Findings Of Fact At all times material hereto, Respondent, Pedro Luis Hereu, was licensed and eligible for licensure as a life and health and general lines insurance agent by Petitioner, Department of Insurance. Respondent also served as President and registered agent of P.H. Insurance, Inc. P.H. Insurance, Inc. was an incorporated life, health, and general lines insurance agency engaged in the business of selling life, health and general lines insurance products through Respondent and other agency personnel acting under the supervision and control of Respondent. Respondent was licensed to represent Union Bankers Insurance Company as a health insurance agent. Sometime prior to October 17, 1989, Respondent applied to become a resident agent for U.S. Security Insurance Company. On or around February 21, 1986, Respondent assisted Mr. Pablo Beade in the preparation of an application for health insurance for Mr. Beade and his family through Union Bankers Insurance Company. Mr. Beade is not fluent in English, and the application is written in English. Respondent, however, speaks Spanish which is Mr. Beade's native language, and with Mr. Beade's permission read the application in Spanish to Mr. Beade and completed the form in English in Mr. Beade's presence. The form consists primarily of "yes" and "no" questions. Mr. Beade answered "no" to all but one question regarding medical treatment in the previous five years. Mr. Beade told Respondent that during that time he had visited a Dr. Gualberto Navarro for a regular checkup only. Respondent noted the information on the form. In his testimony, Mr. Beade, however, stated that he informed Respondent that he had been treated for ulcers in addition to his regular checkup with Dr. Navarro. Respondent disagrees. Considering that Respondent was aware that the Union Bankers would verify Mr. Beade's health history prior to issuing the policy, that Respondent supplied the company with Dr. Navarro's telephone number and address and Respondent's demeanor at the hearing, Respondent's testimony is found to be credible. During his visit with Mr. Beade, Respondent explained to Mr. Beade that the application did not assure that his coverage would be approved by the company. Then, after completing the application, reviewing it with Mr. Beade, and witnessing the execution of it by the Beade's, Respondent collected $3,093.99 in premium dollars from Mr. Beade. Although it is Respondent's custom to collect funds in the form of a check payable to the insurer, Mr. Beade preferred to pay him in cash. Respondent accepted the cash and issued a receipt to Mr. Beade for it. Respondent returned to the P.H. Insurance and gave the cash and the application to his secretary for deposit and processing. According to Respondent, his secretary deposited the cash in the agency trust account and forwarded the application and a deposit to Union Bankers. Respondent's agent's contract with Union Bankers and the regular course of business, which Respondent admitted, obligate him to submit all money collected on behalf of Union Bankers to it immediately upon receipt. Union Banker's attempted to obtain more information from Dr. Navarro concerning Mr. Beade's health, and Respondent attempted to contact Dr. Navarro on behalf of Union Bankers. However, Union Bankers did not receive a response from Dr. Navarro and issued its policy, excluding Mr. Beade. Since coverage of Mr. Beade was excluded from the policy, the premium owed by Mr. Beade required adjustment. Respondent, however, had left Miami during the Summer of 1986 and did not return until October, 1986. It was not until then that he became aware of the company's refusal to insure Mr. Beade. On several occasions Respondent tried to telephone Mr. Beade to discuss the premium adjustment and return of a portion of the premium. His attempts were unsuccessful. On January 30, 1987, he wrote Mr. Beade, but the letter was returned. He physically went to the last known address which Respondent had for Mr. Beade, but no one was home. Respondent has not personally been contacted by Mr. Beade since Respondent's return to Miami. Mr. Beade did, however, file suit against Union Bankers and Respondent; however, the relevant evidence did not indicate the allegations or the judgment, if any, in the litigation. Meanwhile the funds remained in the non-interest bearing trust account. In May, 1989, Petitioner filed the instant complaint against Respondent, and on September 14, 1989, Respondent issued a check in the amount of $1,982.56 to Mr. Beade from the trust account. On October 17, 1989, Petitioner issued its letter demonstrating its intent to deny Respondent's application to become a registered agent for U.S. Security Insurance Company. The instant claim represents the first and only complaint filed with Petitioner against Respondent.