anderson's assigned Prudential agent and was meeting with them for the purpose of servicing their existing Prudential life insurance policies. During this meeting, Mr. Anderson, who was 59 years old at that time, advised Respondent that he planned to retire in a few years and did not have any minor children. Mr. Anderson further indicated that Mrs. Anderson had no source of income independent of him. Respondent made the standard presentation described in paragraph 9 and provided the Andersons with illustrations. Mr. Anderson was concerned about providing additional financial resources for Mrs. Anderson in the event he predeceased her; he believed that this could be accomplished by securing additional life insurance. However, the Andersons informed Respondent that they couldn't afford another policy if they had to pay out of pocket. Respondent addressed the Andersons' concerns and, again, explained to them that loans against the old policy would be used to pay the premium payments on the proposed $25,000 policy. Based on the Respondent's standard presentation, on or about September 18, 1996, the Andersons signed an application for the $25,000 Prudential life insurance policy recommended by the Respondent. Respondent received a first-year commission of approximately $630.00 from the sale of the additional $25,000 policy. From 1987 through 1992, Disbursement Request Forms were prepared by the Respondent requesting loans on each of the four old policies held by Mr. Anderson. One Disbursement Request Form had the signature of Mr. Anderson. Consistent with Prudential's procedures, when Disbursement Request Forms were completed by the agent, the checks generated by such requests were sent directly to the insured, Mr. Anderson. The standard language regarding loans was printed on the back of the check. When the annual loan checks came from Prudential, Mr. and Mrs. Anderson endorsed the checks, deposited them in the bank account, and then wrote a check to Prudential for the premium payment. Mr. Anderson also received coupon books annually, which provided information regarding the loan status; the interest on loan; a description of dividends; and current loans and interest rate. This notice, along with the loan checks and the notice attached thereto, plainly shows that loans were used to make the premium payments on the new policy. In 1991 and 1992 loans were taken out against the $25,000 policy due to a reduction in the dividend scales. Because of the reduced dividend scales, the 1986 policy would not abbreviate until after the September 2000 premium payment was made. In 1995, Mr. Anderson received notice that the $25,000 policy was going to lapse. However, when the Andersons contacted Prudential, they agreed to "fix everything back, which they did." Mrs. Anderson stated that, "[Prudential] put everything back the way it was." However, in May 1995, Mr. Anderson authorized Prudential to cancel his $25,000 policy and simply refund all premium payments. In 1995, about the time the Andersons received the lapse notice, Mrs. Anderson heard a news telecast related to Prudential and told her husband. "They're talking about our situation." The television broadcast included a telephone number to call regarding complaints. Thereafter, the Andersons called the Department to file a complaint against Prudential. On or about May of 1986, Harold E. Welch of Hillsborough County, Florida, had three life insurance policies with Prudential including one issued in 1957 with a face value of $5,000, and a second issued in 1976, with a face value of $5,000. Harold Welch first met the Respondent at his office at the Tampa Port Authority after Mr. Welch moved to Tampa. Respondent was Mr. Welch's assigned agent, and Mr. Welch had requested his help in changing beneficiaries on his existing insurance policies. On or about April 22, 1986, Mr. Welch again met with the Respondent at the Tampa Port Authority Office. After making his standard presentation and determining that Mr. Welch might be a person who could benefit from financed insurance, Respondent talked to him about purchasing a $10,000 policy. Using his standard presentation, the Respondent told Mr. Welch that the premiums on the new policy would be paid out of the values of the older policies, and that they would pay the premiums for a period of nine years, after which the new policy would pay for itself. During the presentation, the Respondent used a printed illustration to explain the nine-year payment plan. Copies of the same was given to Mr. Welch. Mr. Welch testified that the Respondent gave him a print-out with a lot of numbers on it. Mr. Welch further stated that the only part he understood was the bracketed part on the first page that showed nine payments and then "zeros after that." Mr. Welch understood the 1986 policy premiums would be paid with the