The Issue The issues for determination in this case are whether Respondent violated the law as charged by Petitioner in its Administrative Complaint, and, if so, what discipline is appropriate.
Findings Of Fact Petitioner is the state agency with the statutory authority and duty to license and regulate insurance agents in Florida. Respondent has been licensed as a life including variable annuity and health agent, life insurance agent, and life and health insurance agent. At the time of the events which are the subject of this case, Respondent held the aforementioned licenses and was the president of Seniors Financial International, Inc., an insurance agency located in Vero Beach. Storfer is licensed to sell fixed annuities for most of the insurance companies licensed to transact business in the State of Florida, including Allianz, IMG, Aviva, North American, Old Mutual, and American Equity. Storfer keeps himself abreast of the suitability requirements and features of annuities by regularly attending and participating in the quarterly, if not monthly, training presented by insurance companies. The companies also provide seminars at Storfer's office. He goes to their offices or views webinars that can last two-to-three hours. The companies also offer assistance by providing people in-house to answer questions about their products. Even though Storfer could have the option for each client to submit cases to the companies for the company to help prepare and work to find a suitable product for each customer/individual, there was no testimony he did so with the individuals in this case. He also testified that he understood and was knowledgeable about all the products sold, relating to the three clients, from which the AC stems. Storfer regularly holds luncheon/dinner workshops and seminars at restaurants in and around Vero Beach that focus on financial issues. He invites the attendees by mailing them a flier. Each attendee receives a free meal while listening to Storfer's financial presentation. During the luncheons, Storfer does not offer any investment products for sale. However, attendees are asked to complete a "Senior Financial Survival Workshop Evaluation Form" and are invited to request an in- office appointment if they are interested in discussing specific investment products. The form elicits information including family background, financial history, current expenses, and tax liabilities. The attendees are asked to put "yes" or "no" at the top of the form. If an attendee puts yes, then a follow-up appointment is scheduled in Storfer's office. Storfer's wife picks up the forms and sets the appointment. Storfer's procedures at the appointment typically start by filling out a client profile. He goes through the form with the client and asks the client questions to obtain the details regarding age, contact information, beneficiaries, health, estate, plans for money, rate of return, percentage of life saving willing to lose, risk tolerance, liquidity, income needed form investment accounts, what needs to be fixed, income, assets and liability inventory, life insurance, and long-term care insurance/disability insurance. After completing the profile, Storfer reviews the documents that he has requested the client bring in to the appointment. This includes tax returns, an investment portfolio, and list of how much money they have and where it is, including life insurance or long-term care. There is no fee for the appointment. Typically, after the first meeting, Storfer reviews the documents and the client returns for a second appointment. At the client's next appointment, Storfer has reviewed everything and put together a product that he wants to sell the client. He also provides an illustration of the product demonstrating the product's growth and how it would work. If the client decides to go forward and invest in one of the products Storfer has recommended, Storfer gets an application for the product and his wife fills it out.2 After the application has been completed, Storfer's office procedure is to submit it to the company the same day to await approval. Once the application has been approved, then the policy is funded either by transferring from another type of product (direct transfer rollover) or by a 1035 exchange. The policy can not be issued if not funded. Once the policy is funded and issued, the company mails the policy and the documents for the client to sign to Storfer, as the agent to deliver. Storfer's operating procedure is to call the client to set an appointment for policy delivery. The appointment's purpose is to go over the policy with the client, including the amount of money that went into the policy, where the funds came from and what the policy will do for them, including liquidation and charges. Storfer keeps documents which he refers to as client notes in each client's file. After client meetings, he uses a service to dictate what he wants as a summary of the client meeting. The service types up what he says and emails it back to him. It is printed, reviewed, and scanned into his system. Alberto and Celina Grubicy Celina Grubicy ("C.G."), a native of Argentina, was born on April 6, 1940. She was married at age 19 to Alberto Grubicy ("A.G."), who was also born and raised in Argentina. They moved to the United States in 1965; English is their second language. The Grubicys opened a repair shop in New York in 1964. Then, they went in the construction business in Connecticut for about ten years before retiring to Florida. In both successful businesses, C.G. handled the paper work and kept the books. The Grubicys retired in the early 90's and purchased a condominium in Florida, where they now reside. On February 5, 2007, the Grubicys attended Respondent's luncheon seminar at Carrabbas Italian Grill in Vero Beach. At the seminar, the Grubicys listened to the presentation and completed the seminar evaluation form confirming an estate in excess of one million dollars. At the time, A.G. was 65 years old and C.G. was 66 years old. The Grubicys thought the presentation sounded good, so they made an appointment to see Storfer in his office. Prior to any interaction with Storfer, C.G. was the owner of a Transamerica variable annuity with a contract date of September 23, 2002, an AXA Equitable variable annuity with a contract date of June 17, 2005, and a Hartford variable annuity with a contract date of July 25, 2005. Each of the annuities was doing well and approaching dates when surrender charges would no longer apply. The Grubicys met with Storfer on February 7, 2007. At the meeting, the Grubicys informed Respondent that their investment goals were two-fold. They explained that their primary financial goal was safety. Their plan included selling their residential building complex from which they were currently collecting rental payments for income.3 Their goal in five years was to have an investment that would provide their income after they sold the property.4 The Grubicys wanted an investment to replace the rental money that they would no longer receive after the sale of their building. The Grubicys also stressed to Storfer that the security of the investment was a paramount concern. C.G. wanted out of variable annuities because she was concerned about the stock market risk and did not want annuitization to take place. At their second meeting on February 12, 2007, knowing the Grubicys' goals, Storfer misrepresented the advantages for the product he recommended with a graphic illustration on a blackboard. He showed the MasterDex annuity with Allianz in such a fashion, that, when the market advanced in relation to a base line, the return on the annuity would also advance, up to a three percent cap per month on the gain, but that when the market fell below the base line, there would be a zero percent return, but never a loss of the gain made in the previous months, or a loss of invested capital. Storfer recommended and proceeded to sell the Grubicys the Allianz MasterDex 10 ("MasterDex") policy, being fully aware of the Grubicys' goals. He insisted that was the way for the Grubicys to invest because they would never lose their principal compared to the other annuities that have high risk plus excess fees. Storfer did not provide the Grubicys any other investment option. The annuity was a long-term investment that provided for surrender penalties on a declining scale for fifteen years even though Storfer told the Grubicys that the Allianz annuity would mature in five years from the day it started.5 Storfer assured the Grubicys that they were not going to lose anything by investing in the MasterDex annuity with Allianz. They were not accurately informed of the provisions in the contract by Storfer during the meeting nor did Storfer fully review the relevant terms and conditions, including the length of the policy.6 The Grubicys knew that when they surrendered the three variable annuities there would be surrender charges. However, Storfer told them that the product he was selling them had a 12 percent bonus that would offset the monetary lost from surrender penalties of the transferring funds.7 The Grubicys decided to follow Storfer's recommendation with his assurances that they wouldn't lose money, and they surrendered their three annuities to purchase two MasterDex annuities in excess of about one million dollars. After Storfer completed the numerous forms and documents, the Grubicys authorized the transfers of money to Allianz by way of assignment on or about March 2, 2007, and authorized him to buy the new policies. Storfer allocated 100 percent to the Standard & Poors ("S&P") 500 instead of allocating the total investment among three possible choices in smaller increments. Respondent's 100 percent allocation choice on the Supplemental Application contravenes both of the Grubicys' requests on each of their Liquidation Decision forms, which specifically state "the decision to liquidate . . . based solely on . . . desire to eliminate market risk and fees " The annuity product Storfer sold the Grubicys provided for three different values: annuitization value, cash surrender value, and guaranteed minimum value. The Statement of Understanding provided: * * * Annuitization value The annuitization value equals the premium you pay into the contract, plus a 10% premium bonus and any annual indexed increases (which we call indexed interest) and/or fixed interest earned. This will usually be your contract's highest value. Withdrawals will decrease your contract's annuitization value. Cash surrender value The cash surrender value is equal to 87.5% of premium paid (minus any withdrawals) accumulated at 1.5 percent interest compounded annually. The cash surrender value does not receive premium bonuses or indexed interest. The cash surrender value will never be less than the guaranteed minimum value (which we define below). The cash surrender value will be paid if you choose to receive a) annuity payments over a period of less than 10 years for Annuity Option D and five years for Alternate Annuity option IV, or over a period of less than 10 years for all other annuity options, b) annuity payments before the end of the first year for Alternate Annuity Option IV or before the end of the fifth policy year for all other annuity options, or c) a full surrender at any time. Guaranteed minimum value. The guaranteed minimum value will generally be your lowest contract value. The guaranteed minimum value equals 87 5% of premium submitted, minus any withdrawals. The guaranteed minimum value grows at an annual interest rate that will be no less than 1% and no greater than 3%. (emphasis in original) The Grubicys signed the numerous forms and documents without reading them because they trusted Storfer and he sounded as if he knew what he was talking about. They relied on his advice. Storfer sold the Grubicys a policy completely different from what he had described.8 The monthly cap was opposite of the way Storfer explained it. A description of the "monthly cap" stated: Although there is a monthly cap on positive monthly returns, there is no established limit on negative monthly returns. This means that a large decrease in one month could negate several monthly increases. Actual annual indexed interest may be lower (or zero) if the market index declines from one month anniversary to the next, even if the market index experienced an overall gain for the year. (emphasis in original) The Grubicys later learned that the advice Storfer provided them regarding how the MasterDex annuity worked was erroneous. Respondent provided them misleading representations regarding the sale of the annuity products. On April 5, 2007, C.G. received her annuity contract for a MasterDex annuity for approximately $1,123,000, and she executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. On April 12, 2007, A.G.'s annuity contract for a MasterDex annuity for approximately $35,000 was delivered and he executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. The sale of the Allianz annuities generated commissions of approximately $95,000.00 for Storfer or his agency, Senior Financial International, Inc. The Grubicys became concerned about the MasterDex product Storfer sold them while watching television at home one day, and seeing a class action lawsuit advertisement about their purchased product. They called Storfer immediately to discuss Allianz. He set up an appointment with the Grubicys to meet with him about their concerns. When Storfer met with the Grubicys, he assured them that they didn't need to change anything, their product was fine. He also informed them that their product was six percent up and not to worry because if the S&P 500 went down, they didn't have to worry because they had already made six percent. In May 2007, the Grubicys went to Connecticut and attended another investment seminar. Afterwards, they set up a meeting with the financial advisor, Mr. Ray ("Ray"). The Grubicys took their investment paperwork to Ray and he reviewed it. Ray explained how the MasterDex worked and called an Allianz customer service representative while they were in the office to further explain how the product worked. The Grubicys were informed that there was a monthly cap of three percent when it went up but no monthly cap on stock market losses. Such a description of the cap combined with the description in the contract support a finding that the MasterDex annuity did not meet the Grubicys' financial goals and was not a suitable investment for them. In particular, the Grubicys had been clear that they did not want to have any market risk. Subsequently, the Grubicys contacted Storfer again and questioned his declaration regarding the cap on stock market losses. Respondent continued to describe the crediting method incorrectly and told them Ray was just trying to sell them something. He insisted that the S&P 500 is the way he explained it earlier and that Ray's interpretation was wrong. Ray eventually sent the Grubicys an article from the Wall Street Journal, which they testified reemphasized that the investment worked completely different from what Storfer continued to tell them. The Grubicys requested a refund from Allianz. Approximately one year later, Allianz eventually set the contract aside and refunded the investment principal, surrender charges for the three annuities, and some interest. The evidence convinces the undersigned that Storfer knowingly made false representations of material facts regarding the MasterDex annuity and its downside cap. Kikuko West Kikuko West ("K.W."), a native of Japan, was born in 1933. She marrried a U.S. soldier and moved to the United States when she was 18 years old. Together they had four children. She is now married to Robert West ("R.W."). K.W.'s employment history started with her working in a bakery, then as a waitress in a Chinese restaurant, and her ultimately owning and operating a successful flower shop for over 30 years in West Warwick, Rhode Island. She sold it in 2006. K.W. sold her house in Rhode Island and used the money to invest in a Smith-Barney mutual fund and an AXA Equitable Life Insurance Company (AXA) annuity (contract # 304 649 121), which she purchased in June 30, 2004. West purchased a condominium in Florida and has been a permanent resident for the past five years. On January, 15, 2008, Robert and Kikuko West ("Wests") attended Respondent's seminar. They scheduled an appointment for January 23, 2008, but didn't show. They attended a second workshop on or about June 3, 2008, and scheduled a meeting for July 9, 2008, but didn't show. The Wests rescheduled their appointment with Storfer on August 4, 2008, and met with him in his office for the first time. Even though K.W.'s husband attended the meeting, the focus of the meeting was her finances. K.W. explained that their monthly income was $2,900 and their monthly living expenses were $2,100, but a majority of it came from her husband's pension so she was worried about income if he passed. She only received $600 a month in social security and wanted income in the future. She had $100,000 for emergencies in a money market account. K.W. also informed Storfer that when she dies she wants her four daughters and six grandchildren to inherit her money. K.W. wanted to stop receiving various statements from each of her numerous investment accounts and bundle her assets. She told Storfer that she wanted to keep everything that she had and would be happy with a rate of return of four or five percent. She emphasized she had zero risk tolerance. K.W. provided the following information for her asset/liability inventory: an AXA variable annuity(non- qualified) in the amount of about $119,589.58; mutual fund (non- qualified) of $253,289.55; IRA (qualified) $80,039.33; CDs (nonqualified) for $25,000 and $35,000; a Fidelity and SunTrust (nonqualified) totaling $40,000; and a Vanguard equaling $60,000. West explained that she didn't have life insurance but had prepaid funeral. Her husband had three life insurance policies. K.W. had a second meeting with Storfer on August 6, 2008. At that meeting, K.W. provided income tax and other paperwork to detail the stocks that she wanted consolidated into one statement.9 Storfer went over the financial illustrations and company profiles he had compiled as proposed investments. Unbeknowest to the Wests, Storfer's plan for restructuring K.W.'s reinvestments was to transfer funds from her variable annuity (approximately $215,000) to a fixed annuity and transfer assets from K.W.'s existing brokerage accoung (approximately $80,000) to a new brokerage account, which were both with American Equity. During the meeting, Storfer also introduced the Wests to Kevin Kretzmar, a broker for Summit Brokerage Services, by speakerphone.10 The discussion consisted of how the money would be transferred.11 The Wests thought Kretzmar worked for Storfer as his assistant and were unaware that he brokered for a separate company. Storfer brought Kretzmar into the transaction to handle the brokerage account because he was not a broker, but he did not make this plain to the Wests. In the meeting, Strofer emphasized to the Wests that K.W. was paying too much in income tax and her investments should be set up to reduce the income tax. Storfer also informed the Wests that K.W. would get a guaranteed eight percent interest each year and would be able to withdraw 10 percent a year with no penalty,12 which K.W. relied upon in deciding to follow Storfer's recommendation to purchase the American Equity annuity selected by Storfer. Respondent provided two letters to K.W. on Seniors Financial International, Inc., letterhead that stated: Kikuko: This would replace the Mutual Funds $253, 289.00. You will receive a bonus w[h]ich is added the first day of $25,329.00. Your account will start with $278,618.00. With an 8% guaranteed growth for income. With no risk. Mitchell Kikuko This would replace the AXA Variable Annuity $119,589.00. You will receive a bonus w[h]ich is added the first day of $11, 959.00. Your account will start with $131,548.00. With an 8% guaranteed growth for income. With no risk. Mitchell After the meeting, the Wests decided to go forward with Storfer's recommendation for K.W.'s investments. On August 8, 2008, the Wests returned to Storfer's office and K.W. agreed to transfer the funds. She signed the applications and contracts including 14 documents, which would transfer the money and invest in the annuity. K.W. did not read everything that she was signing because she couldn't understand all the terminology and trusted and relied upon Storfer. Storfer told K.W. that even after she signed, if she didn't like the product, she could call and everything would get put back to the way it was before. K.W. thought she was purchasing one policy. Respondent sold her two policies numbered 693752 ("the SunTrust transfer" or "the 80K contract") and 693755 ("the AXA transfer" or "the 215K contract"). Both applications indicate each is replacing an AXA policy. K.W.'s SunTrust is not mentioned in the 80K application. The documents attached to the applications K.W. signed without reading also detail that the American Equity Bonus Gold (BG) has a 10 percent bonus; Various "values"; and the minimum guaranteed interest rate is only one percent. The Lifetime Income Benefit Rider (LIBR) document states "a lifetime income that you cannot outlive" is tied to the owner's age. On the BG contract, the income account value (IAV), the second option, was checked at a rate of eight percent rider guaranteed income. The cash surrender penalty listed for the BG contract in the application is 80 percent of the first year premiums.13 The BG application also described a nine percent interest crediting method. Out of the nine options listed, Respondent admitted that he chose the S&P monthly Pt. to Pt. w/Cap & AFR for K.W. The option was not defined in the application, and K.W. had to rely solely on Storfer to define and explain the product. Specific terms and conditions of the annuity such as the penalty free withdrawals14 were defined in the policy contracts, which K.W. never received.15 In the car on the way home from the August 8, 2008, meeting, K.W. looked at the back page of the brochure for American Equity Insurance and read that she could only earn one percent a year with the annuity. This caused her some concern. Subsequently, K.W. called her son-in-law, a director at Merrill Lynch on Wall Street, who agreed to review the documents during K.W.'s upcoming visit to New York. K.W. then called Storfer's office back and left a message not to process the applications. The Wests also attempted to fax Storfer a letter that stated, "I do have to hold off on any changes . . . do no process until I review all papers." On Saturday, August 9, 2008, the Wests met briefly with Storfer in his office16 to request the original paperwork back that had been signed on Friday and stop the process. K.W. instructed Storfer to do nothing until her son-in-law approved it. She and her husband were pleased that Storfer agreed not to process the forms until her son looked at them and said that the investment was good.17 Stofer gave K.W. a yellow manila envelope with copies of the paperwork West had signed and a note. At some point, Storfer processed K.W.'s application for the purchase of the American Equity annuity, contrary to his agreeing not to finalize the purchases until the Wests gave the go-ahead.18 The Wests left for North Carolina to start their vacation on Sunday, August 10, 2008. While on vacation, K.W. opened the manila envelope and discovered that it did not contain the originals of the signed forms she had requested. Additionally, a letter was enclosed dated August 11, 2009,19 on Seniors stationary that stated: Dear Kikuko, Attached is transfer paperwork to transfer the brokerage account from Suntrust to us. We will not sell any investments until you approve them. If you and your son in law have any questions please contact me I will be more then happy to assist. Sincerely, K.W. had her son-in-law review the investment paperwork and requested that he talk to Storfer. After K.W. talked to her son, she decided the investment was not good for her. Ultimately, K.W. learned that her money had been transferred out of the Suntrust account without her permission. She called Storfer's office numerous times to get him to cancel the annuity transactions, but was unable to reach him.20 K.W. was eventually provided Kretzmar's contact information and he instructed her how to reverse the transfer of funds. K.W. had communications with Kretzmar and representatives from American Equity that lead to her funds being refunded. The American Equity annuities were ultimately cancelled. Viewing the evidence as a whole, the undersigned determines that Respondent made false promises not to process K.W.'s annuity applications in connection with the investments and did so contrary to K.W.'s instructions, as well as made false misrepresentations to her regarding the details of the annuity. Doris Jorgensen Ms. Doris Jorgensen ("Jorgensen") was born in New York City on December 20, 1921. She grew up in Connecticut. She married William Jorgensen. While married she owned and operated an antique shop out of her house in Connecticut. She started investing with her husband, William, before he passed in 1999. She and her husband would discuss their investments and decide how to invest together. She has no children and lives alone in Sebastian, Florida. Prior to meeting with Storfer, Jorgensen was the owner of an Integrity