Findings Of Fact During 1977, while licensed as an insurance agent, Mr. Yesnes engaged in a scheme to fraudulently obtain sales commissions from various insurance companies. He submitted applications for insurance coverage without the prior consent of the purported applicants. He obtained the data to fill in their application forms from information contained in previous policy records. This scheme was admitted by Mr. Yesnes when he appeared before a Department of Insurance investigator, Eugene Petree, III, to explain consumer complaints against him related to the bogus applications. On February 24, 1977 Mr. Yesnes, while registered with the Department as a non-resident agent, sold a $50,000 decreasing term life insurance policy to a 65 year old widow, Mrs. Inez Cameron. This sale was made in Pensacola, Florida, where both Mr. Yesnes and Mrs. Cameron were living at the time. The beneficiary of the policy was designated as "the estate of Inez Cameron." When that designation was made, Mr. Yesnes was the legatee of Mrs. Cameron's will. Mr. Yesnes later requested the company issuing the policy, United Presidential Life Insurance Company, to change the beneficiary of the policy to himself by name, but the company refused to make the change. Under the foregoing circumstances it is contrary to the standards of the insurance industry for an agent to sell a policy in which he is made the beneficiary. Mrs. Cameron was a widow and had no known living close relatives. She had established a personal "mother-son" relationship with Mr. Yesnes and for a period of time they lived together. For the last year and a half Mr. Yesnes has been a pizza wholesaler in the Pensacola area. He contracts for a supplier to manufacture the pizzas which Mr. Yesnes then sells to bars and small restaurants who cannot economically produce their own pizzas. According to his present supplier Mr. Yesnes sells a product of a much higher quality than the purchasers should expect to get for their cost. His present supplier, Mr. Meehan, has known Mr. Yesnes for eight to nine months. In his opinion Mr. Yesnes is trustworthy and reliable. He pays his bills on time and keeps his obligations. Mr. Secchiari, the owner of Genos Pizza in Pensacola, is Mr. Yesnes' former supplier. He too believes him to be trustworthy and reliable. In his opinion as an insurance consumer he believes that if licensed, Mr. Yesnes would be better than some life insurance agents and not as good as others. Mr. Yesnes has always been prompt in paying his bills with Mr. Secchiari. Mr. Yesnes was initially licensed as an insurance agent in Florida in February 1965. Three years later he moved to Atlanta, Georgia. He later moved to Pensacola in 1976 where he was employed by the Franklin Life Insurance Company. During that employment he was supervised by Michael Howard, an area manager. Mr. Howard had contact with Mr. Yesnes for a period of eighteen months. On the basis of that experience Mr. Howard is of the opinion that Petitioner is ethically unfit to be in the insurance business. Respondent offered testimony from Ms. Dorothy Dale Godwin and Ms. Sarah Dawson in the form of their opinion of Petitioner's character. This testimony is not accepted as credible. It lacks an adequate foundation because the witnesses contact with Mr. Yesnes was fleeting. Due to their relationship with Mrs. Cameron they are also found to be biased against Mr. Yesnes. On his pending application for licensure Mr. Yesnes gave 804 Royce Street, Pensacola, Florida 32503 as his address for the past five years. In fact, during that time he lived in Atlanta, Georgia; Mobile, Alabama; and at different addresses in Pensacola. He gave the 804 Royce Street address because that is where his father lives. At times Petitioner has lived there and he considers it his permanent address. At no time during these proceedings has Petitioner expressed regret for any past unprofessional actions. He has also not expressed any commitment not to engage in unprofessional behavior in the future, if licensed to sell insurance in the State of Florida.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Respondent, Department of Insurance and Treasurer, enter a final order denying the application of Ivan Yesnes for a license as a life agent in the State of Florida. DONE and RECOMMENDED this 14th day of July, 1981, in Tallahassee, Florida MICHAEL PEARCE DODSON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of July, 1981.
Findings Of Fact James Edward Snapp is licensed by the Department of Insurance as an Ordinary Life, including Disability Agent, Dental Agent and Disability Agent and was so licensed at all times in 1981 and 1982 in his dealings with Mrs. Mabel McCarthy and Mr. George Guertin. In July 1981 Respondent went to the apartment of Mabel McCarthy, a 79- year-old widow, and talked to her about insurance. His visit was unsolicited and Mrs. McCarthy initially told him she had adequate coverage with her Medicare, Medicaid and Blue Cross. Respondent discussed the issuance of a "gold" card which provided better coverage than she was presently receiving. They also discussed her $1,000 life insurance policy for which she had designated the Haven School in Miami as beneficiary. When she indicated she would also like to leave something to another school in Palm Beach County, Respondent suggested she cancel the $1,000 policy and take out two $5,000 policies and make each school beneficiary of one policy. Following Respondent's assertions to Mrs. McCarthy regarding her taking out different insurance policies, Mrs. McCarthy gave Respondent her check on 26 July 1981 in the amount of $1,100 made payable to Accident & Health Agency, the agent for whom Respondent worked. Mrs. McCarthy understood this to be the premium payment for the life insurance and hospitalization insurance policies. Respondent told Mrs. McCarthy the cash surrender value of her life insurance policy should be about $900. When she wrote Mutual of Omaha about the cash surrender value, she was advised it was nearer $700 and the company questioned her reasons for cancelling the policy. This aroused Mrs. McCarthy's suspicions and she called the Insurance Commissioner's branch office to inquire about Respondent. Up until this time she had full confidence in Respondent. In the application for health insurance for Mrs. McCarthy which Respondent subsequently submitted 12 July 1981 to American Sun Life Insurance Company, he checked the "no" square to the question "Is the insurance applied for intended to replace any insurance presently in force?" knowing he had suggested to Mrs. McCarthy this policy would replace her Blue Cross insurance policy. The total premium on these policies, one providing for medical expenses and the other providing for nursing home care, is $530. American Sun Life Insurance Company does not sell life insurance. On 28 July 1981 Respondent again visited Mrs. McCarthy, obtained her check in the amount of $380 made payable to Accident & Health Agency, and submitted an application to American Sun Life Insurance Company on behalf of Mrs. McCarthy which provides hospital and medical benefits. On this application he also checked the "no" square to the question about replacing existing insurance. The annual premium for this policy was $370. Mrs. McCarthy also gave Respondent a check in the amount of $500 payable to Accident & Health Agency for additional policies. Before this check had been cleared, Mrs. McCarthy received the first policies Respondent had sold her and realized they were no different from her prior coverage, no "gold" card was included and neither was a life insurance policy. Upon receipt of these policies on 11 August 1981 Mrs. McCarthy stopped payment on the $500 check and again called the Insurance Commissioner's office. When the Insurance Commissioner contacted American Sun Life Insurance Company with Mrs. McCarthy's complaint, they refunded $900 to Mrs. McCarthy for the policies they had issued. Those policies were for the maximum coverage Sun Life provides. The three policies issued by Orange State Life Insurance for various health care benefits were those applied for when the $500 check was written by Mrs. McCarthy and these policies were cancelled when payment was stopped on that check. The total premium for these policies was $449.99 plus a $26 policy fee. Respondent obtained the name of George Guertin as a potential client and called him for an appointment to discuss insurance. Upon arrival 18 January 1982 shortly after the phone call, Respondent looked at two policies Guertin showed him covering Medicare Supplemental payments on Guertin and his wife. These policies were issued by Tara Life Insurance Company. Respondent told Guertin that the agent who sold him these policies had charged top price and he could get these policies for him at a lower premium. The premium paid on the policy issued to George Guertin was $482 and the premium on the policy issued to Alma Guertin was $445. Respondent was not authorized to solicit policies for Tara. Guertin gave Respondent his check payable to J. Snapp in the amount of $540 to renew the two policies with Tara Life Insurance Company. Guertin also gave Respondent his life insurance policy issued on John Hancock Mutual Life Insurance Company to inquire about the cash surrender value. This policy was later returned to Guertin without change. Respondent's testimony that the $540 was for services he was to provide the Guertins in preparing Medicare claims and that the Guertins understood this at the time the check was signed, is not credible. George Guertin was born in Canada in 1903 but has lived in the United States for 65 years. Although he went to school in Canada through the eighth grade, he does not read English. George's brother Eme apparently lived with the Guertins and was disabled. Respondent offered to take Eme to the Veteran's Administration to get his disability pension increased. He was paid $250 for this service and for taking Eme to the VA on other occasions. Guertin testified that the signature on Exhibit 12 was not his signature and that on Exhibit 13 was not his wife's signature. Respondent testified that these "contracts" were signed by George Guertin and Alma Guertin in his presence. Regardless of the validity of the signatures, these "contracts" provide that compensation [of Respondent] shall be determined by mutual agreement. There was no mutuality of agreement that the $540 paid by Guertin to Respondent was for services to be rendered by Respondent in completing Medicare forms. When Guertin was advised by Tara Life Insurance Company that his policies were about to lapse for nonpayment of premiums, he realized Respondent had not renewed these policies as he was told Respondent would do, he complained to the Insurance Commissioner's office, and he sent premium payments to Tara. Respondent suffered injuries while serving in the Marine Corps in Korea. He was discharged with a 35 percent disability rating in 1955 and since that time he has been treated from time to time in VA facilities. He has had several heart attacks, five according to Respondent's testimony, and takes a wide variety of medication. In his testimony Respondent admitted that he only sold insurance and left the doing of the paperwork associated with these policies to the agency for whom he works. He does not keep records of his insurance transactions because he has a "real tough time" doing so. He leaves those chores to the agency.