accrued values of his existing policies over nine years, after which time the new policy would pay for itself and values could be returned to the older policies. The following language appeared on the illustration: Dividend amounts are scheduled on basis of current Prudential scale and are not guarantees or estimates for the future. Illustrated dividends on permanent policies assure current rate of investment earnings on funds attributable to policies since January 1, 1989, and will continue each year into the future. Based upon the Respondent's representations, Harold Welch signed an application for the $10,000 Prudential life insurance policy on or about April 20, 1986. The Respondent received a first-year commission of approximately $255.75, from the sale of the $10,000 additional life insurance policy to Mr. Welch. Mr. Welch admitted that he could not recall whether or not Respondent discussed the dividend scale disclaimer and likewise could not remember whether he read the disclaimer. Although Mr. Welch testified that he did not recall Respondent's talking about loans, he admitted he had understood that the "values" would be taken from his policies, and that at the time he did not "particularly care" how the values were obtained. Mr. Welch admitted signing Disbursement Request Forms authorizing loans against his policy, but that he "didn't really pay any attention to those things.” According to Mr. Welch, “All I wanted to do was get the premium paid." In fact, Mr. Welch signed Disbursement Request Forms in 1987, 1988, 1991, 1992, 1993, and 1994, authorizing loans, including one to pay for the very first 1986 premium. On or about April 20, 1989, Mr. Welch received and endorsed a check from Prudential which represented a loan from the value of his older policies to pay the premium for the new policy. Printed on the back of the check just above the line on which the endorser was to sign, was the language quoted in paragraph 27. Mr. Welch acknowledged receipt of various documents between 1986 and 1994 providing information that loans were taken against his policies to pay premiums on the additional policy, admitted that he made no inquires about the loans and raised no objections about the loans. As to the 1986 policy, Mr. Welch stated that the notices caused him no concern. Respondent was taking care of the payment on the new policy and this "was just part of the whole plan." Mr. Welch admits that he has a fundamental understanding of dividend usage and related insurance terminology. This is evidenced on several insurance transactions initiated by Mr. Welch prior to Respondent's 1986 presentation regarding the $10,000 policy. In 1985, Mr. Welch wrote a letter to Prudential requesting that the premium be paid with the policy dividends and that any balance be forwarded to him. Also, prior to meeting Respondent, Mr. Welch took two loans against one of his policies which he knew based on "common sense" would reduce the death benefit if not repaid. Finally, Mr. Welch understood how dividends and loans may work together. In response to a 1994 notice of loan interest payment due, Mr. Welch wrote on the payment coupon "please take care of this interest payment through policy dividend." Mr. and Mrs. Welch qualified much of their testimony with comments concerning their inability to remember. Specifically, when questioned about the details of Respondent's presentation, Mr. Welch testified that "sometimes I forget these things. . ." Nonetheless, and although inconsistent with relevant documentation, Mr. Welch stated that in 1986 he was not aware that loans were being taken against his policies. Moreover, Mrs. Welch acknowledged that she did not attend the meeting and therefore, didn't hear Respondent's presentation of the 1986 policy to Mr. Welch. Due to a decline in the dividend scale, Mr. Welch had to make an out-of-pocket interest payment of $142.40, and a loan was taken out on his $10,000 policy to pay the premium in 1996. This exceeded the nine years that Respondent told Mr. Welch premium payments would have to come from the values in the old policies. However, Mr. Welch had no reason to believe that Respondent "knew at all" at the time of the sale that the abbreviated payment plan would not work. Only after Mr. Welch heard media reports involving Prudential did he question the 1986 transaction in which he purchased the 1986 policy. According to Mr. Welch, "I saw an article in the local newspaper about the 'churning' at Prudential; and when I read it, I thought . . . 