Life Insurance Company (Integrity) variable annuity with a contract date of July 28, 2003, and Aviva Life and Annuity Company (Aviva; formerly AmerUs) deferred annuity with a contract date of December 26, 2003. Jorgensen's net worth, before meeting Respondent was approximately a million dollars. Jorgensen attended two luncheon seminars presented by Respondent on April 2, 2007, and on October 23, 2007. She was 86 years old at the time. At the first seminar, Jorgensen filled out a Senior Financial Survival Workshop Evaluation Form, indicating she was a widow, had an estate from $25,000-$200,000, and had concerns in the area of Social Security Tax Reduction, Variable Annuity Rescue, and Equity Index Annuity. When Jorgensen attended the second workshop, she filled out the form identical to the previous one, except she also circled Asset Protection from Nursing Home as a concern. On or about November 5, 2007, Jorgensen met Storfer in his office for the first time. Storfer prepared her client profile and Jorgensen described her risk tolerance as "none" and indicated that she was unwilling to lose any of her life savings through investments. She also informed him that she intended to leave her entire estate to numerous charities and had set up a trust for that purpose. Jorgensen provided Storfer income information at the meeting that indicated that she lived off her monthly social security and pension payments, a total monthly income of $1,800.00, and her expenses were $1,100.00. She also had $120,000 cash and a net worth of $900,000.00. At another meeting, Jorgensen provided Storfer her financial portfolio to review. One meeting Jorgensen had with Storfer was attended by her brother, who did not provide her any advice regarding what to do with her investments. Ultimately, Storfer recommended and sold Jorgensen an Allianz Life Insurance Company Equity Indexed Annuity. Upon his advice, Jorgensen surrendered her $208,015.74 Integrity Life Policy #2100073292 issued on July 28, 2003. The transfer resulted in the initial funding of the Allianz MasterDex,21 which became effective November 16, 2007. Jorgensen told Respondent that she had a problem with monetary loss and Storfer said he could make it up with the Allianz Life. The policy provided that she could start withdrawing the money in five years and then must annuitize the policy and withdraw the money over a 10-year period. The Allianz annuity was delivered on December 12, 2007. The Allianz Life contract, a MasterDex, contract #70610993, included a 10 percent bonus. Respondent placed 100 percent of Jorgensen's funds in the S&P 500 index like the Grubicys. Later, on or about January 16, 2008, Storfer also had Jorgesen authorize an additional transfer of $306,507.21 in funds from her Aviva/AmerUS policy purchased December 1, 2003, to Allianz. The policy was $330,137.95. Surrender charges on the AmerUs annuity would have expired December 1, 2014. On February 4, 2008, the money was sent to Allianz into contract #70610993. Together, Jorgensen's transfers totaled over half-a million dollars and she incurred surrender charges totaling in excess of $29,000. Jorgensen was unable to understand the annuity application and contract language. She trusted Storfer and took him at his word and signed a lot of forms without filling them out or asking questions. Jorgensen testified that she always followed the directions of whoever gave her business advice. Jorgensen also testified in this matter that she was "not certain," "I don't really remember," and "I have no idea whether it was or not" regarding numerous questions relating to the transactions and policy receipts. At some point, Jorgensen attended another investment seminar presented by insurance agent, Ms. Jones ("Jones").22 On February 11, 2008, Allianz gave Jorgensen a receipt for her payment of $306,423.03. Jorgensen contacted Allianz and directed the company to return the transferred funds to Aviva. Jorgensen directed Allianz to "rescind this policy in full." On or about February 14, 2008, Jones also helped Jorgensen with a typewritten letter dated February 15, 2009, from Jones' office to Allianz following up the request. Jorgensen ultimately dealt with Storfer instead of Jones regarding rescission of the Aviva/AmerUs to Allianz transaction. Storfer ultimately placed the funds with Old Mutual/OM Financial annuity ("OM"). An application, transfer/1035 exchange, was executed in Jorgensen's name and other documents relating to the OM annuity on or about March 14, 2008. The policy is signed Doris Jorgensen not "Doris R. Jorgensen." Jorgensen testified she typically signs her name to include the middle initial "R" "Doris R. Jorgensen" on official papers.23 Jorgensen discovered the policy when she received the annuity confirmation letters from OM. Respondent earned a commission of nearly $7,000 on the OM transaction. The policy delivery receipt dated May, 1, 2008, six weeks after the purchase date of the OM policy, also has a signature without a "R" initial and Jorgensen denies the signature is hers. Storfer's signature is not on OM's required policy delivery certification form. The Delivery Receipt for the OM policy is dated May 1, 2008. Jorgensen still has the OM annuity. The undersigned finds that the evidence fails to show that Storfer misrepresented the sale of the two annuities or made false representations regarding the annuities sold to Jorgensen.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED the final order be entered by the Department (1) finding that Mitchell Storfer violated the provisions of Chapter 626, Florida Statutes, described, supra, and (2) revoking his licensure. DONE AND ENTERED this 31st day of December, 2009, in Tallahassee, Leon County, Florida. JUNE C. McKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of December, 2009.
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 Based upon all of the evidence, the following findings of fact are determined: Background Respondent, Department of Management Services (DMS), has the responsibility of procuring insurance coverage for all state agencies. One area of coverage is for fire, windstorm and other risks to state owned buildings and their contents. The state is a self-insurer for the first two million dollars of loss through a fire insurance trust fund established for that purpose, but it purchases excess coverage from commercial insurance carriers for any claims in excess of that amount. Prior to this dispute arising, DMS obtained this excess coverage through the solicitation of bids and the awarding of a contract to an insurance company who purchased the excess coverage on behalf of the state. Indeed, petitioner, Acordia of South Florida, Inc. (ASFI), had provided this coverage for the previous nine years. Due to "gaps" in coverage caused by Hurricane Andrew in August 1992, and its desire to reduce rapidly spriraling costs, DMS decided to select an "agent of record" for obtaining the excess coverage. Under this approach, the selected firm (agent of record) would agree to work on behalf of the state to select and negotiate sufficient coverages for the Fire Insurance Trust Fund Excess Property Program. After obtaining the agency head's approval to negotiate a contract under Rule 60A-1.018(2), Florida Administrative Code, rather than use the normal competitive bid or request for proposal process, a DMS staffer, in consultation with the Department of Insurance (DOI), prepared a prequalification questionnaire which was sent to interested vendors on April 28, 1993, inviting them to prequalify for the contract. Based on prequalification, the three highest ranked vendors were required to give an oral presentation to, and answer questions by, an evaluation committee who ranked them based on their presentation and responses. Only four vendors filed prequalifying responses, including petitioner and Johnson & Higgins of Georgia, Inc. (JHGI). After one vendor was preliminarily disqualified, the committee met separately with each of the three remaining vendors and then assigned a score. Under the committee's scoring procedures, JHGI received the highest score and was slated to receive the contract. Petitioner was ranked second. Claiming that the evaluation committee raised new matters during the negotiation process that were not contained in the prequalification questionnaire, ASFI has challenged the award of the contract to JHGI. The Specifications DOI was aware that several other states, including the State of Georgia, were using the agent of record approach for insurance acquisitions. Accordingly, DMS obtained a blank Request for Proposal used by the State of Georgia and gave it to DOI to use in tailoring specifications that would fit DMS' needs. There was no mention or reference to JHGI in any material received from Georgia. During the formulation of the Florida solicitation, DOI did not contact nor receive any input from JHGI. The suggestions by petitioner that JHGI improperly influenced the drafting of the specifications, or that the specifications were drawn in JHGI's favor, are rejected. DMS' invitation to negotiate was issued on April 28, 1993. It advised all vendors that DMS intended "to negotiate to award a contract to a licensed insurance broker/agent for the placement of the State of Florida's Fire Insurance Trust Fund Excess Property Program." (emphasis added) The invitation further stated that each broker/agent must complete the attached prequalifying questionnaire and return it to DMS by 2:00 p. m. on May 7, 1993. The questionnaire was simply intended to screen out bidders that could not qualify, establish minimum standards, and identify qualified firms for further negotiations. It was always envisioned that those vendors who prequalified would be asked additional questions during the actual negotiation process. During these discussions, Rule 60A-1.018(2), Florida Administrative Code, which governs this process, allows the vendor to give a "final firm price, terms and conditions." Of particular relevance to this dispute were the requirements in the questionnaire that each vendor identify (a) the "account executives" who would be assigned to the state's account (subparagraph 2a.), and (b) "information on compensation" (paragraph 4). Paragraph 2 of the questionnaire dealt generally with a vendor's organization and staffing. Subparagraph 2a. required the vendor to state "the name(s) and provide a resume for the account executive(s) who will be assigned to this account." In other words, the vendor was required to name the individuals who would administer the program. The second item in question, which contained a number of typographical errors, pertained to information on compensation and informed all vendors that they would be paid on a "fee basis." Subparagraph 4a. required the firm to "give details on how you will document that coverage are (sic) placed on a 'net' (ex-commission) basis," subparagraph 4b. stated that "(n)o commission may be received for placements of these (sic) coverage," while subparagraph 4c. provided that "(i)f your firm utilizes an intermediary, surplus lines of (sic) London broker owned by your firm or your parent firm, no commissions shall be allowed to these firms." Under this arrangement, then, the successful vendor would provide the services for a flat fee and state the amount of that fee on the questionnaire, and DMS would pay only premiums, with no commissions included, to insurance carriers for the coverage needed. This requirement was considered critical to DMS for controlling costs because DMS wanted to be sure it was paying pure premium to the carriers for risk coverage and not commissions to other entities for merely doing paperwork. Finally, the invitation to negotiate provided that after the questionnaires were timely filed, the three highest ranked vendors would meet individually with an evaluation committee and "verbally present and discuss the information furnished by the broker/agent and to answer questions posed by the committee." The latter questions are found in respondent's exhibit 8. The Evaluation Process The evaluation committee was composed of four persons, three from DMS, and one from DOI. All members participated in the questioning of vendor representatives, and after the session, each reviewed the tape recording of the meeting and independently assigned scores to each of the three vendors. Thereafter, the scores were combined and overall rankings were assigned the vendors. In this case, JHGI received a score of 310, petitioner received a score of 290, and Arthur J. Gallagher & Company, the third vendor, received the lowest score of 230. During the negotiation phase of the process, all vendors were asked to state "the name of one person and one alternate to be the account executive to administer