Findings Of Fact The Respondent, Emory Daniel Jones, was not involved or engaged in the insurance business prior to August, 1977. (Tr. 177.) In approximately August of 1977, United Sun Life Insurance Company (USL) hired Respondent as an agent. (Tr. 176, 177.) Respondent passed the insurance test administered by the State of Florida in August, 1977, and was scheduled for a seminar given by USL. (Tr. 178.) In late August, 1977, Respondent attended a three-day seminar established by USL for all its new agents. (Tr. 178.) At this seminar, USL taught the agents about a policy known as T.O.P. This was the only policy taught to the agents even though USL had other policies available. (Tr. 128.) The T.O.P. contract is a life insurance policy. This policy has two primary benefits. (Tr. 230, 231.) The first is the death benefit provided by all life insurance policies. Under the death benefit provision, the owner of the T.O.P. pays a premium to USL. When the insured dies, USL will pay the death benefit (money) to the beneficiary listed on the policy. (Tr. 128, 251.) The second major benefit provided by the T.O.P. is the life benefit feature. (Tr. 251.) The T.O.P. is an insurance policy which provides for the payment of dividends to the owner of the policy. The T.O.P contract states that the owner will share in the divisible surplus earnings of USL as determined by the Board of Directors. (Tr. 120; contract page 5, Exhibit #3.) The dividends were to be paid after the second year. (Tr. 129, 130.) The owner would participate in the divisible surplus earnings of USL through the payment of a dividend. (Tr. 129, 188.) As long as the T.O.P. was in effect, the owner would receive these dividends. USL developed a presentation to be given by the agents to prospective customers. This presentation was taught in the training session by USL. (Tr. 183, 249, 260, 270.) The agents were to memorize the presentation and were not to vary from the wording when they were attempting to sell the T.O.P. to prospective customers. (Tr. 185, 249.) The presentation taught by USL stressed the life benefit feature of the T.O.P. contract. (Tr. 251, 271.) The death benefit was only minimally covered because of the relatively high cost for the life insurance portion of the contract. This presentation further explained several features which made the T.O.P. contract life benefit provisions attractive to future customers: The T.O.P. contract owner was to participate in the divisible surplus earnings of USL. The only other persons that would also participate in the divisible earned surplus were the shareholders. (Tr. 196.) The T.O.P. contract was to be sold only to a limited number of people. After an undisclosed number of T.O.P. contracts were sold, the T.O.P. contract was to be taken off the market. (Tr. 234, 261, 276.) USL was not going to sell or issue any other policies which would participate in the divisible earned surplus of USL. (Tr. 234, 255, 261, 276.) USL would grow (increase its divisible earned surplus) by selling policies other than the T.O.P. contract. The more policies that were sold, the greater the divisible surplus earnings that would be available to the T.O.P. contract owners for dividends. (Tr. 196, 276.) Since the T.O.P. owners were limited and no other participating policies were to be issued, the T.O.P. owners would share in any increases in the divisible surplus earnings of USL. The greater the number of policies sold, the greater the dividends. The T.O.P. owners were then solicited to help the agents sell insurance policies of USL to their friends. This help would reduce the cost of advertising and increase the sales of insurance. The lower expenses and greater volume would mean more divisible surplus earnings in USL and greater dividends available to the T.O.P. owners. (Tr. 201.) To illustrate these points, USL taught the agents to draw circles representing other insurance policy owners. Lines were then drawn from these circles to the T.O.P. owner's circle. The lines between the circles represented the premiums paid on the other policies, which would increase divisible surplus earnings that would increase the dividends of the T.O.P. owners. (Tr. 196, 232, 263, 270.) USL taught the agents to illustrate the features of the life benefit by dollar signs. As the agent would talk about the other policies increasing the dividends to the T.O.P. owners, he was to increase the size of the dollar sign. (Tr. 233.) The whole emphasis of this presentation was on the participating feature. Another feature emphasized in the USL presentation was that the T.O.P. owner would participate in the divisible surplus earnings of USL as long as he was alive. Therefore, the agents were to stress that the T.O.P. owner should be a younger person in the family. If that person lived 70 years, then USL would pay dividends for 69 of those 70 years. This feature of the policy was stressed in the memorized presentation. (Tr. 204, 205, 232, 233, 252, 264, 270.) In late August of 1977, Respondent attended the training session and memorized the presentation. (Tr. 181, 184, 185.) At the end of the training session, USL reviewed the Respondent's presentation and found nothing wrong. (Tr. 187.) In late August of 1977, Respondent went into the field to sell the T.O.P. contract to potential customers. (Tr. 187.) Count I On September 7, 1977, Respondent met with Louis Charles Morrison and made the USL presentation on the T.O.P. policy to Morrison. Respondent made the presentation in the way he had been taught. Morrison was aware that he was purchasing an insurance policy. He was led to believe through USL's sales presentation as given by Respondent that the participating feature of the T.O.P. policy made this policy a good investment. Morrison concluded it was not a good investment because the dividends were not as great as he had anticipated they would be. Respondent's representations to Morrison with regard to the T.O.P. policy were not false. Count II On September 12, 1977, Respondent met with Fred Menk and gave to him the USL presentation on the T.O.P. policy. Respondent gave the presentation as he had been taught. Menk was aware that he was purchasing insurance. (Tr. 51.) Respondent made no representation about future dividends. (Tr. 59.) The interest rate was represented to increase as USL grew, which it did. (Tr. 59.) Menk was dissatisfied and felt the policy was misrepresented because he did not get the rate of return he had anticipated. (Tr. 59.) According to Menk, Respondent's representations made with regard to interest rate increases were accurate, and Respondent made no representations regarding future dividends. Count III Respondent met with Paul Loudin in September of 1978, and gave him the USL presentation on the T.O.P. policy as Respondent had been taught. Loudin was aware he was purchasing insurance. (Tr. 21, 26, 27, 31.) His interest was in life insurance and retirement compensation. (Tr. 36.) In part, Loudin's dissatisfaction was the belief he had lost his money because he did not receive a dividend on his first year's premium. The policy reflects that no dividends are payable in the first year. (Respondent's Exhibit #7.) A copy of the policy was provided to Loudin by Respondent. (Tr. 45.) Loudin also anticipated a dividend of 12 to 18 percent on his premiums based upon Respondent's general comments. However, he did not remember the exact conversation with Respondent. (Tr. 31, 32, 38, 39.) Loudin received a letter from USL which reflects a dividend history based upon an 18-year-old insured with an annual premium of $1,000 as follows: End of 2nd year $100.35 End of 3rd year 130.66 End of 4th year 162.86 The rate of return in the fourth year would be 11.6 percent on the fourth year's premium. The representations made to Loudin by Respondent were substantially true, or the relevant information was made available to Loudin by the Respondent. Count IV On November 30, 1977, Respondent met with Gayle Mason and gave the USL presentation on the T.O.P. policy as he had been taught. Mason knew she was purchasing insurance. (Tr. 107.) Respondent represented that the number of participants in the T.O.P. policy would be limited. (Tr. 108.) The current rate of return was taken by Respondent to be 11 percent, and it was represented that the return could be more. (Tr. 109.) Dividends were to be paid from surplus earnings. (Tr. 114.) Mason called the Better Business Bureau and the State Insurance Commissioner's office, and she was aware that USL was an insurance company and she was engaged in an insurance transaction. (Tr. 115.) Respondent represented that as USL grew, the dividends would increase. (Tr. 118.) Mason received a dividend in the second year in accordance with the policy. The representations made to Mason by Respondent were true or thought by Respondent to be true.
Recommendation Having found the Respondent, Emory Daniel Jones, not guilty of violating any of the statutes or rules as alleged, it is recommended that the Administrative Complaint against Respondent be dismissed. DONE and RECOMMENDED this 17th day of January, 1983, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of January, 1981. COPIES FURNISHED: David A. Yon, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 Paul H. Bowen, Esquire 600 Courtland Street, Suite 600 Post Office Box 7838 Orlando, Florida 32854 The Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32301
The Issue The issue is whether the licenses of Frank Joseph Brennan should be disciplined for actions of Mr. Brennan or of agents associated with Frank J. Brennan, P.A. with respect to the sale of insurance products to three (3) clients: Rebecca Fisher, Celine M. Rompre, and Mr. and Mrs. Joseph T. Nolan.
Findings Of Fact Frank Brennan Frank Joseph Brennan holds licenses as an ordinary life agent, ordinary life including health, health agent, and ordinary-variable annuity agent. Brennan is the owner and president of Frank J. Brennan, P.A., which sells life and health insurance products, including tax sheltered annuities of the National Western Life Insurance Company. The firm has several thousand tax sheltered annuity clients. Brennan had been the president and the director of Lancer Securities Corporation. On March 22, 1979, he was enjoined by the U.S. District Court for the Middle District of Florida for acting as an officer or director of any registered investment company. That injunction states that it did not constitute evidence against or an admission by Brennan, and that the injunction did not "establish or prove any of the acts alleged or asserted in any pleadings." Brennan was suspended from associating with any investment advisor for 120 days, and barred from associating thereafter with an investment advisor other than as a supervised employee in an order entered by the Securities and Exchange Commission on March 26, 1979. Brennan was barred from associating with any member of the National Association of Securities Dealers, Inc. in the capacity of a principal in an order entered by that association on October 15, 1980. Brennan was barred by the Securities and Exchange Commission in October 1980 from associating with any member in the capacity of a principal and fined $1,000. In May 1983, United Equitable Insurance Company terminated Brennan as an agent based on an adverse Equifax report. That report was not placed in evidence. (The foregoing findings 3 through 7 are based upon the Department of Insurance's Second Request for Admissions and Fifth Request for Official Recognition.) The Relationship Of Gregory Langsett And Betty Jones To The Frank J. Brennan, P.A. Frank J. Brennan, P.A., has contracts with a number of licensed insurance agents, including Gregory Langsett and Betty Jones. Langsett has a producer agreement with National Western Life Insurance Company which describes him as an independent contractor, and an agent's agreement with the Brennan firm. Under the agent's agreement Langsett has with the Brennan professional association dated December 4, 1981, Langsett is deemed an independent contractor and nothing in this agreement shall be construed to create the relationship of employer and employee. You are free to exercise your own judgement as to the persons from whom you solicit applications and the time and place of such solicitation. (Petitioner's Exhibit 28, Paragraph 1.) Brennan had been involved in training of Langsett and Jones when they first were associated with the firm. Agents such as Langsett and Jones are not listed on the employer's quarterly wage report made by the Frank J. Brennan, P.A. to the State of Florida Division of Unemployment Compensation. Agents such as Langsett and Jones pay their own estimated income tax withholding and their own social security taxes. The Brennan firm does provide agents with business cards (although Jones had her own cards printed). It also provides sales kits, telephone answering, postal services, makes available space for meeting with clients at the firm office and provides accounting services incident to the payment of commissions on business submitted to carriers through the firm, all without charge to the agents. Educational meetings are held on Fridays, which the agents are encouraged, but not required, to attend which discuss the various insurance products available through insurance companies the Brennan firm is associated with. Agents benefit from advertising done by the Brennan firm. Brennan occasionally provides leads to agents. For example, January 1986 Brennan provided to Betty Jones and her husband (also a licensed insurance agent) a list of approximately 100 names of employees of the Boca Raton Academy so that they could be solicited for purchase of tax sheltered annuities, and an arrangement was worked out under which Brennan and the Joneses would divide commissions from any such sales. There is no evidence that Brennan controlled the time, place