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance enter a final order which dismisses the administrative complaint against Respondent, Pedro Luis Hereu, and approves the subject application. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 22 day of March 1990. JANE C. HAYMAN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22 day of March 1990. APPENDIX TO THE RECOMMENDED, ORDER IN CASE NO. 89-4931 The following rulings are made on the proposed findings of fact submitted by Petitioner: The proposed findings of fact in paragraph 1 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in material part by paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 4 are adopted in material part by paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 5 are adopted as subordinate to paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 6 are adopted in material part by paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 7 are adopted in material part in paragraphs 3. The proposed findings of fact in paragraph 8 are adopted in material part in paragraphs 3. The proposed findings of fact in paragraph 9 are adopted in material part by paragraphs 5 of the Recommended Order. The proposed findings of fact in paragraph 10 are adopted in material part by paragraph 9 of the Recommended Order. The proposed findings of fact in paragraph 11 are adopted in material part by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 12 are adopted in material part by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 13 are adopted in material part by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 14 are rejected as a conclusion of law. The proposed findings of fact in paragraph 15 are adopted in material part by paragraphs 8-10 of the Recommended Order. The following rulings are made on the proposed findings of fact submitted by Respondent: The proposed findings of fact in paragraph 1 are adopted in material part in paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in material part in paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in material part in paragraphs 3-5 of the Recommended Order. The proposed findings of fact in paragraph 4 are adopted in material part in paragraph 4 the Recommended Order. The proposed findings of fact in paragraph 5 are adopted in material part in paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph 6 are adopted in material part in paragraph 6. The proposed findings of fact in paragraph 7 are adopted in material part in paragraph 7 of the Recommended Order. The proposed findings of fact in paragraph 8 are adopted in material part in paragraph 7. The proposed findings of fact in paragraph 9 are rejected as irrelevant. The proposed findings of fact in paragraph 10 are adopted in material part in paragraph 8 of the Recommended Order. The proposed findings of fact in paragraph 11 are adopted in material part in paragraph 8 of the Recommended Order. The proposed findings of fact in paragraph 12 are adopted in material part in paragraph 8 of the Recommended Order. The proposed findings of fact in paragraph 12 are adopted in material part in paragraph 10 of the Recommended Order. COPIES FURNISHED: Christopher Anderson, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Thomas F. Woods, Esquire Alex D. Barker, Esquire GATLIN, WOODS, CARLSON & COWDERY 1709-D Mahan Drive Tallahassee, Florida 32308 Don Dowdell General Counsel The Capitol Plaza Level Tallahassee, Florida 32399-0300 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue Whether Respondent failed to secure the payment of workers’ compensation in violation of Sections 440.10(1), 440.38(1) and 440.107(2), Florida Statutes, by materially misrepresenting and concealing employee duties as to avoid proper classification for premium calculation, and if so, what is the appropriate penalty?