the coverage" (question 2.a.). Petitioner says it had no advance notice that the name of an additional person would be required. Believing that DMS was looking for a person with multiple designations, ASFI initially responded to the question by naming Lee Anne Cross, an employee with CPUC, CIC, and AMIM designations. Since Cross had not handled a billion dollar property account, however, ASFI was given no points for naming that individual. In hindsight, ASFI now says that it would have named a different individual who had the necessary experience in handling large accounts, and this individual would have received at least thirty more points. Whether this assumption is correct is speculative at best. Even so, the committee did not allow petitioner to change its response and name a more qualified individual, and in this respect DMS did not follow the requirements of its own rule (60A-1.018), which contemplates that a vendor be allowed to give a "final firm price, terms and conditions" during the negotiation process. Petitioner contends that by requesting this information during the discussion phase of the process, the committee imposed a new requirement not previously mentioned in the prequalification questionnaire. However, the specifications asked each vendor to "state the name(s) and provide a resume of the account executive(s) who would be assigned to the account," and each vendor was advised to be prepared "to discuss the information furnished by the Broker/Agent and to answer questions posed by the committee." Accordingly, it is found that DMS did not deviate from the requirements stated in the prequalification questionnaire by asking question 2.a. Indeed, petitioner's witness acknowledged that when the question was asked, he simply named the wrong employee. During the negotiation process, all vendors were asked to provide a statement that they intended to comply with the requirement that DMS would pay no commissions to intermediaries who secured excess coverages for the state (question 4.e.). Only ASFI declined to make such a statement. ASFI responded that it could not place coverage without the use of non-owned intermediaries, and thus it would have to pay additional commissions to those entities. Since this was contrary to the clear requirement in paragraph 4, ASFI received only ten points, in contrast to thirty points received by JHGI for that question. After being told that no commissions would be paid, ASFI sought to amend its proposal by increasing its flat fee from $95,000 to $195,000 to take into account the additional commissions it would have to pay. Even then, AFSI's fee would have been $30,000 lower than the $225,000 fee proposed by JHGI. On the theory that the deadline for filing proposals had long since expired, and it would be unfair to allow a vendor to amend its proposal at that point, the committee denied ASFI's request to change its fee proposal. This was contrary to the terms of rule 60A-1.018(2). ASFI contends that by imposing the requirement that commissions could not be paid if non-owned intermediaries were used, DMS added a new requirement not previously found in the specifications. It further argues that by using the word "intermediary" in paragraph 4a. of the prequalification questionnaire, DMS was referring to an owned intermediary, rather than a non-owned intermediary. In addition, it points out that such a distinction was not made when DMS used the competitive bidding process. But under the new negotiation process, the questionnaire had stated in three different ways that DMS did not intend to pay any commissions other than the agent of record fee, no matter what entities were used. Accordingly, there is no basis on which to find that DMS deviated from the requirements of the specifications by asking question 4.e. Finally, ASFI suggests that the specifications were vague and confusing. However, AFSI could have sought to clarify or contest those items prior to being qualified but it failed to do so. Moreover, during the negotiation process, its representative did not indicate to the committee that he was confused or did not understand the requirements, and no objection was ever made until AFSI learned it had not been awarded the contract. Since the other two vendors filed responsive questionnaires, and were not confused, and the challenged language was self-explanatory, it is found that the specifications were not misleading.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that DMS reconsider the three proposals in a manner consistent with its rule and enter a final order awarding the agent of record contract for the Fire Insurance Trust Fund to the vendor "with the best price, terms and conditions." DONE AND ENTERED this 13th day of March, 1995, in Tallahassee, 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 13th day of March, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-6454BID Petitioner: Partially accepted in finding of fact 1. Covered in preliminary statement. Partially accepted in finding of fact 2. 4-5. Partially accepted in finding of fact 3. 6-9. Rejected as being unnecessary. 10-11. Partially accepted in finding of fact 4. Partially accepted in finding of fact 8. Partially accepted in finding of fact 7. 14-15. Partially accepted in finding of fact 4. Partially accepted in finding of fact 5. Partially accepted in finding of fact 16. Partially accepted in finding of fact 5. Partially accepted in findings of fact 15 and 16. Partially accepted in finding of fact 13. Partially accepted in finding of fact 5. 22. Partially accepted in findings of fact 14 and 16. 23. Partially accepted in finding of fact 15. 24-26. Partially accepted in finding of fact 14. 27. Partially accepted in finding of fact 17. 28-29. Partially accepted in finding of fact 18. 30-31. Partially accepted in finding of fact 16. 32-35. Partially accepted in finding of fact 17. 36. Partially accepted in finding of fact 18. 37. Partially accepted in finding of fact 16. 38. Partially accepted in finding of fact 16. 39. Partially accepted in finding of fact 13. 40. Rejected as being irrelevant. 41. Rejected as being contrary to the evidence. 42. Rejected as being irrelevant. 43. Rejected as being contrary to the evidence. 44. 45. Rejected issues. Rejected as being as being unnecessary irrelevant. for a resolution of the Partially accepted in finding of fact 11. Partially accepted in finding of fact 18. 48. Covered in preliminary statement. 49-54. Rejected as being irrelevant. 55-56. Partially accepted in finding of fact 7. 57-59. Rejected as being irrelevant. 60. Partially accepted in finding of fact 7. 61. Rejected as being irrelevant. 62. Partially accepted in finding of fact 11. 63. Partially accepted in finding of fact 7. 64. Partially accepted in finding of fact 16. Respondent: Partially accepted in finding of fact 3. Covered in preliminary statement. Partially accepted in finding of fact 7. Partially accepted in finding of fact 3. 5. Partially accepted in findings of fact 3 and 7. 6. Partially accepted in finding of fact 7. 7. Partially accepted in finding of fact 8. 8. Partially accepted in finding of fact 13. 9. Partially accepted in findings of fact 1 and 4. 10. Partially accepted in finding of fact 2. 11. Partially accepted in finding of fact 11. 12-14. Partially accepted in finding of fact 7. 15. Partially accepted in finding of fact 11. 16-17. Partially accepted in finding of fact 8. 18. Rejected as being unnecessary. 19. Partially accepted in finding of fact 8. 20. Partially accepted in finding of fact 13. 21. Partially accepted in finding of fact 12. 22. Partially accepted in finding of fact 18. 23. Partially accepted in finding of fact 11. 24-25. Partially accepted in finding of fact 16. 26. Partially accepted in finding of fact 11. 27. Partially accepted in finding of fact 16. 28-30. Partially accepted in finding of fact 11. 31. Partially accepted in finding of fact 19. Rejected as being unnecessary. Partially accepted in finding of fact 18. Partially accepted in finding of fact 19. 35-36. Partially accepted in finding of fact 16. 37-38. Partially accepted in finding of fact 14. 39-41. Rejected as being unnecessary. Note - Where a proposed finding has been partially accepted, the remainder has been rejected as being unnecessary for a resolution of the issues, irrelevant, not supported by the more credible evidence, cumulative, subordinate, or a conclusion of law. COPIES FURNISHED: William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307 2737 Centerview Drive Tallahassee, FL 32399-0950 Paul A. Rowell, Esquire General Counsel Department of Management Services Knight Building, Suite 312 2737 Centerview Drive Tallahassee, FL 32399-0950 Robert S. Cohen, Esquire Post Office Box 10095 Tallahassee, FL 32302 Terry A. Stepp, Esquire Department of Management Services Knight Building, Suite 312 2737 Centerview Drive Tallahassee, FL 32399-0950
Findings Of Fact The previously described Agency Statements allegedly defined as rules constitute efforts by Petitioner to paraphrase information found in the Administrative Complaint in Case No. 89790-07-AG. When contrasting the allegations within the petition at paragraphs 12.1. through 12.5., they are comparable to paragraphs within the Administrative Complaint which state: General Allegations * * * At all times material hereto, you, GEORGE MARSHALL SMITH, offered for sale and sold viatical settlement purchase agreements on behalf of Mutual Benefits Corporation ("MBC"). The viatical settlement purchase agreements you, GEORGE MARSHALL SMITH, offered for sale and sold on behalf of MBC were securities, as defined under section 517.021(20)(q), Florida Statutes (2003). The viatical settlement purchase agreements that you, GEORGE MARSHALL SMITH, offered for sale and sold on behalf of MBC were not registered with the State of Florida Department of Banking and Finance, as required by Section 517.07, Florida Statutes, and were not exempt from such registration requirements, either under the provisions of sections 517.051 or 517.61, Florida Statutes. You, GEORGE MARSHALL SMITH, were not registered in this state to sell securities, as required by Section 517.12, Florida Statutes. * * * 20. On or about September 17, 2002, you, GEORGE MARSHALL SMITH, sold D.M. and V.M. of The Villages, Florida, five viatical settlement purchase agreements issued by MBC. The total purchase price of the viatical settlement purchase agreements was over $70,000. * * * IT IS THEREFORE CHARGED that you, GEORGE MARSHALL SMITH, have violated or are accountable under the following provisions of the Florida Insurance Code and Rules of the Chief Financial Officer which constitute grounds for the suspension or revocation of your license(s) and eligibility for licensure: * * * Sale of an unregistered security that was required to be registered, pursuant to chapter 517. [Section 626.611(16), Florida Statutes (2003)]; * * * 31. On or about March 18 and April 7, 2003, you, GEORGE MARSHALL SMITH, sold G.A. and E.A. of Lady Lake, Florida, eight viatical settlement purchase agreements issued by MMBC. The total purchase price of the viatical settlement purchase agreements was at least nearly $88,000. * * * IT IS THEREFORE CHARGED that you, GEORGE MARSHALL SMITH, have violated or are accountable under the following provisions of the Florida Insurance Code and Rules of the Chief Financial Officer which constitute grounds for the suspension or revocation of your license(s) and eligibility for licensure: * * * (d) Sale of an unregistered security that was required to be registered, pursuant to Chapter 517. [Section 626.611(16), Florida Statutes (2003)]; * * * 42. On or about June 9 and September 9, 2003, you, GEORGE MARSHALL SMITH, sold D.C. and W.C. of the Villages, Florida, five viatical settlement purchase agreements issued by MBC. The total purchase price of the viatical settlement purchase agreements was $135,000. * * * IT IS THEREFORE CHARGED that you, GEORGE MARSHALL SMITH, have violated or are accountable under the following provisions of the Florida Insurance Code and Rules of the Chief Financial Officer which constitute grounds for the suspension or revocation of your license(s) and eligibility for licensure: * * * (d) Sale of an unregistered security that was required to be registered, pursuant to chapter 517. [Section 626.611(16), Florida Statutes (2003)]; Chapter 2005-237, Laws of Florida, effective July 1, 2005, added at Section 1., a definition within Section 517.021, Florida Statutes, as follows: 517.021 Definitions.