or manner of these solicitations, or of any other solicitations for the purchase of insurance products. Langsett and Jones were not subject to the direct supervision and control of Brennan in their activities of soliciting insurance clients. They are not employees of the Professional Association -- they are independent contractors. This arrangement of appointing soliciting agents who are independent contractors is used by other sellers of tax sheltered annuities, and is not unique to the Brennan firm. (Tr. 496, 579). Brennan does have the authority, based on his contracts with insurance carriers, to appoint licensed agents as agents of insurance carriers. Rebecca Fisher's Dealings With Frank J. Brennan, P.A. and Frank Brennan Rebecca Fisher is an employee of the Dade County School Board. She contacted Langsett concerning tax sheltered annuities offered by the National Western Life Insurance Company, after learning of Langsett from another employee. Under Section 403(b) of the Internal Revenue Code, employees of school boards may have a portion of their wages paid into a tax sheltered annuity. They pay no income tax on the amounts deposited in the annuity through payroll deduction and the interest paid on the amounts deposited is not taxed when earned. Such annuities are long term savings plans designed to supplement the participant's retirement income. Ms. Fisher already had a tax sheltered annuity with Northern Life Insurance Company which had a face value of over $90,000. She had bought it through an insurance agent, Mr. Paul Indianer, with whom she had dealt over a number of years. Langsett met with Mrs. Fisher at her home for about 15 to 20 minutes on a Saturday in June 1985. Mrs. Fisher was not able to spend much time with Mr. Langsett that day because she had to go to a funeral at about noon. Thereafter, Mrs. Fisher attempted to call Langsett at the Brennan insurance offices. She called after 5:00 p.m. and Langsett was not there. Respondent Brennan answered the phone call. They discussed the possibility of opening a tax sheltered annuity account through National Western by rolling over into a new account money she had in her current tax sheltered annuity. Mrs. Fisher knew if the money were rolled over she would incur a surrender charge. She also discussed with Brennan whether it would be possible to borrow money from a new National Western tax sheltered annuity for home improvements. She was told money borrowed from a National Western annuity could be used for home improvements, and taxes would not have to be paid on the money borrowed from the annuity until her death. Her current annuity did not have a provision that permitted borrowing. At the hearing the provision permitting borrowing was referred to as the TEFRA provision -- so known , because it had its genesis in a portion of the Tax Equity and Fiscal Responsibility Act (TEFRA). (Tr. 45, 46, 80) Reviewing the totality of Mrs. Fisher's testimony, the Hearing Officer is not persuaded that Mrs. Fisher is able to recall with clarity the conversation which she had with Mr. Brennan. For example, the Hearing Officer does not accept the testimony that Respondent or Langsett told Fisher that National Western would pay 20 percent interest the first year and 18 percent the second year on its annuities. Those figures represented the surrender charges on the Northern Life tax sheltered annuity she already had. Neither did Brennan tell Fisher that she would get $75,000 of free life insurance in connection with a new tax sheltered annuity. One of the possibilities Brennan mentioned to Fisher was a more involved transaction in which her money would be rolled over into a new tax sheltered annuity, and a $50,000 loan would be taken against that new annuity. The $50,000 might be used to purchase a single premium life insurance policy. Interest paid on the amount placed in that policy would accumulate without any income tax being owed on the interest as it was paid. National Western Life Insurance Company would provide $75,000 of life insurance in connection with such a policy, over and above its $50,000 face amount, for a $155,000 total life insurance benefit. The single premium life insurance policy does not make a specific charge for the $75,000 additional death benefit. There is, of course, a charge for this insurance in that the interest rate paid on the $50,000 deposited in the single premium life insurance policy is reduced by the mortality charge on the $75,000 additional death benefit. Mrs. Fisher confused these two different insurance products (the tax sheltered annuity and the single premium life insurance policy), and thought that the life insurance was part of the tax sheltered annuity, which is not what Brennan discussed. Mrs. Fisher's notes of her conversation indicate that there would be a rollover penalty assessed against the face amount of her Northern Life tax sheltered annuity if she moved it to a National Western tax sheltered annuity. She had incurred penalties when she had moved money from her first annuity with Franklin Life to Standard Life the second annuity from Standard Life to Northern Life, both at the suggestion of her insurance advisor/agent, Mr. Indianer. (Tr. 57). Those notes also appear to indicate that Brennan referred to her current Northern Life tax sheltered annuity as "antiquated," and described the method by which payments are made under the annuity as "suicide" from an income tax point-of-view. In view of the complexity of these insurance matters, and Mrs. Fisher's misunderstanding of what Brennan had said on other significant portions of the conversation, the Hearing Officer is not satisfied that the evidence is clear and convincing that Brennan used those terms to describe Mrs. Fisher's current insurance products in his conversation with Mrs. Fisher. Similarly, the testimony that Brennan referred to her old Franklin Life and Standard Life annuities (which Indianer had already persuaded her to replace) as "garbage" is not accepted. Under the Internal Revenue Code, if money were borrowed from the annuity for the purpose of home improvements, no tax would be due on the amount borrowed until the annuitant's death, or the surrender of the annuity for cash or annuitization. (Tr. 624, 781). Borrowings for other purposes must be paid back in five years or they are treated as a distribution from the shelter, and require that income tax be paid on that distribution. Neither the code nor case law requires a loan to be repaid when the annuitant reaches a certain age. In short, contrary to the allegations of Count I of the Amended Administrative Complaint, the evidence is not convincing that Brennan made improper or defamatory remarks about Fisher's prior annuities or existing annuity, that he misrepresented the actual tax implications of the plans or the interest rate offered by the plans, or falsely represented that Fisher would receive $75,000 of free life insurance with a National Western annuity contract. Celine Rompre's Dealings With Betty J. Jones Betty J. Jones is an insurance agent licensed by the State of Florida. She also worked as an independent contractor through the Frank J. Brennan, P.A., selling tax sheltered annuity products of the National Western Life Insurance Company. Unlike Langsett there is no evidence that she has a written contract with the Brennan firm, but she does have a producer agreement with National Western Life Insurance Company. On or about July 23, 1985, Ms. Jones solicited Celine M. Rompre for the purpose of selling her a National Western Life Insurance Company Section 403(b) tax sheltered annuity. Rompre was an employee of the Palm Beach County School Board who already had a Section 403(b) tax sheltered annuity payroll deduction handled through Voyager Life Insurance Company; the insurance agency which had sold that annuity to her was owned by Edward Parmele. Respondent Brennan personally had nothing to do with the solicitation which Betty J. Jones made of Celine Rompre. Betty J. Jones was not acting under the direct supervision and control of Frank J. Brennan in that transaction. Betty Jones met with Celine Rompre and discussed the National Western tax sheltered annuity. Mrs. Rompre's husband also works and the Rompres do not need Mrs. Rompre's salary for living expenses. At the time she spoke with Betty Jones, Mrs. Rompre's annual salary was $5,500. She believed that it would increase to $7,200 at the beginning of the next school year, which did happen. At the time Mrs. Rompre was putting $1,040 into her Voyager Insurance Company tax sheltered annuity each year. Betty Jones discussed with Mrs. Rompre increasing her tax sheltered annuity contribution to approximately $4,000 per year. Jones told her that the maximum amount she could contribute would have to be separately calculated for each year. (Tr. 752). Mrs. Rompre was interested in this because Mrs. Rompre's daughter was then in the 8th grade, and it would be possible to borrow against that money to help with her daughter's education. Mrs. Rompre knew she would incur a substantial surrender charge on her current annuity if she switched to National Western. She signed papers prepared by Jones to accomplish the transfer of her annuity to National Western. Rompre was not eligible to increase her Section 403(b) annuity contribution immediately because she had changed her contribution once that year and only one change in the payroll deduction can be made annually. (Tr. 751). When the paperwork went to the School Board to change the annuity from the Voyager annuity to the National Western annuity, Mrs. Rompre was contacted by Mr. Parmele about her Voyager annuity. He stated that Mrs. Rompre could not put $4,000 per year into a Section 403(b) tax sheltered annuity. This influenced Mrs. Rompre to cancel the transfer to National Western. In fact, Mrs. Rompre was in a situation where she qualified to put as much as $5,051 into a tax sheltered annuity (this amount is known as the maximum exclusion allowance) over the next year under a catch-up provision of the Internal Revenue Code because she had not been contributing to an annuity for all eight years she had been employed by the Palm Beach County School Board. (Tr. 780). There is no evidence that Ms. Rompre was contributing to any other qualified retirement plans that would have affected her maximum exclusion allowance. Betty Jones did not misrepresent to Celine Rompre the amount of her maximum exclusion allowance, the terms of the surrender charges for the Voyager life insurance policy or the National Western life insurance policy, or improperly affixed the signature of Celine Rompre to a letter to the Voyager Life Insurance Company requesting cancellation of her existing account. Dealings Of Frank J. Brennan With The Nolans In about March of 1985, Mr. and Mrs. Nolan went to Brennan for help preparing their tax return and for financial planning. Mr. Brennan had been highly recommended to them. Mr. Nolan is a loss prevention manager for Radio Shack, and Mrs. Nolan is employed by the School Board of Broward County. Mr. Nolan had recently received an inheritance of about $30,000 and was looking for a way to invest it. The Nolans emphasized that the investment vehicle be liquid so they could access the money if they needed it. They were concerned that they might need it for the care of their parents. When Mr. Nolan came to Brennan, he had whole life insurance policies with Prudential and Metropolitan Life which had some cash value. Brennan suggested those policies be cancelled so that the cash value could be invested, and this was done. Mrs. Nolan's Section 403(b) Tax Sheltered Annuity When the Nolans came to Brennan, Mrs. Nolan did not have a Section 403(b) tax sheltered annuity. Brennan suggested that she contribute to such an annuity program as a means of saving on income taxes. He also told them they could borrow against those funds, but this was of no interest to the Nolans. Mrs. Nolan purchased a tax sheltered annuity with Great American Life Insurance Company which currently paid 13.75 percent interest. One of the documents which is filled out to begin the payroll deduction with the Broward County School Board for Section 403(b) tax sheltered annuities is an amendment to the annuitant's employment contract to cause part of the salary to be paid directly into the annuity. On that form there are disclosures, including whether there is a sales charge, administration fee, or transfer fee, as well as whether there is a surrender charge. The amendment which she executed does not show any surrender charge in connection with the Great American Life Insurance Company Section 403(b) annuity she purchased. Later the Nolans received another copy of the amendment which had the surrender charge portion filled in. It stated there would be a surrender charge of one-fifth of the first year's deposits only, which is waived if all proceeds are withdrawn over 36 months or longer. When Mr. Nolan received this he immediately called Mr. Brennan to ask about the surrender charge. Brennan told him that the annuity document itself explained the surrender charge and it should have been on the amendment to the employment contract as well. Brennan negligently failed to explain the surrender charge to the Nolans when the annuity was first taken out. After receiving the altered amendment to employment contract, Mrs. Nolan instructed the School Board to stop the annuity deductions as of December She had contributed $7,234 to the annuity at that time. The Nolans then asked to cancel the annuity because they had not been made aware of the surrender charge. Mr. Brennan responded by stating that in order to get the refund, they would have to sign a release at the request of the insurance company, but the Nolans refused to sign any release. They prepared a short letter to the insurance company seeking the recision of the policy. Brennan