Findings Of Fact The Department is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers’ compensation for the benefit of their employees. Respondent is a commercial welding corporation based in Putnam County, Florida. It has been in business as an active Florida corporation since the early 1950s. Its principal office is located at 1301 Madison Street, Palatka, Florida 32177. Petitioner is an “employer” for purposes of Chapter 440, Florida Statutes. Respondent is in the business of welding, fabrication and erection of structural steel, fabrication and installation of metal handrails and fire escapes to existing buildings, and various other metal fabrication and welding operations. Respondent is engaged in the construction industry. At all material times, Respondent maintained a policy of workers’ compensation insurance for all of its employees. Respondent’s workers’ compensation insurance at issue in this case was obtained through the Florida Retail Federation Insurance Fund, and was in place since February 1, 2002. Pursuant to the Department's statutory authority, after receiving a referral based on a fatal accident at a site where Respondent was providing work, Investigator Daniel Pfaff of the Department's Division of Workers' Compensation, Bureau of Compliance, conducted an investigation into Respondent’s workers’ compensation coverage. The investigator reviewed payroll records as well as certificates of insurance. Respondent cooperated with the Department’s investigation, providing all requested documents and responding to the questions of Petitioner’s investigation. Investigator Pfaff determined that Respondent had not secured workers’ compensation coverage consistent with the job descriptions of its employees. At the final hearing it was shown that, indeed, the job classification code2/ listed on Respondent's workers' compensation policy for Respondent's non-clerical work used to determine premiums paid by Respondent was not appropriate for much of the work Respondent was performing. The job classification code on Respondent’s workers’ compensation policy for the non-clerical work performed by Respondent was 3822. Classification code 3822 encompasses manufacturing or assembling automobile, bus, truck, or trailer bodies made of die pressed steel. Classification code 3822 does not encompass fabrication of iron or steel outside of a welding shop, erection of iron or steel structures, fabrication and installation of metal handrails and fire escapes to existing buildings, or operation of machinery to lift materials used to erect buildings (collectively "off-site erection work"). Based upon contracts provided by Respondent to the Department, the Department determined that the proper classification codes for the off-site erection work performed by Respondent’s employees were 5040 and 5057. Classification code 5040 encompasses the erection of iron or steel frame structures, the assembly and fabrication of iron or steel frame structures at the erection site, welding operations incidental to steel erection work, and the installation of iron or steel balconies, fire escapes, and staircases to existing buildings. Classification code 5057 encompasses iron or steel erection not otherwise classified in the Scopes® Manual. After it was determined that Respondent did not have the proper workers’ compensation insurance, Investigator Pfaff issued a Stop Work Order and Order of Penalty Assessment against Respondent on behalf of the Department on February 12, 2010. The Stop-Work Order is on a form with supporting allegations that may be selected by checking the box next to the allegation. The boxes checked on the Stop-Work Order comprise the following allegation: “Failure to secure the payment of workers’ compensation in violation of sections 440.10(1), 440.38(1) and 440.107(2) Florida Statutes by: materially misrepresenting and concealing employee duties as to avoid proper classification for premium calculation.” The allegation selected in the Amended Order of Penalty Assessment refines the allegation of the Stop-Work Order by alleging “Failure to secure the payment of workers’ compensation within the meaning of section 440.107(2), F.S., by: materially misrepresenting or concealing employee duties so as to avoid proper classification for premium calculations.” The Second Amended Order of Penalty Assessment contains no separate allegation, but rather references the original Stop-Work Order and Order of Penalty Assessment and the Amended Order of Penalty Assessment. No other charging documents were provided by Petitioner in support of the proposed penalty. At the final hearing, Petitioner presented evidence demonstrating that the appropriate job classification code for the majority of Respondent’s work was 5040. It also provided evidence that $60,873.60 was the amount of penalty that would be due if a violation had occurred. The penalty amount was calculated by using payroll amounts provided by Respondent and the approved rates for the proper job classification codes to determine the amount of premium that should have been paid and then, after giving Respondent credit for previous premiums paid, multiplying the result by 1.5 in accordance with applicable rules. Petitioner, however, did not provide sufficient evidence that Respondent failed “to secure the payment of workers’ compensation in violation of sections 440.10(1), 440.38(1) and 440.107(2) Florida Statutes by materially misrepresenting and concealing employee duties as to avoid proper classification for premium calculation” as alleged in the Stop-Work Order. Rather than showing that Respondent misrepresented or concealed employee duties to