--When used in this chapter, unless the context otherwise, indicates, the following terms have the following respective meanings: * * * (w) A viatical settlement investment. (23) "Viatical settlement investment" means an agreement for the purchase, sale, assignment, transfer, devise, or bequest of all or any portion of a legal or equitable interest in a viaticated policy as defined in chapter 626. The term does not include: The transfer or assignment of an interest in a previously viaticated policy from a natural person who transfers or assigns no more than one such interest in 1 calendar year. The provision of stop-less coverage to a viatical settlement provider, financing entity, or related provider trust, as those terms are defined in s. 626.9911, by an authorized or eligible insurer. The transfer or assignment of a viaticated policy from a licensed viatical settlement provider to another licensed viatical settlement provider, a related provider trust, a financing entity, or a special purpose entity, as those terms are defined in s. 626.9911, or to a contingency insurer provided that such transfer or assignment is not the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of this chapter. The transfer or assignment of a viaticated policy to a bank, trust company, savings institution, insurance company, dealer, investment company as defined in the Investment Company Act of 1940, pension or profit-sharing trust, or qualified institutional buyer as defined in United States Securities and Exchange Commission Rule 144A, 17 C.F.R. 230.144A(a, or to an accredited investor as defined by Rule 501 of Regulation D of the Securities Act Rules, provided such transfer or assignment is not for the Securities Act Rules, provided such transfer or assignment is not for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of this chapter. The transfer or assignment of a viaticated policy by a conservator of a viatical settlement provider appointed by a court of competent jurisdiction who transfers or assigns ownership of viaticated policies pursuant to that court's order. 3. Chapter 2005-237, Laws of Florida at Sections 7., 8., 10., 11., and 14. state in pertinent part: Section 7. Subsection (10) of section 626.015, Florida Statutes, is amended to read: 626.015 Definitions.--As used in this part: (10) "Life agent" means an individual representing an insurer as to life insurance and annuity contracts, or acting as a viatical settlement broker as defined in s. 626.9911, including agents appointed to transact life insurance, fixed-dollar annuity contracts, or variable contracts by the same insurer. Section 8. Paragraph (b) of subsection (1) of section 626.112, Florida Statutes, is amended to read: 626.112 License and appointment required; agents, customer representatives, adjusters, insurance agencies, service representatives, managing general agents.-- (1) (b) Except as provided in subsection (6) or in applicable department rules, and in addition to other conduct described in this chapter with respect to particular types of agents, a license as an insurance agent, service representative, customer representative, or limited customer representative is required in order to engage in the solicitation of insurance. For purposes of this requirement, as applicable to any of the license types described in this section, the solicitation of insurance is the attempt to persuade any person to purchase an insurance product by: Describing the benefits or terms of insurance coverage, including premiums or rates of return; Distributing an invitation to contract to prospective purchasers; Making general or specific recommendations as to insurance products; Completing order or applications or insurance products; or Comparing insurance products, advising as to insurance matters, or interpreting policies or coverages; or Offering or attempting to negotiate on behalf of another persona a viatical settlement contract as defined in s. 626.9911. * * * Section 10. Subsection (2) of section 626.331, Florida Statutes, is amended to read: 626.331 Number of appointments permitted or required.- (2) An agent shall be required to have a separate appointment as to each insurer by whom he or she is appointed as an agent. An agent must appoint himself or herself before performing the functions of a viatical settlement broker. Section 11. Subsection (17) is added to section 626.611, Florida Statutes, to read: 626.611 Grounds for compulsory refusal, suspension, or revocation of agent's, title agency's, adjuster's, customer representative's, service representative's, or managing general agent's license or appointment.--The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, adjuster, customer representative, service representative, or managing general agent, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist: (17) In transactions related to viatical settlement contracts as defined in s. 626.9911: Commission of a fraudulent or dishonest act. No longer meeting the requirements for initial licensure. Having received a fee, commission, or other valuable consideration for his or her services with respect to viatical settlements that involved unlicensed viatical settlement providers or persons who offered or attempted to negotiate on behalf of another person a viatical settlement contract as defined in s. 626.9911 and who were not licensed life agents. Dealing in bad faith with viators. * * * Section 14. Section 626.9911, Florida Statutes, is amended to read: 626.9911 Definitions.--As used in this act, the term: * * * (11) "Viatical settlement investment" has the same meaning as specified in s.517.021. The petition also discusses similar administrative complaints against persons other than Mr. Smith brought by the Department, a point upon which there is agreement, evidence the case, Department of Financial Services v. Bradley Wayne Kline, Case No. 849567-07-AG. Final order (filed 12/21/07), pertaining to the Recommended Order in DOAH Case No. 07-1218PL. In association with paragraphs 12.8 and 12.9 alleged to constitute Agency Statements defined as rules, evidence to support that allegation is as reflected in Exhibit "2" to the petition which states: FLORIDA DEPARTMENT OF FINANCIAL SERVICES ALEX SINK CHIEF FINANCIAL OFFICER September 06, 2007 JACKSON NATIONAL LIFE INSURANCE COMPANY BETH WRIGHT PO BOX 24068 LANSING MI 48909-4068 Re: GEORGE MARSHALL SMITH License Number DO34447 Dear Sir or Madam: This letter serves as official notice that the Department filed an Administrative Complaint against the above referenced individual on 08/22/2007. If you wish to receive a copy of the above referenced Administrative Complaint, you may return a copy of this letter with our request to the Department of Financial Services, Document Processing Section, PO Box 5320, Tallahassee FL 32314-5320 or fax your request to (850) 488-3429. They will retrieve the document(s) and invoice you as to the amount owed. Once the fee is received, the document(s) will be sent to you. If you have any questions concerning this matter, you should contact our legal division at (850) 413-3137. Bureau of Licensing FLDFS BUREAU OF LICENSING 200 EAST GAINES STREET*TALLAHASSEE, FLORIDA 32399-0319*(850) 413-3137 HTTP//WWW.FLDFS.COM This example is perceived as the form of "official notice" of an Administrative Complaint filed against George Marshall Smith and others similarly situated and the practice of invoicing and charging for copies of documents sent to persons who inquire about Administrative Complaints in this case or others of a similar nature.
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed in Florida as a life and variable annuity contracts salesman and as a life and health insurance agent. In 1994 twin sisters Edith Ellis and Gertrude Franklin attended a luncheon at which Respondent made a presentation. The sisters were then 79 years old, and both were the owners of single-premium insurance policies issued by Merrill Lynch. They decided to cash in their existing policies and purchase new policies through Respondent. Both Ellis and Franklin executed 1035 exchange forms whereby the monies obtained from cashing in their Merrill Lynch policies were transferred to the insurance companies issuing their new policies. Both were charged a substantial penalty by Merrill Lynch. On August 11, 1994, Security Connecticut Insurance Company issued to Edith Ellis a flexible premium adjustable life insurance policy with a face value of $150,000. The cover page of the policy recites in bold print that it is a flexible premium adjustable life insurance policy, directs the insured to read the policy, and provides a 20-day period for canceling the policy with a full refund. It also contains a statement that provides: This Policy provides flexible premium, adjustable life insurance to the Maturity Date. Coverage will end prior to the Maturity Date if premiums paid and interest credited are insufficient to continue coverage to that date. Dividends are not payable. Flexible premiums are payable to the end of the period shown, if any, or until the Insured's death, whichever comes first. The cover page also recites that the first premium is $75,000 and that the monthly premium is $805.75. After deductions, Merrill Lynch only transferred $44,928.81, and Ellis never paid any additional premiums. Therefore, the policy was not funded to maturity since the company only received a partial payment. The insurance company did not set up this policy to receive periodic premium payments because it was originally anticipated that the company would receive $75,000 which would carry the expense, based upon the then interest rate. The policy was dependent upon interest rates. The company sent annual statements, however, to both Ellis and to the agency where Respondent worked. These statements clearly showed a declining accumulated value for the policy and specified how much it had declined from the previous year. When Ellis surrendered the policy on July 3, 2002, its value was $4,849. First Colony Life Insurance issued a flexible premium adjustable life insurance policy to Gertrude Franklin on October 18, 1994, with a face value of $600,000. The cover page provides for a 20-day cancellation period with a full refund of premiums paid. In bold type, the cover page further advises as follows: "Flexible Premium Adjustable Life Insurance Policy", "Adjustable Death Benefit Payable at Death", "Flexible Premiums Payable During Insured's Lifetime", and "Benefits Vary with Current Cost of Insurance Rates and Current Interest Rates." It also advises that the initial premium is $56,796. The insurance company received an initial premium payment of $203,993.75 on December 19, 1994, and an additional premium payment in February 1996, for a total of premiums paid of approximately $266,000. The total premiums received, however, were insufficient to fund the policy to maturity since that would have required in excess of $400,000 in premiums. Annual statements sent by the insurance company reflected that the policy value was declining. On August 26, 1996, the insurance company received a letter over the name of Nancy Franklin, the trustee of the trust which owned the policy, advising the company to send billing and annual statements to the address of the agency where Respondent was employed. Respondent sent that letter as a courtesy because Gertrude Franklin asked him to keep her papers for her because she had no place to keep them. Gertrude Franklin, not her daughter, signed that letter. Respondent left that agency in October 1997 and was not permitted to take any records with him. In 2002 Edith Ellis showed her policy to someone at a senior center. Based upon that person's statements she called her sister and told her that their policies were no good. They contacted Respondent who came to their homes and reviewed their policies. He advised Gertrude Franklin that her only options at that point were to pay an additional premium or to reduce the face value of the policy to $400,000 in order to keep it in effect longer. She chose the latter course. Respondent gave Franklin a letter for Nancy Franklin's signature directing the insurance company to reduce the face value of the policy. Franklin, not her daughter, signed the letter and forwarded it to the company. The company reduced the face value based upon that letter which it received on April 1, 2002. That directive allowed the policy to stay in force another two months.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Administrative Complaint filed against Respondent in this cause. DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2004. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Nancy Wright, Esquire 7274 Michigan Isle Road Lake Worth, Florida 33467 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The issue in this case is whether Respondents have violated provisions of Section 627.837, Florida Statutes, through payment of alleged monetary inducements to insurance agents for the purpose of securing contracts which finance insurance premiums.