also wrote to the company seeking the refund. The Nolans did receive their money back. In connection with the rescission, the Nolans demanded and received from Brennan assurances that if the amount deposited in the annuity were not received by March 3, 1986, that Brennan would pay 10 percent interest per year on the proceeds until the Nolans received the proceeds. The Nolans received the amount before the agreed date when Brennan would begin to pay interest. The amount they received was only the principal paid in, however, and did not include any interest for the period the money had been held by Great American Life Insurance Company. Repayment of the $7,234 rendered these funds subject to current income taxes, because that income had not been subject to tax when placed in the annuity. The Nolans' Other Insurance Purchases From Brennan When the Great American Section 403(b) annuity was purchased, the Nolans also purchased other insurance products. These included two $2,000 individual retirement accounts (IRAs) for Mr. and Mrs. Nolan with National Western in the form of annuity policies, a Kemper Life Insurance policy on Mr. Nolan with a face value of $100,000 to replace the existing policies he had cancelled, and a $30,000 single premium endowment policy on Mrs. Nolan from National Western Life Insurance Company, which included a life insurance benefit so that the face amount of the policy was $200,602. These purchases saved the Nolans about $3,000 in income taxes. The Nolan's had had IRA accounts at savings and loan institutions before they came to Brennan, which they would roll over when the instruments in which the money was deposited matured. Brennan explained that these National Western annuities were different than the accounts they had. These annuities were cancelled because the Nolans became dissatisfied with Brennan due to the non-disclosure of the surrender charge on the Section 403(b) annuity with Great American Life Insurance Company. Mr. Brennan arranged for those to be cancelled without penalty at the request of the Nolans. They received the principal paid in plus interest. After the cancellation of the prior whole life policies at Brennan's suggestion, see Finding of Fact 37, above, Mr. Nolan purchased a Kemper Life Insurance term life insurance policy. At first he considered rescinding it along with the IRAs, also due to dissatisfaction with Brennan because of the failure to disclose the surrender charge on the Section 403(b) annuity. Ultimately he kept the Kemper policy, which was a better policy than the ones that had been cancelled. The $30,000 inheritance Mr. Nolan received was used to purchase a $30,000 single premium life endowment policy on Mrs. Nolan, which then paid 11.12 percent interest on the amount deposited and permitted borrowing from the policy at 7.4 percent. The policy was placed on Mrs. Nolan's life because she was the better underwriting risk. The interest which accrued on that policy was not subject to current federal income taxation, so the purchase was consistent with the Nolan's goal of achieving a high yield on the money with minimum taxation. That $30,000 premium purchased over $200,000 worth of life insurance on Mrs. Nolan, which Brennan described as "a freebie" in connection with the tax sheltered investment of the $30,000. This policy was cancelled under a policy provision which gave the right to cancel the policy during the first year, in part due to dissatisfaction with Brennan over the non-disclosure of the surrender charge on the Section 403(b) tax sheltered annuity. Nolan was also dissatisfied with the endowment policy after he received it because (1) the interest guaranteed to be paid on the $30,000 was only 4 percent although he understood that the actual interest to be paid would fluctuate with economic conditions and be competitive and (2) to access the $30,000 he could not withdraw money, but had to borrow from the policy. Although a loan could be processed quickly, Mr. Nolan did not like the idea of having to borrow his own money. The record is not clear whether the Nolans did or did not receive interest on the $30,000 for the time it was on deposit with National Western Life Insurance Company before the cancellation. The policy itself provides that on cancellation the insured "will be refunded the greater of the premium you paid or the cash value at that time." (Respondent's Exhibit 25) Because Mrs. Nolan signed an application naming Mr. Nolan and beneficiary for the insurance purchased with the $30,000, because she had a physical examination to obtain the policy, and because the check to purchase it was made out to National Western Life Insurance, Mr. Nolan's testimony that he did not understand that the "investment" he was making with his $30,000 involved the purchase of an insurance policy is not accepted. Brennan did sell the $30,000 policy to the Nolans in part on the basis that they would receive approximately $200,000 in free life insurance. The Nolans were more interested in a tax shelter for the $30,000 that would pay high interest, not in the insurance benefit. In summary, Brennan failed to explain the surrender charge associated with the Great American Life Insurance Company Section 403(b) tax sheltered annuity to the Nolans when it was purchased. Brennan made no misrepresentations with respect to the sale of the two annuities from National Western Life Insurance which were to be used as the Nolans' individual retirement accounts. There were no misrepresentations made to Mr. Nolan with respect to the purchase of his Kemper Life Insurance policy, which he still has. Brennan told the Nolans that they would receive free life insurance associated with the deposit of $30,000 in the endowment policy on Mrs. Nolan's life, which had been purchased due to the tax free accumulation of interest on the $30,000 deposited.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Counts I and II of the Amended Administrative Complaint be DISMISSED. That on Count III, for offering free life insurance as an inducement for the deposit of $30,000 in the single premium endowment policy, Brennan be FINED $2,500.00 and his license SUSPENDED for a period of three (3) months. DONE AND ORDERED this 1st day of May, 1987, in Tallahassee, Florida. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of May, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-0707 The following constitute my specific rulings pursuant to Section 120.59(2), Florida Statutes (1985), on the proposed findings of fact submitted by the parties. See Rule 28-5.405(3), Florida Administrative Code. Rulings on Proposed Findings of Fact Submitted by Petitioner Before ruling on the individual proposals made by the Petitioner, it is appropriate to make some general comments. The proposals submitted by the Petitioner are exceptionally detailed, indeed unnecessarily so. Many are rejected as unnecessary or cumulative to the facts found in the Recommended Order. Others are irrelevant because they address issues not properly raised by the allegations of the First Amended Administrative Complaint. The testimony of the principal witnesses on counts one and two, Rebecca Fisher and Celine Rompre, was certainly sincere but generally unpersuasive. The testimony of the other expert witnesses who make their livings by selling tax sheltered annuities was also not convincing because their view of Mr. Brennan and his activities is so colored by their competition. Mr. Parmele's testimony left an abiding impression of hostility to Brennan for trying to persuade clients of Parmele to switch their annuities to companies represented by Brennan, and Parmele's testimony is discounted based upon his hostility. Mr. Indianer was not as hostile, but his financial interest in removing Brennan as a competitor also causes substantial discounting of his testimony. The opinions of Robert Storms are accorded little weight because he does not regard himself as an expert in tax sheltered annuities. To the extent necessary, covered in Finding of Fact 1. Covered in Findings of Fact 3-6. Covered in Finding of Fact 7. To the extent relevant, covered in Finding of Fact 2. Rejected as irrelevant. Rejected because it is not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a statement of law, not a finding of fact. Covered in Finding of Fact 8. Rejected as unnecessary. To the extent relevant, covered in Finding of Fact 2. Rejected as unnecessary. Rejected as a statement of law, not a finding of fact. Rejected as unsupported by the transcript citation given. To the extent necessary, covered in Finding of Fact 10. Rejected as irrelevant. Although true, rejected as unnecessary. Covered in Finding of Fact 8. Rejected as unnecessary, and unsupported by the transcript citation given. Covered in Finding of Fact 25. Rejected as unnecessary. Covered in Finding of Fact 13. Rejected as unsupported by transcript citation given which only reflects a division of commissions between the Jones' and Brennan with respect to sales to employees of the Boca Raton Academy. Rejected as irrelevant. Rejected as unnecessary and not supported by the exhibit citation given. PX 25 authorizes Langsett to procure applications; whether this is a license as a "writing agent" is unclear. Rejected as a statement of law. Rejected because Betty Jones had no written contract with the Brennan firm. Langsett's relationships are covered in Finding of Fact 8. Rejected because Jones had no written contract with the Brennan firm. With respect to Langsett's contract with the firm, rejected as irrelevant. To the extent relevant, covered in Finding of Fact 8. Jones had no written contract with the firm. Rejected because Langsett and Jones testified that being independent contractors included that they pay their own expenses, not meant that they pay their own expenses. Rejected as irrelevant. Covered in Finding of Fact 14. Rejected as unnecessary. Rejected as inconsistent with the transcript citations given. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent that the information was provided in the form of sales kits, covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as not supported by the evidence. Rejected as unnecessary. Rejected as not constituting a finding of fact. Rejected as not constituting a finding of fact. Rejected as not constituting a finding of fact. Rejected as subordinate and cumulative to Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary and inconsistent with the transcript citation given. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as a recitation of testimony, not a finding of fact, also irrelevant. Rejected as irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary Rejected as unnecessary. The citation given supports only the statement made as to Betty Jones. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 9. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 15. Covered in Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. - Rejected as a statement of law, not a finding of fact, also unnecessary. Rejected as a statement of law, not a finding of fact, also unnecessary. Rejected as a statement of law, not a finding of fact. Rejected as a statement of law, not a finding of fact. Rejected as a statement of law, not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 23. To the extent necessary, covered in Finding of Fact 23. Rejected as subordinate to Finding of Fact 23. Rejected as subordinate to Finding of Fact 23. Rejected as inconsistent with Finding of Fact 23. Rejected as unnecessary. Rejected as unnecessary. Subordinate to Finding of Fact 33. Subordinate to Finding of Fact 33. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 33. Subordinate to Finding of Fact 33. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected for the reasons stated for the rejection of proposed finding of fact 32. Rejected as unnecessary. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Further, Mr. Storm's testimony is not persuasive on the point. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected because the form, PX 9, is a creation of a committee which is advisory to the risk manager of the School Board of Broward County and has no legal status. Rejected because the form, PX 9, is a creation of a committee which is advisory to the risk manager of the School Board of Broward County and has no legal status. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Mr. Storm's testimony as to what would be misleading is unpersuasive. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Although true, rejected as unnecessary. The power to appoint sub-agents who become producers for insurance carriers does not mean that Brennan exercised direct supervision and control over such persons, or over Langsett and Jones in the situations at issue in this matter. Although true, rejected as unnecessary. Covered in Finding of Fact 14. Covered in Findings of Fact 8 and 25. Covered in Finding of Fact 2. Rejected as irrelevant. Covered in Finding of Fact 13. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a recitation of testimony7 not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 9. Subordinate to Finding of Fact 12. Rejected as Rejected as unnecessary. Rejected as irrelevant. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected because the finding is taken out of context. Agents such as Langsett submit business through the Brennan firm and receive their commission through the accounting system at the Brennan firm. When the files are submitted to the carriers, this does not imply that the firm has the right not to pay Langsett, it is the medium through which his payments are processed. See Finding of Fact 12. Covered in Finding of Fact 12. Rejected as a misstatement of the testimony. That testimony occurred because Langsett was asked about commissions payable in a situation he never had experienced. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Rejected as irrelevant. Rejected as irrelevant. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Generally covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 12 concerning education. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Covered in Findings of Fact 12 and 25. Rejected as unnecessary. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Rejected as irrelevant and unnecessary. Rejected as unnecessary. Generally covered in Findings of Fact 15 and 16. As pointed out at the beginning of these rulings, Mrs. Fisher's version of her dealings with Langsett and Brennan were not found persuasive. For example, only one meeting occurred between Fisher and Langsett, not two. Rejected as irrelevant to the allegations in the Amended Administrative Complaint and unnecessary. Rejected as a recitation of testimony, not a finding of fact. Rejected because I do not accept Mrs. Fisher's version of the events, rendering Mr. Indianer's comments on that version irrelevant and unnecessary. See also the general comment about Indianer at the beginning of this section. The issue of free life insurance is covered in Finding of Fact 20. Rejected as unnecessary. Rejected as a recitation of testimony, not findings of fact. Covered in Findings of Fact 27, 29, 30 and 31. Many of the proposed findings are rejected as unnecessary. Covered in Findings of Fact 29, 30 and 31. The proposal that Jones told Rompre she could deposit $4,000 per year for five years is rejected and the contrary testimony of Ms. Jones, incorporated in Finding of Fact 31, has been accepted. Rejected because the testimony of Mr. Storms is not found persuasive. Rejected as a recitation of testimony, not findings of fact. Many of the proposals are unnecessary. Rejected as unnecessary. Generally rejected because Mr. Parmele's testimony is not found persuasive. Further, many of the proposals aggregated in the finding are unnecessary. That Jones told Rompre she could deposit $4,000 a year for five years has been rejected. Rulings on Proposed Findings of Fact Submitted by Respondent Covered in Finding of Fact 1. To the extent relevant, covered in Finding of Fact 2. To the extent necessary, covered in Finding of Fact 2. Rejected as unnecessary. Covered in Finding of Fact 8. To the extent necessary, covered in Finding of Fact 8. To the extent necessary, covered in Finding of Fact 25. The proposal that Jones had a written agent's agreement with the Brennan firm is rejected because no such document was offered in evidence. To the extent necessary, covered in Findings of Fact 9 and 12. Rejected as cumulative to Finding of Fact 9. Rejected as unnecessary but discussed in the introduction to the rulings on the Petitioner's proposed findings of fact as relates to the credibility of Indianer and Parmele. Rejected as unnecessary. Rejected as unnecessary but discussed in the introduction to the rulings on the Petitioner's proposed findings of fact. Rejected as unnecessary. Rejected as not constituting a finding of fact. Covered in Findings of Fact 8 and 14. Covered in Findings of Fact 15 and 16. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 21. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Rejected as unnecessary because Indianer's testimony has not been accepted. Rejected as unnecessary. Covered in Findings of Fact 14 and 25. Covered in Findings of Fact 26, 27 and 31. Covered in Finding of Fact 29. Covered in Finding of Fact 31. Covered in Finding of Fact 31. Rejected as cumulative to Findings of Fact 30 and 31. Rejected as unnecessary, and as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Covered in Finding of Fact 32. Rejected because the testimony of Mr. Parmele has not been accepted for the reasons. stated in the introduction to the rulings on the Petitioner's proposed findings of fact. See also Finding of Fact 33. Generally rejected as a recitation of testimony. Rejected as unnecessary because it is based on income of $7,200 which was not Mrs. Rompre's income at the time of her meeting with Betty Jones. Accepted in Finding of Fact 33. To the extent not cumulative, covered in Finding of Fact 31. Covered in Findings of Fact 35 and 38. Covered in Finding of Fact 43. Rejected as unnecessary. Covered in Finding of Fact 43. Covered in Findings of Fact 39, 44 and 46. Rejected as a recitation of testimony and because the problem was not only that the form did not contain the surrender charge, but that Brennan had not explained the surrender charge to the Nolans when the Great American Section 403(b) tax sheltered annuity was first purchased. Generally rejected as unnecessary. The surrender value is explained in the altered amendment to the employment contract. See Finding of Fact 39. To the extent necessary, covered in Finding of Fact 41. To the extent necessary, covered in Finding of Fact 44. Covered in Finding of Fact 44. Covered in Finding of Fact 46 and 47. Rejected for the reasons stated in Finding of Fact 46. Covered in Finding of Fact 46. To the extent necessary, covered in Finding of Fact 46. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 23. Rejected as unnecessary and because the testimony of Mr. Indianer has not been found persuasive. Rejected because the testimony of Mr. Parmele has not been accepted. Covered in Finding of Fact 23. Sentences 1 and 2, covered in Finding of Fact 14. The remainder, rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Covered in Findings of Fact 10 and 11. Generally covered in Finding of Fact 12. Covered in Findings of Fact 8 and 11. Rejected as unnecessary. COPIES FURNISHED: James F. Falco, Esquire Department of Insurance and Treasurer Room 413-B, Larson Building Tallahassee, Florida 32399-0300 Russell L. Forkey, Esquire Pamela M. Burdick, Esquire 400 Southeast 12th Street Fort Lauderdale, Florida 33316 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue The issues to be resolved in this proceeding concern whether the Respondent has violated various provisions of the Florida Insurance Code as alleged in an Amended Order to Show Cause and, if so, what penalty, if any, is warranted.
Findings Of Fact The Petitioner is an agency of the State of Florida charged with licensing and regulating viatical settlement providers in the State of Florida. The Respondent, Future First Financial Group, Inc., is licensed by the State of Florida as a viatical settlement provider. Its President and Chief Executive Officer is Mr. Randy Stelk. A viatical settlement contract involves the sale of a life insurance policy's benefits in exchange for an immediate discounted cash settlement to the original policy holder. A Florida resident "viator" (the insured) desiring to enter into a viatical settlement contract, acts through a Florida licensed broker, who provides the policy information to licensed viatical settlement providers like the Respondent, for subsequent re-sale of policy benefits to purchasers. Future First was initially licensed as a viatical settlement provider on December 26, 1997. The initial regulation of viatical settlement providers in the State of Florida by the Petitioner began at approximately the time Future First initially became licensed. Consolidated findings concerning Counts 1, 3, 4, 6, 7, 12, 15, 16, 20, 22, 28, 29, 34, 35, 36, 38, 39, 41, 43, 44, and 45: Future First was a licensee of and regulated by the Department of Insurance at all times pertinent hereto. The health status representations on the exhibits (referenced in the Department's Proposed Recommended Order) concerning each of these counts, which are the insurance policy applications in question in these counts, are materially inconsistent with the health status representations related to the later viatical settlement agreements contained in the other exhibits so referenced as to each of the above-enumerated counts. These latter exhibits constitute the showing of actual medical condition to the Respondent by the insureds or viators in each transaction referenced in these counts. The overall effect of this showing is to indicate to the Respondent that the viators in question in these counts were HIV positive or had the disease AIDS, along with related diseases and medical conditions, contrary to the representations initially made to the insurance companies issuing the subject policies, in the insurance policy applications referenced in these counts, wherein the viators represented that they suffered from none of the medical diseases or conditions referenced in those application forms, including AIDS. All the exhibits referenced in these counts came from the business files of Future First and were supplied to the Department by Future First upon the Department's request during the investigation process. These material inconsistencies should have caused Future First to be on notice or to know or believe that the viators in question in these counts had made or indeed may have made fraudulent or material misrepresentations on their insurance policy applications. Subsection 626.989(6), Florida Statutes, requires Department licensees to report to the Department any knowledge or belief that a fraudulent insurance practice, as defined in Section 817.234, Florida Statutes, had been or was being committed. Subsection 817.234(3), Florida Statutes, specifically prohibits the presentation of false, incomplete or misleading information in support of an insurance application or the concealing of any fact material to the application. Thus Subsection 817.234(3), supra, specifically prohibits the very act strongly suggested by the evidence presented in the exhibits supportive of the above-referenced counts of the Amended Order. Future First made no reports to the Department concerning these matters until it contends it first became aware of these inconsistencies in health status representations upon receipt of the Order to Show Cause and later the Amended Order to Show Cause. Consolidated Findings of Fact Concerning Counts 2, 5, 8, 9, 10, 11, 13, 14, 17, 18, 19, 23, 24, 27, 30, 31, 32, 33, 40, and 42: The facts established as to these counts are much the same as those referenced above. The health status representations on the insurance policy applications in question and in evidence (exhibit numbers cited in the Proposed Findings as to these counts in the Petitioner's Proposed Recommended Order) are materially inconsistent with the health status representation on the other exhibits which consist generally of the various documents of health or medical information provided to the Respondent by the viators in question, when the transactions leading to the viatical settlement agreements at issue were being entered into and finalized. The commonality among all of these counts as well as the counts in the above Findings of Fact (Part A above) consist of the viator's having been diagnosed with HIV or AIDS and/or related medical conditions sometime in the past prior to executing the insurance policy applications at issue and then responding in the negative on relevant questions on those policy applications, the overall effect of which was to deny the HIV positive test result, the HIV infection and the diagnosis of AIDS and related medical conditions. The viators at issue then openly revealed these conditions and the dates of the relevant diagnoses, all of which pre-dated the insurance policy applications, in the medical status representations they made to the Respondent and which were also revealed in the medical records provided to the Respondent at some point prior to the issuance of the Order to Show Cause and Amended Order. The health status representations made by the viators at these two different, germane points in time are materially inconsistent. Those material inconsistencies reasonably should have caused Future First and its operating officers to be on notice, to know or to believe that the viators made or may have made fraudulent or material misrepresentations on their insurance policy applications. Moreover, the evidence, as to these counts delineated in Part B above, shows that Future First was actually informed specifically that the policies in question had been rescinded by the insurers because the viators had made material misrepresentations on their policy applications. Exhibits such as the Future First policy summary forms show that Future First had been informed of the policy recisions as to the Counts referenced in Part B above. All of the documents constituting the Department's exhibits supportive of these findings, and the policy summary forms included, were found within the business files of Future First and were supplied to the Department by Future First upon its request during the investigative phase of this prosecution. Subsection 626.989(6), Florida Statutes, requires Department licensees to report to the Department any knowledge or belief that a fraudulent insurance practice as defined in Section 817.234, Florida Statutes, had been or was being committed. Subsection 817.234(3), Florida Statutes, specifically prohibits the presentation of false, incomplete or misleading information in support of an insurance application or the concealing of any fact material to the application. Thus, Subsection 817.234(3), supra, specifically prohibits the acts suggested by the documentary evidence presented by the Department, which supports the Findings of Fact herein. Future First made no report on these matters concerning the viators and policies to the Department, prior to the investigatory audit. Additional Findings of Fact Concerning Counts 2, 5, 41, 42, 43, and 44: Concerning Count 2, Exhibits 15 through 17 are viatical settlement purchase agreements entered into between Future First and various viatical settlement purchasers. These agreements represent to those purchasers that the policies, which are the subject of the agreements, are beyond the contestability period (typically two years) during which an insurer company may rescind its