'It applies to me perfectly.'" Thereafter, he contacted the a law firm through the newspaper, and filed suit. By the time he read the news account, Mr. Welch had had cancer surgery and considered himself uninsurable, and he was afraid his old policies had been depleted and that he was going to lose all his insurance. However, this was not the case. On or about May 1986, John Evenson, then of Valrico, Florida, had several life insurance policies with Prudential, including a policy issued June 7, 1955, with a face amount of $5,000; a policy issued June 1960, with a face amount of $3,000; a policy issued February 11, 1969, with a face amount of $2,500; a policy issued July 11, 1981, with a face amount of $2,000; and a policy issued February 11, 1983, with a face amount of $6,000. His wife, Doreen Evenson, also had a Prudential policy issued January 24, 1972, with a face amount of $2,000. In late 1985, Respondent contacted Mr. Evenson with respect to the above described policies. Mr. Evenson worked in the same business complex as Respondent, and meetings concerning Mr. Evenson's life insurance matters occurred at Mr. Evenson's office. Mrs. Evenson was not present at these meetings. In 1986, Respondent met with Mr. Evenson at least three times concerning a proposed $10,000 policy. The application for a $10,000 policy was signed at the second meeting, on April 18, 1986, after Respondent made his standard presentation described in paragraph 9. Prior to purchasing the $10,000 policy in 1986, Mr. Evenson possessed at least a fundamental knowledge of dividend and loan concepts in the context of his insurance policies. For example, prior to Mr. Evenson's 1986 purchase, he had taken approximately $3,200 in loans against his policies for his son's tuition and for a down payment on a home. Mr. Evenson knew that dividends from his policies could be used to reduce the loans. Also, Mr. Evenson understood dividends; options; the use of dividends, that dividends are not guaranteed; cash value; accessing cash value through loans; and that loans reduce death benefits. Mr. Evenson participated in the payment plan for the 1986 policy, through receipt, endorsement, and deposit of loan checks to pay premiums, and signed disbursement requests consistent with the safeguards established by Prudential. Also, Mr. Evenson received notices of loan interest due from Prudential which specified the amount and source of the loans. Mr. Evenson endorsed several of the "loan" checks. These Prudential loan checks were accompanied by an attached statement plainly stating that the funds were to be loan proceeds and directed the payee to the conditions on the back of the check which further advised that the checks were loan proceeds, and the effect of the loan on the subject policy. Each of the loan checks contained such language immediately above the Evensons' endorsements. The Evensons knew the checks were to be used to pay of the 1985 policy premium, and thus, they deposited the "loan" checks into their own account and wrote checks in the corresponding amounts to Prudential to pay the annual premium. The Evensons also received dividend checks during the relevant period of time which are distinguishable from loan proceeds checks in that no acknowledgment or conditions are printed on the back of the checks. Consistent with Prudential safeguards to prevent imposition of loans against policies without knowledge and participation of the insured, Respondent and Prudential rejected the Evensons' requests to consolidate or simplify the annual premium payment process by having Prudential automatically apply the funds. During his testimony, Mr. Evenson repeatedly stated that his memory was vague concerning certain details of the purchase because it occurred "so long ago." However, Mr. Evenson understood that the 1986 policy was not "free," but that a premium would need to be paid annually. Second, Mr. Evenson testified that during Respondent's presentation and prior to the sale of the new policy, Respondent had a list of Mr. Evensons's policies which included information concerning outstanding loans against some policies. Third, Mr. Evenson acknowledged his need for death benefits, indicating that if he passed away, his wife would need the money to help pay for the mortgage. Finally, Mr. Evenson understood dividends are not guaranteed. The notices, check statements, and checks reflecting loans against his policies did not cause Mr. Evenson to make inquiries about the loans or about the loan proceeds checks. Other than asking that the process occur automatically, the Evensons did not question the payment plan until learning through newspaper and television about churning allegations against Prudential. The Evensons contacted the author of the Tampa Tribune newspaper article, who referred them to James, Hoyer and Newcomer law firm. The Evensons thereafter hired James, Hoyer and Newcomer to sue Prudential. There was no replacement or intent by Respondent to replace any policy in connection with any of the sales in issue. In fact, there was no replacement on any of these sales. Respondent's intent was only to use values in the old policy to leverage an increase