Findings Of Fact Petitioner is the Department of Insurance and Treasurer (Department). Respondents are Puritan Budget Plan, Inc., and Gibraltar Budget Plan, Inc., (Respondents). Findings contained in paragraphs 3- 23, were stipulated to by the parties. Stipulated Facts Common shares in Respondents' corporations were sold to insurance agent/shareholders for between $500.00 and $2,500.00 per share, depending on date purchased. Presently, and for the purposes of this litigation, marketing and/or administrative fees paid by Respondents to agent/shareholders range from $1.00 to $13.00 per contract produced, depending on the number of payments made, and the amount of the down payment. Each per contract marketing and/or administrative fee paid by Respondents to agent/shareholders is completely unrelated to the number of contracts produced by that agent/shareholder, and is based upon the characteristics of each contract, pursuant to the terms of the shareholder purchase agreement. Perry & Co., pursuant to a written agreement, manages the day to day activities of Respondents, including solicitation of new shareholder/agents. Alex Campos is currently President of Perry & Co. Perry & Co., Dick Perry or Alex Campos have no equity ownership, either direct or indirect, in Respondents corporations. No shareholder of Perry & Co. is also a shareholder in either Respondent, and no shareholder of the Respondents is a shareholder in Perry & Co. No officer or director of Perry & Co. is an officer or director of either Respondent, and no officer or director of either Respondent is an officer or director of Perry & Co. The individual management agreements between Perry & Co. and Respondents are terminable with proper notice by either party. Respondent Puritan Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Puritans' principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Respondent Gibraltar Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Gibraltar's principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Customers of Respondents are typically financing automobile insurance premiums. There is little if any variation among licensed premium finance companies in the State of Florida as to the interest rate charged to customers. In 1988, the Department inquired of Respondents' activities in relation to agent/shareholder compensation arrangements. After several meetings with representatives from Respondents, the Department closed the matter without taking any action. Also in 1988, the Department proposed the adoption of Rule 4-18.009, which in part would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes, but later withdrew the proposed rule. Again in 1994, the Department proposed a rule which would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes. After a hearing and adverse ruling by the hearing officer, the Department withdrew proposed Rule 4-196.030(8). Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in the unnecessary financing of contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in insurance agents adding or sliding unnecessary products to make the total cost of insurance more expensive and induce the financing of additional contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. An "inducement" is presently defined as "an incentive which motivates an insurance purchaser to finance the premium payment or which motivates any person to lead or influence an insured into financing the insurance coverage being purchased; or any compensation or consideration presented to a person based upon specific business performance whether under written agreement or otherwise." Rule 4-196.030(4), Florida Administrative Code (July 27, 1995). This rule is currently effective but presently on appeal. There is no evidence that Respondents unnecessarily financed any premium finance contracts or engaged in any "sliding" of unnecessary products to induce the unnecessary financing of contracts. Section 627.837, Florida Statutes, does not prohibit the payment of corporate dividends based on stock ownership to shareholders who are also insurance agents. According to the Final Bill Analysis for H.B. 2471, in 1995 the Legislature amended Section 627.837, Florida Statutes, relating to rebates and inducements. This section was amended to clarify that this statute does not prohibit an insurance agent or agents from owning a premium finance company. The statute, as amended, is silent on the issue of how owner-agents may be compensated. Other Facts Approximately 80 percent of Respondents' insureds will turn to the shareholder/agent to handle premium mailing and collection. When a shareholder/agent provides these valuable services and labor to Respondents through the servicing of the premium finance contract with an insured, payment for those services and/or recoupment of the expenses involved with their provision is made, at least in part, in the form of the marketing and administrative fees paid by Respondents to the shareholder/agent. The marketing and administrative fee payment by Respondents to shareholder/agents is made from the net profit of the corporation and represents payment of ownership interest (dividends) to shareholder/agents in addition to payment for shareholder/agent services or expenses. Respondents generally finance "non-standard" private passenger automobile insurance. Such insurance generally covers younger drivers and drivers with infraction points against their license. The average non-standard premium is $500 per year. Thirty percent of non-standard insureds will cancel their insurance prior to the renewal date. Cancellation of policies and financing arrangements by non-standard insurers require the agent to return unearned commissions, about $30 generally. In contrast, payment of an insurance premium in cash guarantees an agent his/her entire commission, an average of $90 per non-standard policy. Consequently, the financial interest of most agents is best served by cash sale of auto insurance as opposed to financing the insurance. The average amount generated by 95 percent of all premium finance contracts executed in Florida would yield an agent/shareholder approximately six dollars per contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered dismissing the Administrative Complaints. DONE and ENTERED in Tallahassee, Florida, this 28th day of November, 1995. DON W. DAVIS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1995. APPENDIX In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties. Petitioner's Proposed Findings 1.-11. Accepted to extent included within stipulated facts, otherwise rejected for lack of citation to the record. 12. First sentence is rejected as not substantially dispositive of the issues presented. Remainder rejected for lack of record citation if not included within stipulated facts. 13.-15. Rejected to extent not included within stipulation, no citation to record. Incorporated by reference. Rejected, no record citation, legal conclusion. 18.-19. Rejected, not materially dispositive. 20. Rejected, no record citation. 21.-23. Rejected, not materially dispositive. Rejected, record citation and relevancy. Rejected, weight of the evidence. Incorporated by reference. Respondent's Proposed Findings 1. Rejected, unnecessary to result. 2.-3. Accepted, not verbatim. 4. Rejected, unnecessary. 5.-7. Accepted, not verbatim. 8.-9. Rejected, unnecessary. 10. Accepted per stipulation. 11.-12. Rejected, unnecessary. 13. Accepted per stipulation. 14.-16. Accepted, not verbatim. Rejected, hearsay. Rejected, relevance. Rejected, unnecessary. 20.-22. Accepted per stipulation. 23. Rejected, unnecessary. 24.-57. Incorporated by reference. 58.-60. Rejected, unnecessary. 61.-62. Rejected, subordinate and not materially dispositive. 63.-67. Rejected as unnecessary to extent not included in stipulated facts. Accepted per stipulation. Rejected, unnecessary. Accepted per stipulation. 72.-76. Rejected, unnecessary. 77. Accepted per stipulation. 78.-79. Incorporated by reference. 80.-87. Accepted per stipulation. 88. Incorporated by reference. 89.-90. Accepted per stipulation. 91.-95. Rejected, subordinate. 96. Accepted. 97.-101. Rejected, unnecessary. 102. Incorporated by reference. COPIES FURNISHED: Alan Liefer, Esquire Division of Legal Services 612 Larson Building Tallahassee, FL 32399-0333 Steven M. Malono, Esquire Cobb, Cole & Bell 131 N. Gadsden St. Tallahassee, FL 32301 Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300
The Issue Whether Respondent, an insurance agent licensed in Florida, violated specified Florida Statutes and agency rules in the sale of an annuity to two senior citizens, as charged in the Administrative Complaint, and, if so, the penalty that should be imposed against Respondent's license.
Findings Of Fact The Parties At all times relevant, Respondent was licensed by Petitioner as an annuity, health, and life insurance agent in Florida. Petitioner is the state agency charged with licensing and regulating insurance agents and taking disciplinary action for violations of the laws and rules it administers. Background Annuities This case arises from Respondent's sale of an Aviva equity index annuity ("Aviva annuity") to Robert and Frances Wexler on or about May 22, 2008. An annuity is a contract under which an insurance company, in exchange for a premium, agrees to pay the owner a specified income for a period of time. Annuities generally are classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. Under a variable annuity, the premium is invested on the owner's behalf, and the amount of the benefit, when paid, reflects the performance of that investment. The annuities at issue in this case are fixed annuities. Fixed annuities can be either "immediate" or "deferred." Under an immediate fixed annuity, the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, the premium is allowed to grow over time until the contract matures or is annuitized and the insurer begins paying the benefit. The annuities at issue in this case are deferred annuities. Annuities may be "equity index" annuities. This means that the insurer pays a benefit to the insured based on a premium that earns interest at a rate determined by the performance of a designated market index. The premium is not invested in the market for the owner's account; rather, the interest rate rises or falls in relation to the index's performance, within predetermined limits. Equity index annuities typically are long-term investments. Owners of equity index annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities permit yearly penalty-free withdrawals at specified percentages. The accrued interest generally is not taxed until the funds are withdrawn or the benefit is paid under annuity. The purchaser may incur surrender charges for withdrawing funds or canceling the contract before a specified date. The annuities at issue in this case are equity index annuities. Generally, equity index annuities identify a maturity date, often many years in the future, on which the insurer will "annuitize" the contract if the purchaser has not already opted to do so. The benefit paid under the annuity is determined based on the account's value as of the maturity date, and the payments to the owner of the annuity begin at that time according to a payment plan. The Wexlers Robert Wexler was born on November 12, 1930. His wife, Frances Wexler, was born on March 5, 1932. Both Wexlers finished high school and took some college courses. They married after Mr. Wexler joined the Air Force. While in the Air Force, Mr. Wexler studied electronics, which ultimately led to his career in that field in the private sector. He worked for IBM, Univac, and General Electric before retiring in 1994. Mrs. Wexler worked for a small family-owned printing firm for over 26 years, and retired in 1997. The Wexlers raised three children, and they lived in the same home in Pennsylvania for 40 years. While living in Pennsylvania, the Wexlers saved money by using Mrs. Wexler's salary to pay their living expenses and saving most of Mr. Wexler's earnings in a retirement account. They never bought annuities, but did trade stocks, which resulted in financial loss. For many years, the Wexlers visited Florida as "snowbirds" and eventually purchased a condominium in a gated community in Deerfield Beach, Florida. In 1998, the Wexlers sold their home in Pennsylvania, liquidated the stocks they owned, and bought a larger condominium in the same gated community. They moved permanently to Florida in 1998, with approximately $500,000 in liquid assets. The Wexlers consider themselves conservative investors. Their financial objectives included safe investing of their money, ensuring that they had readily accessible money if they needed it at some point, and having money to pass on to their family. For these reasons, they specifically chose to invest in annuities. Prior Annuity Purchases Before purchasing the Aviva annuity at issue in this case, the Wexlers had purchased many other annuities——perhaps as many as 16——from different insurance agents, including Stephen Wolfe, Brian Plonsky, Fredric Armold, and Mark Breiman between 2002 and 2008. In May 2008, the Wexlers purchased the Aviva annuity at issue in this case from Respondent. The Wexlers purchased the annuity using the money they received from surrender of an EquiTrust annuity (EquiTrust 708F) that Mark Breiman sold them in 2006. Subsequently, the Wexlers became confused about their numerous annuities. In October 2008, Mr. Wexler sent a letter to Petitioner's Consumer Services Department, requesting assistance in determining