policy. The settlement purchase agreements specify that the "contestability period" runs for two years from the date of policy issuance. Exhibit 2 shows, however, that the policy in question was issued on January 22, 1998, and Exhibits 15 through 17, the agreements, were entered into in February, March and April of 1998, well before the January 22, 2000, conclusion of the contestability period. Future First thus had within its possession, in its files, the documents and information to show that the policies were not beyond contestability when the interests in those policies were sold to the investors or viatical settlement purchasers. The purchasers, by initialing the relevant portion of their purchase agreements had indicated and contracted for the purchase of non-contestable policies or policies which had survived the two-year contestable period before being purchased by these investors or viatical settlement purchasers. The vice-president in charge of underwriting, Mr. Sweeney, under the business practices of Future First, essentially made all the calculations and decisions involved in negotiating and effecting the settlement purchase agreements with the investors and the viatical settlement agreements with the original viators or insureds. As an experienced insurance executive and underwriter who had all of the relevant documents available to him, he is chargeable with knowledge that the policies he and Future First were conveying to the settlement purchasers were still within the contestability period, despite his being on documentary notice that the investors had contracted to purchase only non-contestable policies. The officers and directors of the Respondent allowed him to have this independence of action, freedom of conduct and bargaining power on behalf of Future First and therefore, Future First, the corporation, is chargeable with the conduct it allowed him to engage in, even assuming, arguendo, that no other officer, director or employee of the company knew of the relevant details of these transactions. Thus Future First misrepresented to its investors that the policies were beyond contestability when in fact they were not. It thus is chargeable with knowingly selling interests in contestable policies to investors, who had specifically contracted for the purchase for non-contestable policies. This misrepresentation was material to the purchases because the insurers' ability to rescind the policies during contestability, thereby destroying the very instrument securing the purchasers' investment, was not made known to those purchasers. The potential destruction of that instrument and the consequent loss of the investment to the purchaser is material to any reasoned decision to invest. CEO Randy Stelk's testimony at hearing to the effect that computer input error had caused contestable policies to be inadvertently sold to purchasers who contractually specified a non-contestable policy is rebutted by Future First's own documents from its records which correctly and explicitly identify the policy as contestable. See Exhibits 11a and 11f, at pages 1 and 4, and Exhibit 24, all of which correctly identify the policy as contestable. Exhibit 24 specifically notes the dates at which the policy was projected to emerge from its contestability period. Thus this documented evidence, together with the evidence of Mr. Sweeney's close and direct involvement with arranging for the transactions and making decisions as to which policies to sell to which investors belies Mr. Stelk's testimony in this regard. Concerning Count 5, Exhibits 50, 54, 55, 56 and 57, are viatical settlement purchase agreements which inter alia represented to the respective viatical settlement purchasers that the policy in question was beyond the contestability period during which an insurer may rescind the policy. The "contestability period" runs for two years from the date of policy issuance. However, Exhibit 39, shows that the policy in question was issued on February 3, 1998, and Exhibits 50, 54, 55, 56 and 57, were respectively entered into in February of 1998, well prior to the February 3, 2000, end of the contestability period. Here again, Future First's own records, which correctly and explicitly identify this policy as contestable also specifically note, at Exhibits 42d and 46, the date at which the policy was projected to emerge from the contestability period. The purchase agreements referenced above clearly show that the investors contemplated and contracted to purchase a non-contestable policy. These documents clearly were available to Mr. Sweeney and to Future First at the time Mr. Sweeney was making the underwriting decisions and entering into the agreements with the investors, and consequently this knowledge is chargeable to him and to Future First. Again Mr. Stelks' testimony that computer input error had caused inadvertent sale of contestable policies to purchasers who had contractually specified non-contestable policies is rebutted by Future First's own records, the evidence concerning Future First business practices and specifically Mr. Sweeney's underwriting methods and conduct. Thus, Mr. Stelk's testimony in this regard is not credited. Thus, it is inferred that Future First, through Mr. Sweeney, knowingly represented to investors that the policies were beyond contestability when they were not and such a representation was material to the purchase because the insurers' ability to rescind a policy during contestability and destroy the very instrument securing the investment was not made known to the purchaser. The potential destruction of that instrument and the consequent loss of investment is material to any reasoned decision to invest. Concerning Count 41, the fifth page of Exhibit 428, contains a paragraph entitled "Incontestability" which establishes that the life insurance policy in question was subject to a two-year contestability period, during which the insurer could rescind the policy. Exhibits 446, 447, 448, 449, 450 and 451, are all viatical settlement purchase agreements through which the viatical settlement investors purchased an interest in the death benefit of the life insurance policy in question. Each of those purchase agreements contains a standard section entitled "Minimum Criteria" which is initialed by the purchaser, thereby indicating the purchaser's decision to purchase an interest only in a policy which was beyond contestability. Future First nonetheless placed all of those investors' monies into the policy in question (See Exhibit 428) while it was still within the two-year contestability period without informing the purchasers of that fact. Future First had the policy in its possession and necessarily had to have a copy of it in possession in order to purchase the policy from the viator, which it did in July of 1998. It thus knew the policy was still within its contestability period when interest in it were sold to the purchasers in question. The same reasons found with regard to Counts 2 and 5 prevail here with regard to Mr. Sweeney's involvement. The documents were in Future First's possession and within its knowledge such that the circumstantial evidence clearly shows that Future First is chargeable with knowledge or belief that it sold contestable policies to investors who had no reason to believe they were purchasing contestable policies. Concerning Count 42, Exhibit 453 is dated March 24, 1998, and is a viatical settlement purchase agreement between Future First and the viatical settlement purchaser named therein. The agreement contains the same initialed provision found with regard to the agreements in Counts 2, 5 and 41, indicating the purchasers' decision to invest only in a policy which was beyond the two-year contestability period. The agreement bears the designation "PRA 58075" in the lower left hand corner of the first page (purchaser number). Exhibit 459 is a letter dated May 21, 1998, authorizing Charles R. Sussman, Trustee for the Fidelity Trust (identified in numerous exhibits, including 454 in this count, as the escrow agent used by Future First for viatical settlement contract transactions), to wire funds from that trust to Compass Bank for the purchase of an interest in the death benefits of the Farmers New World Life Insurance policy on the viator named therein, which purchase was accomplished through the execution of Exhibit 454 on June 6, 1998. Among the PRA numbers identified in Exhibit 459, is 58075, corresponding to Exhibit 453, the above-referenced purchase contract. Exhibit 455 is an internally prepared Future First document that clearly states that the life insurance policy in question was still well within its contestability period on May 21, 1998. The exhibits thus establish that Future First represented to the investor that the policy it would purchase with his funds was beyond contestability when, because of the unequivocal documents in its possession, Future First had to have known, through Mr. Sweeney, that it was not. Indeed all of those exhibits were found within the business files of Future First and Future First stipulated that included in those exhibits are its purchase request agreements that contain the contestability provision in question. Exhibits 462 and 463 establish that the Manhattan National Life Insurance policy referenced in those exhibits was issued on March 28, 1998. Exhibit 465, establishes that the Manhattan National Life Insurance policy was purchased by Future First on June 22, 1998. Exhibit 468, establishes that on July 1, 1998, purchaser 58075's funds were used to purchase an interest in that Manhattan National Life Insurance policy obviously well within the two-year contestability period since the policy was only issued on March 28, 1998. This was despite an express representation otherwise in the viatical settlement purchase agreement. Exhibits 471 and 472, show that the Manhattan National Life Insurance policy was rescinded during the contestability period in September 1998. Exhibit 473 establishes that Future First decided to switch the viatical settlement purchaser's funds out of the Manhattan National Life Insurance policy into a John Hancock Life Insurance Company policy. However, it did not inform the purchaser that the Manhattan National Life Insurance policy had been rescinded during its contestability period. Exhibits 485 and 486, establish that the Lincoln Benefit Life Insurance policy referenced therein was issued on January 23, 1998. Exhibit 487 establishes that the Lincoln Benefit Life Insurance policy was purchased by Future First in November of 1998, using the purchaser's funds referenced in Exhibits 488 and 489. Among those purchaser's funds were those of Purchaser 58075. Thus, Purchaser 58075's monies were used to purchase an interest in the death benefit of the Lincoln Benefit Life Insurance policy in question. Despite the "beyond contestability" representation made in the viatical settlement purchase agreement between Purchaser 58075 and Future First, Future First placed that purchaser's money into the Lincoln Benefit Life Insurance policy while it was still in its contestability period. Future First's own records refute Mr. Stelk's testimony that computer input error caused inadvertent sales of contestable policies to purchasers who had specified, contractually, their desire for non-contestable policies. The documents from Future First's own records in evidence, explicitly identify this policy as contestable and that the purchasers involved had desired non- contestable policies. In light of the foregoing reasons found as fact as to Counts 2, 5 and 41, which are adopted as to Count 42, Future First is chargeable with knowledge that it was selling contestable policies to purchasers who had specified contractually their wish and intent to purchase non-contestable policies. Count 43 involves the sale by Future First of interests in the death benefits of J.C. Penny Life Insurance Company Policy No. 25184/74L40L3762 in January of 1998, to three different viatical settlement purchasers. This is evidenced by Exhibits 498, 499 and 500, the respective settlement purchase agreements. Each of those purchase agreements includes a provision that required the purchase of an interest only in a policy which was beyond contestability. Exhibits 494, 496, 498, 499 and 500, together however, show that the interest in the policy sold to those purchasers were sold while the policy was still contestable, without informing the purchasers. All of these exhibits came from the business files or records of Future First and Future First stipulated that included in those exhibits are the purchase request agreements that contain the provisions restricting purchases to policies which were beyond the two-year contestability period. In light of the findings made as to Counts 2, 5, 41 and 42, next above, it is determined that Future First, the Respondent, is charged with knowledge that it, and specifically its vice-president in charge of underwriting, Mr. Sweeney, sold those policies which were still contestable to the relevant purchasers; that those purchasers had specified in their purchase agreements their intent to purchase only policies which were uncontestable and that it had not so informed those purchasers. Count 44, concerns a viatical settlement purchase agreement entered into by Future First on March 24, 1998, relating to the sale and purchase of an interest in the death benefit of an insurance policy. See Exhibit 510, in evidence. That agreement represented to the purchaser that the interest to be purchased was to be from a policy which was beyond the two- year contestability period. See Exhibits 508 and 510. However, the policy selected for investment for that purchaser by Future First was not beyond contestability. Exhibit 506, obtained from Future First's own files, clearly shows that the issuance date of the policy was May 6, 1998, and