in death benefits for the policy holder by financing the new policy for a period of time. Each year the decision to finance the premium or to pay out-of-pocket is a fresh one, and while the option to use financed insurance for a number of years may be the basis on which the insured decided he could afford the program, there was no commitment to use old policy values for more than one premium at a time. All the sales transactions relevant to this proceeding occurred during Respondent's first year and a-half as a licensed insurance agent. The fist six (6) months of this time period Respondent was being trained by Prudential and was usually accompanied by a more experienced agent. Respondent has worked continuously in the insurance industry since 1985, and except for the instant case, Respondent has not been the subject of disciplinary proceedings related to his licenses issued pursuant to Chapter 626, Florida Statutes. Internal policies and requirements respecting loan disbursements for the purpose of paying premiums on the same or another policy required the insured's signature on the disbursement forms, or a signature below a loan agreement on the reverse of a loan check, and were accompanied by a series of notices, all to the policy holder's home address of record, thus bypassing the agent. These were followed by annual status reports and interest billings. Respondent was fully aware of the foregoing safeguards with respect to policy loans at all times. In each of sales at issue in this case, there was an objective need for more insurance to provide additional death benefits, and in most cases a subjective need as well. In each case, the insured held his old policy for death benefits, and not for lifetime cash or savings need. Also, in each case, with one exception, the values in the preexisting policy were sufficient to finance premiums on the proposed additional policy until the point the dividends on the new policy could pay its own premiums, assuming dividend scales remained constant. The exception is Mr. Anderson's sale, as he agreed that a portion of his pension was to be dedicated to premium payments. In each of the cases, beginning in 1990, dividend scales declined for the first time in many years. The reduction in dividend scales necessitated alteration of any plan to use funds from the old policy as the only source for payment of premiums on the new policy until the abbreviation point which was now extended farther into the future than it would have been had the 1985 or 1986 dividend scales continued. In most instances, where there was an insufficient amount in the old policy to pay for the next annual premium, the policyholders in this case requested Respondent to arrange for payment from other sources, such as the cash values in the new policy itself. By 1990, these values were sufficient to pay or contribute toward payment of annual premiums. In each case herein, the insured understood from the outset that the new policy was not "free" but that there were values in the old policy which could be used as a source of payments for the new policy. Similarly, in each of the six sales in issue, the analysis made and communicated at the time of sale was that, assuming dividend scales remained the same, the dividends on the new policy would reach a point when its dividends would be sufficient to pay its own premiums at a time varying between seven years. Each of the policyholders in this case became convinced they had been wronged after reading or watching newspaper and/or television reports about "churning." In the insurance industry, "churning" is considered an improper insurance sales practice involving financed insurance which requires that the sale or transaction is not in the best interest of the insured; it involves misrepresentation or deception; and is motivated by the salesman's desire for a commission, not the welfare of the insured. The sale of financed insurance without more does not constitute churning. Nonetheless, based on their interpretation of the various news accounts about "churning" by Prudential agents which they saw and/or read, each complainant except Mr. Welch contacted the Department to file complaints. Mr. Welch instead contacted an attorney.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that all counts of the Administrative Complaint filed on April 22, 1996, be DISMISSED. DONE AND ENTERED this 10th day of June, 1998, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of June, 1998. COPIES FURNISHED: Stephen C. Fredickson, Esquire Michael H. Davidson, Esquire Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0300 Peter Winders, Esquire Stephanie J. Young, Esquire Carlton Fields, P.A. One Harbor Place 777 South Harbor Island Boulevard Tampa, Florida 33602 Daniel Y. Sumner General Counsel The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