what products the Wexlers had purchased and whether the purchased annuities were necessary or beneficial to them. As a result, Petitioner initiated an investigation that culminated in administrative complaints being filed against some of the agents, including Respondent, who sold annuities to the Wexlers. The Administrative Complaint The Administrative Complaint alleges, in pertinent part, that Respondent committed the following acts, which violate specified provisions of the Florida Insurance Code: 17. In the process of inducing the purchase of the Aviva annuity, [Respondent] willfully misrepresented and/or omitted material information regarding the sale of that annuity. The misrepresentations, both by omission of material information and commission of false statement, include, but are not limited to the following: [Respondent] verbally asserted to the Wexlers that the nearly $16,000 in surrender charges Robert Wexler incurred in surrendering Equitrust 708F, would be offset by a bonus gained from the purchase of the Aviva annuity. [Respondent], when completing the Aviva annuity application, listed the percentage of charges and penalties incurred by sale of the EquiTrust annuity as 20%, "not less any applicable bonus percentage received on the new [Aviva] annuity," so as to falsely assert in writing that the Wexlers would receive a positive market adjustment of $10,910.83 on the Aviva annuity that would offset the nearly $16,000 surrender penalty on the EquiTrust 708F. [Respondent], when completing the Aviva annuity application, listed the amount of the Wexlers liquid assets as being $320,000, when [he] either knew or should have known that most of the Wexlers' assets were tied up in non-liquid investments (primarily annuities)and they had very limited access to readily available funds totally less than a third of that amount. [Respondent] failed to advise Robert Wexler that the guaranteed cash surrender value of the Aviva annuity would not equal the May 2008 accumulated value of EquiTrust 708F until at least May 2018, assuming the Wexlers did not need to make any withdrawals from the Aviva annuity during that ten year period. [Respondent] failed to advise the Wexlers that surrender penalties would apply for 10 years following the purchase of the Aviva annuity, including the company's recapture of the bonus, when Robert Wexler would be 87 years old. [Respondent] falsely assured the Wexlers that the Aviva annuity was suitable to their needs. The Administrative Complaint further alleges that Respondent's willful misrepresentations were false and material misstatements of fact and Respondent was fully aware of the falsehoods; that given Respondent's position as a licensed life insurance agent, the Wexlers justifiably relied on Respondent's representations and information in purchasing the Aviva annuity and they would not have purchased that annuity but for Respondent's misrepresentations; that the sale of the Aviva annuity was not in the Wexlers' best interests, was neither necessary nor beneficial for persons of their age and financial condition, was without demonstrable benefit to them, and was done by Respondent for the sole purpose of earning a fee, commission, money, or other benefit; and that the Wexlers have suffered financial harm by not being able to access their retirement assets for housing, health care costs, or general living expenses without incurring substantial surrender charges. The Annuities at Issue The 2006 EquiTrust Annuity The Wexlers purchased the EquiTrust 708F annuity2/ from Mark Breiman on May 8, 2006. At the time, Mr. Wexler was 75 years old and Mrs. Wexler was 74 years old. The Wexlers paid a premium of $32,565.68 for the EquiTrust annuity. Over the two years that the Wexlers owned the annuity, they added three separate cash payments totaling $40,844.42, for a total premium of $73,410.10 paid for the annuity. The EquiTrust annuity was a fixed index annuity having a maturity period of 30 years. Interest on the premium was earned according to performance of the market indices in which the premium was invested. After the annuity's first year anniversary date, invested funds could be transferred on the contract's anniversary date between indexed market accounts and fixed rate accounts to reduce exposure to market volatility. The annuity featured a ten percent bonus paid on the amount of the premium paid on the initial contract date.3/ The Wexlers paid a premium of $32,565.68 for the annuity, so the premium bonus was $3,256.58. Pursuant to the contract terms, the premium bonus was allocated proportionately across the investment strategies in the same manner as the premium; it was not paid to the Wexlers as cash. Because the bonus was invested back into the annuity, it, like other sources of funds invested in the annuity, became accessible upon maturity or if the policy was annuitized. The annuity had a 14-year surrender charge period. During this period, if the Wexlers withdrew their money from the annuity in an amount greater than the free withdrawal amount allowed under the contract, ten percent of the contract's current accumulation value,4/ a surrender charge would be imposed. The surrender charges started at 20 percent and gradually declined over the 14-year period. The annuity did not contain terms waiving withdrawal charges in case of diagnosis of terminal illness or confinement in a hospital, hospice, or convalescent facility. Sale of the Aviva Annuity to the Wexlers in 2008 In 2008, Respondent's firm, Cherry and Cherry, Inc., invited the Wexlers to a luncheon at which a program on investment in annuities was presented. The Wexlers attended and made contact with Ronald Cherry, Respondent's father. Subsequently, Respondent arranged to meet with the Wexlers in their home to discuss annuities investments. As a result of that meeting, Respondent sold the Wexlers an Aviva annuity.5/ The Wexlers applied for the Aviva annuity in late April 2008, and the sale became effective on May 22, 2008. Mr. Wexler was 77 years old and Mrs. Wexler was 76 years old when they purchased the Aviva annuity. The Wexlers purchased the Aviva annuity using the money they received from surrender of the EquiTrust annuity that Mark Breiman sold them in 2006. They surrendered the EquiTrust annuity on May 21, 2008, just over two years after purchasing it. At surrender, the EquiTrust annuity's accumulated value was $84,179.97. The Wexlers were assessed a surrender charge of $15,994.19, which constituted 20 percent6/ of the annuity's accumulation value as of May 21, 2008. However, a positive market value adjustment ("MVA")7/ of $7,658.56 was provided upon surrender, so the Wexlers received a total of $75,844.42 for surrender of the EquiTrust annuity. When the Wexlers applied to purchase the Aviva annuity, they completed a "Notice to Applicant Regarding Replacement of Life Insurance" form.8/ The form advised prospective purchasers that the "decision to buy a new policy and discontinue or change an existing policy may be a wise choice or a mistake. Get all the facts." The form further informed prospective purchasers that under Florida law, they could elect to receive a written Comparative Information Form summarizing policy values, which would enable comparison of the existing annuity and the annuity being considered for purchase. The Wexlers elected not to receive the Comparative Information Form. At hearing, Mr. Wexler credibly testified that in selling him the annuity, Respondent discussed the Wexlers' financial objectives to safely invest their money, have ready access to funds if needed, and to leave some money for their family. Mr. Wexler initially testified that when Respondent sold the Wexlers the Aviva annuity, Respondent failed to cover several items, including reviewing the Wexlers' other annuities, and did not provide a comparison of the Aviva and EquiTrust annuities. However, Mr. Wexler subsequently acknowledged that he could not remember whether Respondent covered these matters with him. Respondent credibly testified that he covered these matters with the Wexlers. Mr. Wexler testified that Respondent told the Wexlers that they would incur a substantial surrender charge on surrender of the EquiTrust annuity, but that they would make it up through and the positive MVA that would be realized upon surrender of the annuity and the Aviva ten percent premium bonus. He initially testified that Respondent did not tell the Wexlers that they would not obtain the Aviva policy's premium bonus as an immediate cash payment, but that instead it would be invested in the annuity so would be available only at maturity of the policy; ultimately, however, Mr. Wexler conceded that he could not recall whether Respondent had explained this matter. Respondent credibly testified that he covered this matter with the Wexlers. As an essential part of purchasing the Aviva annuity, on April 24, 2008, Respondent filled out, and the Wexlers executed, a Customer Identification and Suitability Confirmation Worksheet. On the portion of the form requesting a statement of the applicant's liquid assets, Respondent wrote "$320,000." Respondent credibly testified that the Wexlers provided him this figure. His testimony is consistent with, and bolstered by, the Wexlers' written confirmation, by signing the form, that the information filled in on the form regarding their financial status and investment objectives was complete and accurate to the best of their knowledge. Further, by signing the form, the Wexlers each confirmed that they understood that the Aviva annuity was a long-term investment with substantial penalties for early withdrawal, and they believed the Aviva annuity was suitable for them. The Wexlers reconfirmed these statements in their hearing testimony. Terms of the 2008 Aviva Annuity The Aviva annuity was a fixed index deferred annuity, with the premiums allocated to selected investment strategies. The Aviva annuity had a 20-year maturity period and a ten-year surrender charge period. During the surrender charge period, the Wexlers would be assessed a penalty, termed a "withdrawal charge," if they withdrew funds in an amount greater than ten percent of the annuity's accumulated value as of the contract anniversary date for that year. The withdrawal charges were determined based on a withdrawal charge rate schedule and a premium bonus recapture schedule.9/ The annuity allowed the transfer of unused free partial withdrawals to subsequent years, so if the Wexlers did not use the free partial withdrawal in one year, they could transfer it to the following year, enabling them to withdraw up to 20% of the contract's accumulated value for that year without incurring a surrender charge. The annuity also provided for waiver of withdrawal charges, subject to specified conditions, if the insured parties were diagnosed with a terminal illness or if the insured parties were confined to a hospital, hospice, or convalescent care facility. The Aviva annuity featured a ten percent bonus payable on the initial premium and on subsequent premiums paid within the first two years of the contract. The bonus on the initial premium was allocated to the selected index investment strategies, and the bonus on additional premiums was credited to the fixed strategy and then transferred to the selected index investment strategies on the next contract anniversary date. The bonus under the annuity was not paid as cash, so became accessible only upon maturity of the policy or if the policy was annuitized. Respondent informed the Wexlers that there would be a charge for surrendering the EquiTrust annuity, and represented that the surrender charge would be offset by the positive MVA derived from surrender of the EquiTrust annuity and the ten percent premium bonus they would receive by purchasing the Aviva annuity. As of its date of issuance, the Aviva policy had an accumulated value of $83,429.00. This value was derived from payment of the $75,844.42 premium consisting of the funds obtained from surrender of the EquiTrust annuity, plus the ten percent bonus of $7,584.44. Respondent credibly testified that a key reason he recommended that the Wexlers surrender the EquiTrust policy and purchase the Aviva policy was that he believed that they had too much money invested in one company, and that this was not in their best interest given the ominous financial climate in May 2008. He also testified, credibly, that another reason he suggested they surrender the EquiTrust policy was that information had been disseminated within the life insurance industry that the EquiTrust Life Insurance Company's financial strength rating was going to be downgraded. This information ultimately proved to be correct; on September 28, 2008, the company, its affiliate, and its parent company all were downgraded by A.M. Best Company. The press release announcing the downgrade specifically identified concern over EquiTrust's capital position and its difficulty in accessing liquidity as the reasons for the downgrade. Comparison of the EquiTrust and Aviva Annuities The EquiTrust and Aviva annuities both are fixed deferred equity index annuities. They offered similar investment strategies, and both provided 100 percent participation in the selected investment strategies, with substantially similar caps on earnings under those strategies. Both annuities had long-term maturity periods; however, the EquiTrust annuity had a 30-year maturity period, compared to the Aviva annuity's substantially shorter 20-year maturity period. Thus, assuming the Wexlers held the Aviva annuity to maturity, it would begin