Exhibits 504, 508 and 510 considered together, indicate that the policy was sold to that purchaser while it was still contestable. Future First thus subjected the purchaser's investment to the undisclosed risk of rescission of the policy. The existence of such a risk would certainly be material to that investor's decision about whether to so invest. Thus by investing the purchaser's funds in a contestable policy instead of an uncontestable policy, without advising that investor of such a deviation from their contractual agreement, is, in effect, a material misrepresentation in that transaction. For the reasons found as to Counts 2, 5, 41, 42 and 43 above, Future First is chargeable with knowledge that the policy was contestable and that it had invested the purchaser's funds in a contestable policy when it was contractually bound to only invest that purchaser's funds in an uncontestable policy, as established by the terms of the viatical settlement purchase agreement. Future First's business practices. Future First conducts its business in various states through representatives resident in such states known as viatical settlement brokers. Viatical settlement brokers gather all relevant information, including available medical information and usually provide it to various viatical settlement providers in order to solicit multiple bids on a particular policy. Future First does not solicit viators itself. During the time period relevant to the allegation in the Amended Order, when Future First initially received a package from a broker, it was divided into its insurance and medical components. The insurance component was provided to Mr. William Sweeney, Future First's Vice-President of Underwriting. The medical component was provided to a nurse on the staff with Future First for initial medical review and then forwarded to Future First's independent medical consultant, Dr. Michael Duffy. During the time period relevant to the Amended Order, Future First offered a one, two or three-year viatical purchase program. That is, viators must have a certified life expectancy of one, two or three years in order to qualify with Future First. After Dr. Duffy reviewed a particular file and the viator was deemed qualified as to one of the three available programs, Dr. Duffy would certify and assign a life expectancy to the viator and return the file to Mr. Sweeney. Life expectancy estimates are inherently subject to many variables, are unpredictable and constitute a risk to the purchaser. Mr. Sweeney's responsibilities included verification that the insurance information provided with any particular file was correct and complete (including insurance policy applications), that the policy actually existed and was in force, that premiums were paid up to date, that the insurance company had the appropriate rating, as well as conducting other verifications. Before a policy was approved for purchase, it was Mr. Sweeney's ultimate responsibility, pursuant to Future First's existing corporate policy, to compare the date of initial diagnosis of a potential viator's medical condition to the insurance policy application to look for any inconsistencies. Mr. Sweeney next completed a "file summary cover sheet" referencing certain information and verifications and attached it to the file. Mr. Sweeney was essentially a "one-man operation" in exclusive control of Future First's underwriting department and was ultimately responsible for deciding whether or not Future First would offer to bid on a particular policy. Future First's business operations in effect at the time relevant to the Amended Order were so compartmentalized that other officers or employees at Future First might not know any details associated with Mr. Sweeney's activities. After Mr. Sweeney authorized Future First to bid on a particular policy, the file was transferred to the bidding department. The bidding department did not re-visit or otherwise question Mr. Sweeney's decision to bid on a particular policy, but only reviewed the cover sheet to establish a bid price. If documentation was missing from any file, it was Mr. Sweeney's responsibility to contact the broker to request the missing documents. All viatical settlement brokers with whom Future First did business in Florida were required to be licensed by the Petitioner. Future First currently no longer conducts business with the broker "Funds For Life" because that particular broker dealt solely in "contestable" policies and Future First no longer purchases such policies, at least since the Petitioner's audit. Future First no longer has a business relationship with the Texas-based broker "Southwest Viatical," in part because Southwest Viatical routinely failed to provide complete documentation to Future First, including the insurance applications of viators. Southwest Viatical was specifically requested to provide insurance policy applications regarding the relevant policies referred to in the Amended Order but refused to do so. Most of the Southwest Viatical files purchased by Future First did not include insurance applications at the time of purchase. The insurance applications were ultimately obtained by Future First, however, at some point prior to the 1999 audit by the Petitioner. Future First became concerned about the character of individuals associated with Southwest Viatical and when requested by Southwest Viatical to forward commission funds to an offshore account, Future First declined to do so and immediately ceased doing business with Southwest Viatical. Future First cooperated thoroughly with Texas authorities in their investigation of Southwest Viatical, ultimately culminating, as a direct result of Future First's assistance, with the apprehension and subsequent incarceration of two principals of Southwest Viatical. During the period of time alleged in the Amended Order Future First received, on the average, between 400 and 600 policies per month from brokers requesting a bid. Future First rejected and never bid on the majority of policies referred to it by Southwest Viatical. On the average, Future First ultimately purchased approximately 25 percent of the policies submitted to it for a bid. Mr. Sweeney was primarily responsible for communicating with brokers as to all aspects of a potential viatical settlement transaction and to request all required documentation, including insurance policy applications. During the course of Mr. Stelk's affiliation with Future First he personally became familiar with the handwriting of William F. Sweeney. It is Mr. Sweeney's initials which appear on the cover sheets entered into evidence by the Petitioner, exemplified by Petitioner's Exhibit 4a. All the remaining "cover sheet" exhibits of the Petitioner contain the initials "WFS" on the top right hand corner which are Mr. Sweeney's initials. Mr. Sweeney is not currently an officer, director or employee of Future First because he was removed from any position with the Respondent corporation by order of the Petitioner. No other officers, directors or employees of the Respondent have been subject to a similar removal order, nor has Future First itself. The criminal proceedings currently pending against the Respondent are the direct result of Mr. Sweeney's activities while employed by Future First. The Petitioner's lead investigator reviewing Future First's business activities recommended that individual charges only be brought against Mr. Sweeney and against no other individual employed by or affiliated with the Respondent. Future First has a business relationship with licensed life insurance agents and/or securities brokers throughout the United States to solicit funds from individuals for ultimate purchase of viatical settlements. Those licensed individuals present an approved Purchase Request Agreement (PRA) to a potential purchaser to discuss the various Future First programs available and to help the purchaser finalize a PRA. Depending on what state the purchaser resided in, the purchaser would then issue a check either to Future First directly or to the Fidelity Trust (Future First's escrow agent), to be held until such time as Future First could purchase from a viator a policy matching the program desired by that purchaser. Thereafter, a formal "closing" would occur when the purchaser was, where appropriate, made a beneficiary on one or more insurance policies; all verifications and notifications to the insurance company and other entities were completed; an attorney and the trustee, would approve all aspects of the transaction within their purview, and a copy of the closing package would be sent to the purchaser for his or her records. After the closing, Future First would engage Life Watch Services, Inc., an unaffiliated company, to monitor the health status of the viator on a monthly basis in order that all appropriate actions may be taken at the time of the viator's death, so that the policy benefits may be promptly paid to the purchaser. Future First initially engaged in the purchase of contestable policies only after being approached by groups of agents with potential purchasers willing to assume the risk associated with contestable policies. Understanding the risk associated with such policies, Future First reserved 20 percent of its potential profit from such transactions and placed those funds in trust in a "Guaranty Fund" in the event that an insurance company rescinded a policy within the contestable period. In the event an insurer rescinded a contestable policy, Future First purchased a new policy for its customer out of the Guaranty Fund, at no additional cost to the customer. No purchaser ever lost any "investment time" if a policy was rescinded by an insurance company because that purchaser would be provided a new policy involving a viator with the same ultimate remaining life expectancy. Thus, without any prompting by a governmental authority, Future First made the business decision to voluntarily exceed the protections of Florida law by establishing the Guaranty Fund in order to purchase replacement policies for its customers if the initial policy was rescinded by the insurer. The Guaranty Fund was also utilized to make the purchaser whole even when an insurance company cancelled or non- renewed an insurance policy on an entire group, or if a new insurance carrier for a particular group later reduced the benefit level assigned to the purchaser. The Guaranty Fund was also used for the benefit of purchasers if a viator as a member of an employer group, quit his or her job and the viator exercised a statutory right to have the group policy benefits converted to an individual policy. Because benefit levels on such individual policies are typically lower, the Guaranty Fund was used to purchase additional insurance benefits to assign to the purchaser. Additionally, if a policy lapsed for any reason, the Guaranty Fund was used to procure a new policy or policies in order that the purchaser would be fully protected according to the terms of the PRA. No policy purchased by Future First has ever lapsed for failure of Future First to pay the premium. Funds from the Guaranty Fund have been used to purchase new policies when a viator committed suicide and the insurance company later rescinded the policy, as well. The Guaranty Fund maintained by Future First existed to cover other contingencies beyond just the possible recession of insurance policies because of the misrepresentation of the viator discovered by the insurer within the contestable period. Future First, through use of the Guaranty Fund, has replaced approximately 17 million dollars in face value of insurance policies, equating to about 12.4 million dollars in direct cost to Future First and, as a result, no Future First purchaser has ever been harmed. The 12.4 million dollars used to purchase replacement policies would otherwise have been retained by Future First as profit. Today Future First does not purchase contestable policies in the regular course of its business. The only exception to that occurs when an insured group undergoes a carrier change and a new contestable period is automatically instituted by the new carrier. There is no prohibition in Florida either presently or during the times relevant to the Amended Order, against the purchase of contestable policies by a viatical settlement provider. The recission of the contestable policies at issue in fact immediately followed an inquiry from the Department of Insurance to the insurers, which alerted them that the Department suspected fraud in the inception of the policies. That is, it suspected fraud on the part of the viators or insureds on those policies, not Future First. Future First immediately utilized the Guaranty Fund and began replacing the policies. None of the rescinding insurers have accused Future First of any complicity in any alleged fraud with respect to the policies referenced in the Amended Order, nor has the Department of Insurance alleged any such fraud against Future First. All but one or two of the rescinded policies have been replaced and the purchasers made whole, pursuant to the terms of their original PRA. One of the two policies not fully replaced as of the date of the hearing was being contested by Future First as to the legality of the insurance company's rescission, and Future First will replace the policy, if needed, at such time as that legal issue is resolved. Of all the policies at issue in the Amended Order, including, as well, any replacement policy subsequently purchased by Future First with money from the Guaranty Fund, only one or two contestable periods had not expired as of the date of the hearing. Those contestable periods were to expire thirty to sixty days after the date of the final hearing in this matter. Future First regularly monitors and verifies the status of all policies assigned to its purchasers, including the status of all replacement