providing payments eight years sooner10/ than the EquiTrust annuity. The Aviva annuity's surrender charge provisions were substantially more favorable for the Wexlers than those in the EquiTrust annuity. Specifically, the EquiTrust annuity had a 14-year surrender period, compared to the Aviva annuity's ten- year surrender period. The EquiTrust annuity's surrender charges also were substantially higher than those under the Aviva annuity, starting at 20 percent for the first two contract years and thereafter decreasing by one or two percent for the remaining 12 years of the surrender period; by contrast, the Aviva annuity's surrender charge rate started at 12 percent for the first two contract years and then decreased by one or two percent per year for the remaining eight years of the surrender period. The Aviva annuity allowed any unused free partial withdrawal to be carried over to the following policy year and accumulated with that year's free partial withdrawal; the EquiTrust annuity did not allow such carryover. The Aviva annuity also provided for waiver of withdrawal fee, subject to conditions, for diagnosis with a terminal illness or confinement in a hospital, hospice, or convalescent facility, while the EquiTrust annuity did not. The annuities' minimum guaranteed contract values11/ were calculated in a similar manner. However, the EquiTrust annuity had a more favorable guaranteed rate of return of three percent, while the Aviva annuity guaranteed a one percent rate of return. Given the difference in financial conditions between 2006, when the Wexlers purchased the EquiTrust annuity, and 2008, when they purchased the Aviva annuity, relative policy performance is not particularly useful in determining which was policy was better for the Wexlers. In 2006, financial conditions were favorable. The Wexlers paid an initial premium of $32,565.68 for the EquiTrust annuity and received a ten percent bonus of $3,256.58 on that premium, for an initial accumulation policy value of $35,822.26. Over the two years the Wexlers owned the EquiTrust annuity, they added $40,844.42 in premiums, for a total of $73,410.10 paid into the annuity. By the time they surrendered the EquiTrust annuity in May 2008, its accumulation value was $84,179.97; thus, the policy earned approximately $10,769.87 in accumulation value for the Wexlers during the two years they owned it. By the time the Wexlers purchased the Aviva annuity in May 2008, financial conditions had significantly deteriorated. This is reflected in the Aviva annuity's annual statement of annuity showing no earnings for the 2008-2009 year. However, given the similarity of the policies' indexed investment strategies, it is reasonable to infer that the Wexlers would not have earned much, if any, more under the EquiTrust annuity than they did under the Aviva annuity for the 2008-2009 year. The Aviva annuity had greater relative financial strength than the EquiTrust policy. When Respondent sold the Wexlers the Aviva annuity, the EquiTrust Life Insurance Company's financial strength rating was in the process of being downgraded. Petitioner argues that the company still enjoyed an excellent rating in spite of the downgrade.12/ Notwithstanding, the evidence shows that at the time Respondent sold the Wexlers the Aviva annuity, he reasonably believed that the EquiTrust annuity's financial soundness was questionable, and, in fact, the Aviva annuity ultimately was the more financially sound policy.13/ When the Wexlers surrendered the EquiTrust annuity on May 21, 2008, its accumulated value was $84,179.97 and its cash surrender value was $75,844.42. When the Aviva annuity was issued on May 22, 2012, its accumulated value was $83,429.00 and its cash surrender value was $67,027.00——$8,817.34 lower than the EquiTrust policy's cash surrender value. The Wexlers immediately lost $8,817.34 on this transaction; however, the persuasive evidence shows that if they hold the Aviva policy to maturity, they not only will make up this loss, but will earn substantially more. In any event, the persuasive evidence establishes that Respondent told the Wexlers were about this issue and they chose to purchase the Aviva policy. On balance, the Aviva annuity appears more suitable for the Wexlers than the EquiTrust annuity. The EquiTrust annuity had a surrender charge period of 14 years, with extremely high surrender charge rates. The Wexlers would have had to keep the EquiTrust policy seven more years for its surrender charge rate to decline to the rate immediately applicable to withdrawals under the Aviva policy. Had the Wexlers held onto the EquiTrust policy and withdrawn funds in an amount greater than the free withdrawal limit even once during this seven-year period, they likely would have incurred surrender charges in an amount greater than the $8,817.34 they lost by surrendering the EquiTrust policy on May 21, 2008.14/ Ultimate Findings of Fact Regarding Alleged Violations As more specifically addressed below, the undersigned determines, as a matter of ultimate fact, that Petitioner did not demonstrate, by clear and convincing evidence, that Respondent violated sections 626.611 (5), (7), (9), or (13); 626.621(6); 626.9541(1)(e)1, or (1)(l); 627.4554(4)(a) or (c)2.; or rules 69B-215.210 or 69B-215.230.15/ Alleged Violations of Section 627.611 Section 626.611 sets forth violations for which suspension or revocation of an insurance agent's license is mandatory. Petitioner has charged Respondent with violating section 626.611(5), (7), (9), and (13). Petitioner did not prove, by clear and convincing evidence, that Respondent violated any of these provisions. Section 626.611(5) makes the willful misrepresentation of any insurance policy or annuity contract or the willful deception with regard to any such policy or contract a ground for suspending or revoking an agent's license. Petitioner did not prove that Respondent willfully misrepresented any aspect of the Aviva annuity or willfully deceived the Wexlers regarding the Aviva annuity. As discussed above, the persuasive evidence establishes that with respect to the key issue in this proceeding——the large surrender charge——Respondent accurately represented to the Wexlers that the surrender charge would be offset by the positive MVA and the Aviva premium bonus, and that the bonus would have to be earned over the life of the Aviva annuity.16/ Section 626.611(7) makes the demonstrated lack of fitness or trustworthiness to engage in the business of insurance a ground for suspending or revoking an agent's license. The persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers; accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this provision. Section 626.611(9) makes fraudulent or dishonest practices in conducting business under an insurance agent license grounds for suspension or revocation of the license. Again, since the persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this subsection. Section 626.611(13) provides that willful failure to comply with, or willful violation of, Petitioner's orders or rules, or any willful violation of any provision of the Florida Insurance Code constitutes a basis for suspending or revoking an insurance agent license. Again, Petitioner failed to prove, by clear and convincing evidence, that Respondent willfully violated its rules or orders, or willfully violated the Florida Insurance Code, in connection with the sale of the Aviva annuity to the Wexlers. Thus, Petitioner failed to prove, by clear and convincing evidence, that Respondent violated section 626.611(13). Alleged Violations of Section 626.9541 Section 626.9541 is entitled "unfair methods of competition and unfair or deceptive acts or practices defined." This statute defines the types of acts that constitute unfair methods of competition and unfair or deceptive acts or practices in the insurance industry, but it does not independently authorize disciplinary action. Werner v. Dep't of Ins., 689 So. 2nd 1211, 1214 (Fla. 1st DCA 1997). Petitioner has charged Respondent with engaging in acts set forth in section 626.9541(1)(a)1.——specifically, that Respondent knowingly made, issued, circulated, or caused to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which misrepresents provides that making any estimate, statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy. As discussed above, the evidence does not clearly and convincingly establish that Respondent knowingly engaged in any of these acts. Accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as prohibited in section 626.9541(1)(a)1. Petitioner also charged Respondent with engaging in acts delineated in section 626.9541(1)(e)1. This section requires, as a predicate for the imposition of discipline, a finding that the licensee knowingly made false material statements through a variety of acts set forth in that provision. Again, the evidence does not establish that Respondent knowingly engaged in any of these acts. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as provided in section 626.9541(1)(e)1. Petitioner has charged Respondent with twisting, which is defined in section 626.9541(1)(l) as knowingly making any misleading representation or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies for the purposes of inducing, or tending to induce, any person to surrender, terminate, or convert any insurance policy or to take out a policy of insurance in another insurer. Again, there is no persuasive evidence that Respondent knowingly committed any of the acts described in this statute. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in twisting under section 626.9541(1)(1), Florida Statutes. Alleged Violation of Section 626.621 Section 626.621 sets forth violations for which suspension or revocation of an insurance agent's license is discretionary.17/ Petitioner has charged Respondent with violating section 626.621(6) by engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited by part IX of chapter 626, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent engaged in any actions that could be considered unfair methods of competition or deceptive acts or practices under chapter 626, part IX. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent engaged in acts under section 626.621(6) that justify the suspension or revocation of his insurance agent's license. Alleged Violation of Section 627.9521 Petitioner has charged Respondent with violating section 626.9521. This statute prohibits persons from engaging in trade practices that are determined to be an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance, and imposes fines for violations of the Unfair Insurance Trade Practices Act, part IX of chapter 626, Florida Statutes. As discussed above, Petitioner did not prove that Respondent violated section 626.9541 or any other provision in chapter 626 charged under the Administrative Complaint. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent violated section 626.9521 and thus should be fined under that statute. Alleged Violation of Section 627.4554 Petitioner has charged Respondent with violating section 627.4554(4)(a) and (c)2. Section 627.4554(4)(a) requires that an insurance agent, in recommending a senior consumer purchase or exchange an annuity, have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of facts disclosed by the senior consumer regarding the consumer's other investments, other insurance products, and financial circumstances. Section 627.4554(4)(c)2. further requires that the insurance agent's recommendation be reasonable under all circumstances actually known to the agent at the time of the recommendation. As discussed above, Respondent recommended that the Wexlers surrender the EquiTrust annuity and purchase the Aviva annuity on the basis of the information they provided him regarding their liquid assets, other annuities, and financial goals. The evidence further shows that Respondent's recommendation was reasonable, based on the financial information the Wexlers provided and on his determination that the Aviva policy's terms and conditions were comparatively more favorable for the Wexlers than were the EquiTrust policy's terms and conditions. Accordingly, Petitioner has failed to demonstrate that Respondent violated section 627.4554(4)(a) or (c)2. Alleged Violations of Agency Rules Petitioner charged Respondent with violating rules 69B-215.210 and 69B-215.230. Rule 69B-215.210 declares that the business of life insurance is a public trust in which all agents have a common obligation to work together to serve the best interests of the insuring public, to understand and observe laws governing the life insurance business by accurately and completely presenting every fact essential to a client's decision, and to be fair in all relations with colleagues and competitors, always placing the policyholder's interest first. Rule 99B-215.230 declares misrepresentation to be unethical, and prohibits a range of acts regarding the making and disseminating of statements that misrepresent the terms of insurance policies or that misrepresent the insurance business or with respect to any person in the conduct of his insurance business. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent committed any acts that constitute violations of these rules.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Financial Services enter a Final Order dismissing the Administrative Complaint against Respondent. DONE AND ENTERED this 27th day of September, 2012, in Tallahassee, Leon County, Florida. S CATHY M. SELLERS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of September, 2012.