policies. The direct costs to Future First to purchase replacement policies for the rescinded policies referenced in the amended order was approximately $1.5 million dollars paid out of the Guaranty Fund. Since its initial licensure in the State of Florida, Future First has cooperated with the Petitioner concerning pending legislation, rule development and other contacts with the Petitioner agency. It has cooperated fully with the Petitioner when the audit of Future First occurred in February of 1999, provided all requested information and documentation and made all personnel available to confer with examiners in a full and frank manner. In the course of the four-week on-site audit, Mr. Stelk personally met with the Petitioner's examiners once or twice a week to discuss the Petitioner's suggestions for improving compliance. The Petitioner issued a draft "Report of Examination" as a result of its audit on August 5, 1999. It contained suggestions, comments and recommendations which had been discussed during Future First's staff meetings with the examiners. Future First addressed many of the Petitioner's concerns raised in the Report of Examination (report) and implemented certain suggested changes in its business practices. Mr. Stelk directed that a formal response to the report be filed, addressing the specific points raised by the Petitioner and explaining any corrective action taken where applicable. Future First viewed certain of the findings and suggestions made at the earlier meetings and later contained in the draft report as potentially helpful to its business. It therefore implemented those suggestions even before receiving the draft of the report. Certain suggestions in the report of such as a request to formalize a refund policy, were not strictly required by a controlling statute. However, Future First nonetheless voluntarily implemented such a refund policy. Future First has cooperated with all governmental agencies interested in reviewing its files at all times during the course of its licensure as a viatical settlement provider and during the course of the relevant investigations. There has been no allegation or suggestion that it has in any way altered any documents, tampered with its files or that any information was purposely missing. The Respondent contends that the Petitioner had no knowledge as to when any particular documents were received into Future First's files, including insurance applications, medical diagnosis information or other documents and has conceded that some policy applications or medical documentations may not have been received until after the bid process and viatical transactions in some cases were actually closed. Thus, Future First would not have been able to compare documents to detect possible fraud as to those situations. Therefore, Future First could not have been guilty of fraud or misrepresentation to its purchasers as to such transactions and files if it had no documentation at the point of the transaction being closed to indicate to it that possible insurance fraud in the inducement, by a viator, had occurred. In point of fact the Petitioner is not accusing Future First of fraud. However, as of the time of the audit in February 1999, because of the discussions and information it received at meetings with Department agents and employees, and certainly as to formal notification on August 5, 1999 in the Department's report, the Respondent knew that many insurance applications in its files had medical diagnosis information or disclosures by viators which were at odds with the medical information it obtained in the viatical settlement and contracting process. It still failed to report that knowledge (and indeed circumstantial evidence clearly indicates that at least Mr. Sweeney had that knowledge even before the February 1999 audit, as to many of the files). Future First still did not report potential fraud on the part of viators to the Department that it obviously had knowledge of until it began to actually report it in a formal way, after the first Show Cause Order was served (January 2000). It is also clear that the Department knew about this inconsistent medical information and probable insurance fraud by the time of its February 1999 audit. In November of 2000, as part of its efforts to cooperate with the requirements of the Department and the relevant statutes and rules, Future First filed an Anti-Fraud Education and Training Plan (Plan) with the Department, Division of Insurance Fraud. Neither Future First nor any of its representatives received any notice from the Department that the Plan was in any way deficient or otherwise non-compliant with Florida law. It has implemented that Plan and adherence to it has had a positive effect on Future First's business. The Anti-Fraud Plan stresses that Future First will not bid on a policy for purposes of viatical settlement unless the viator's insurance application is present in the file at or before the time of the bid. Future First's corporate policy, even prior to the implementation of the Anti-Fraud Plan has been that the insurance application must be reviewed and compared with available medical documentation for any inconsistencies prior to bidding on a policy. It is also apparent, however, that Mr. Sweeney and those under his direction and control apparently did not do so in many cases. During the course of the investigation, the "free- form" stage of this proceeding and the formal stage of this proceeding, Future First has made numerous form and other filings with the Petitioner seeking approval in connection with a new PRA and various other purchaser disclosures required by recent amendments to Florida Statutes. After comments and questions from the Department, resulting in some revisions to such documents, the new PRA and disclosure documents were approved by the Department, approval of the last document being obtained in April 2001. The Respondent, by its involvement through Mr. Stelk with the Viatical Life Settlement Association of American and the National Association of Insurance Commissioners, has made a bonafide effort to gain knowledge of specific, appropriate business practices of other viatical settlement providers doing business in the United States as well as in Florida. Unlike certain other viatical settlement providers operating in Florida and elsewhere, Future First has never made premium payments on insurance policies out of the personal checking accounts of officers, directors or employees, has never instructed viators not to contact insurance companies and has never required viators to sign undated, change-of-ownership forms for filing with the insurer after the contestability period expired for any reason whatever, including as part of an effort to conceal from an insurance company the fact that an insurance policy was subject to viatical settlement. No such activity or effort to conceal has been alleged. (Compare, Accelerated Benefits Corporation documents in evidence pursuant to the Petitioner's Motion for Official Recognition). On March 19, 2000, February 8, 2001, and March 6, 2001, Future First filed with the Department identifying information and documents pursuant to the requirements of Subsection 626.989(6), Florida Statutes, to the effect that fraud may have been involved in the procurement of all of the rescinded insurance policies referenced in the Show Cause Order and the Amended Order. The three separate fraud notifications constitute the Respondent's Exhibits 7, 8 and 9 and correspond to the time period shortly after service of the initial Show Cause Order and the Amended Show Cause Order.
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 This issue in this case is whether the Petitioner is responsible for payment of certain state employee health insurance premiums.
Findings Of Fact In July, 1986, Ms. Phyllis McCluskey-Titus became employed at Florida State University ("FSU"). She and her husband, John, moved to Tallahassee from outside Florida, so that she could accept her employment. At the time Ms. McCluskey-Titus became employed, Mr. Titus had not yet accepted employment. She appropriately enrolled in the state health insurance plan. Mr. Titus was listed as, and had coverage as, a dependent on her family coverage. In August, 1986, Mr. Titus accepted employment at Tallahassee Memorial Regional Medical Center ("TMRMC"). Although TMRMC offered an employee health insurance benefit, Mr. Titus retained his coverage on his wife's plan, because the couple believed the state plan's benefits to be more beneficial. Enrollment in the state health insurance plan requires the payment of premiums. Such premiums are generally paid through joint contributions, by the employee (through payroll deduction) and by the state. However, where spouses are both state employees, and one spouse is listed as an eligible dependent on the other spouse's family coverage, the state makes the full health insurance premium contribution (the "spouse plan"). In August, 1988, Mr. Titus became employed by the Department of Health and Rehabilitative Services ("DHRS"). Both FSU (Ms. McCluskey-Titus's employer) and DHRS are state agencies. Therefore, upon Mr. Titus' employment at DHRS, the couple became eligible for the spouse plan. On August 24, 1988, Ms. McCluskey-Titus went to her personnel office and completed the necessary forms to qualify for the spouse plan. At the time of his employment, Mr. Titus received a package of materials from DHRS. Included in the materials was a five page document entitled "EMPLOYEE BENEFITS INFORMATION PACKAGE". The document outlines various insurance benefits and lists premiums related to coverages. On the first page of the information document, under the heading "PREMIUMS (full-time employees)" is the following statement: "If you and your spouse are both employed with State Agencies, please contact the Personnel office for information on the Spouse Program. If you are eligible, the State will pay up to 100% of your premium". Believing that his wife's completion of the appropriate form at the FSU personnel office was sufficient, Mr. Titus did not contact his personnel office for information. On the third page of the information document, is a form which was to be completed and returned to the DHRS personnel office. Contained on the form is the following statement: "If your spouse is employed with a State Agency in a Career Service position, please contact the Personnel office to request an application for the Spouse Program". Ms. McCluskey-Titus was not employed in a Career Service position. Mr. Titus believed that his wife's completion of the appropriate form at the FSU personnel office was sufficient. He did not obtain or submit an application for the program. Neither form provided to Mr. Titus stated that both spouses were required to submit separate documentation. There is no evidence that either Mr. or Ms. Titus were informed, by either employer or the Respondent, that the failure to complete separate documentation would preclude enrollment in the spouse program and could result in an assessment of unpaid premiums. After Ms. McCluskey-Titus submitted the form to the FSU personnel office, the state discontinued deducting her contribution to the health insurance premium from her check. The couple believed that, since no premium deduction was being withheld, the spouse plan enrollment had been completed. In February, 1989, Mr. Titus was informed that, because he had not completed the appropriate form at the DHRS office, the couple was ineligible for the spouse plan. The Respondent requires that both spouses complete separate documentation in order to enroll in the spouse plan. He completed the form and by March 1, 1989, their coverage in the spouse plan became effective. The Respondent is now attempting to assess Ms. McCluskey-Titus for the $83.46 monthly family coverage premiums which were not deducted from her pay during the five month period preceding Mr. Titus' completion of the appropriate form. The total amount claimed by Respondent is $417.30. The evidence indicates that, but for Mr. Titus' failure to complete and submit the form, the couple would have been entitled to participate in the spouse plan and no premium contribution would be owed.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that: The Department of Administration, Division of State Employees' Insurance, enter a Final Order dismissing the assessment against the Petitioner for additional insurance premiums in the total amount of $417.30. DONE and RECOMMENDED this 9th day of February, 1990, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of February, 1990. APPENDIX CASE NO. 89-4943 The following constitute rulings on proposed findings of facts submitted by the parties. Petitioner Accepted as modified. Accepted as modified, except for last sentence, rejected, argument, not appropriate finding of fact. Statement that prescription drug claims were covered is rejected, not supported by evidence. Rejected, irrelevant. Nature of communication between the respective personnel offices, rejected, not supported by evidence. Respondent Accepted. Rejected, not supported by evidence. 3-4. Accepted as modified. However, requirement that both spouses must submit forms, not supported by evidence. Accepted as to amount, rejected as to indicating that Petitioner was responsible for payment, not supported by evidence. Rejected. Paragraph 2E(2) of the Petition does not state that Mr. Titus failed to read the document, but states only that he took no action. Rejected, not supported by evidence. COPIES FURNISHED: Phyllis McCluskey-Titus 2353 Skyland Drive Tallahassee, Florida 32303 William A. Frieder, Esq. Department of Administration Room 438, Carlton Building Tallahassee, Florida 32399-1550 Aletta Shutes Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550 =================================================================