avoid proper classification, the evidence indicated that Respondent believed that its company was compliant with Florida workers’ compensation coverage requirements. While the Scopes® Manual explains the various job classification codes, there was no evidence that the Scopes® Manual has ever been provided to Respondent or that Respondent was the one who selected the job classification codes that were on its workers’ compensation policy. The job classification description for classification code 3822 provided on premium summaries and statements from the insurance agent and carrier to Respondent were different at different times. One description was “auto, bus, truck body, MFG/steel” and another was “auto, bus, truck, trailer manufacturing, die press.” The self-audit reports abbreviate job classification 3822 as “Auto bus truck body mfg/steel.” These abbreviations do not give notice that Respondent’s job classification was wrong. In addition, the evidence showed that Respondent’s workers’ compensation insurance carrier conducted regular audits of Respondent's operations. Respondent cooperated with the audits. During the course of the audits, the insurance auditor would go to Respondent’s premises where the auditor was able to observe the types of machinery, equipment, and operations used by Respondent. Despite evidence on the premises indicating that Respondent was engaged in work beyond the scope of job classification code 3822 established at the final hearing, there is no evidence that the auditors, carriers, or agents ever questioned the workers’ compensation insurance job classification codes that were on Respondent’s policy, summaries, and audit forms that they transmitted to Respondent. Aside from cooperating with regular audits and allowing inspection of its premises, Respondent also provided additional information to its agent and carrier regarding its operations through Respondent’s requests for certificates of insurance for various off-site jobs. Investigator Pfaff has substantial experience in the insurance industry as an adjustor, special investigator and supervisor in property and casualty for over 30 years. As part of the investigation, investigator Pfaff obtained a number of Respondent’s certificates of insurance. The certificates of insurance were introduced as Petitioner’s Exhibit 21. Investigator Pfaff provided credible testimony that there was no real reason to send out a certificate of insurance unless a company was planning to perform work for another company. The certificates of insurance were issued by Respondent’s insurance agent at Respondent’s request for off- site erection work for a variety of different companies located in a variety of counties, and contain information showing that Respondent was performing work outside its premises. Respondent’s representative testified that Respondent informed its insurance agent of the location of the work each time a certificate of insurance was issued. The Department demonstrated that the off-site erection work being performed by Respondent was not consistent with the workers’ compensation classification code in place for Respondent. The certificates of insurance, however, were approved by the insurance agent or carrier, and neither expressed any concern that the workers’ compensation insurance coverage was insufficient in any respect. In addition, the carrier was made aware of the type of work performed by Respondent by prior claims. Respondent had previously reported two other workers’ compensation incidents which arose from work performed off of the premises. One previous off-site erection work incident involved an injury resulting from an employee falling from a crane, and the other involved an employee’s fall through a roof skylight. The insurance carrier was made aware that off-site erection and construction work was being performed by Respondent in each of these incidents. Even though it was established at the final hearing that job classification code 3822 utilized for Respondent’s workers’ compensations insurance for those incidents should not have covered the off-the-premises incidents, Respondent’s insurance carrier and insurance agent never suggested that Respondent’s workers’ compensation coverage was deficient or erroneous. In sum, Petitioner did not show that Respondent materially misrepresented or concealed employee duties in order to avoid proper classification for premium calculation of its workers’ compensation policy.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Stop-Work Order, Order of Penalty Assessment, Amended Order of Penalty Assessment, and Second Amended Order of Penalty Assessment issued against Respondent, and ordering the return of any penalty paid by Respondent under the Periodic Payment Agreement. DONE AND ENTERED this 24th day of November, 2010, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of November, 2010.
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.
The Issue The issue to be determined is whether Respondent, Gary L. McKinley (Respondent or McKinley), violated sections 626.611(5), (7), (8), (9), or (13); 626.621(2) or (6); 626.9521; 626.9541(1)(e)1.; or 627.4554, Florida Statutes (2007-2010), or Florida Administrative Code Rules 69B-215.210 or 69B-215.230 as alleged in the Administrative Complaint. If it is found that Respondent violated any or all of these provisions as alleged, then it must be determined what penalty should be imposed.
Findings Of Fact At all times relevant to these proceedings, Respondent was licensed as an insurance agent in the State of Florida. Respondent has served as the president, owner, managing member, and agent in charge of McKinley and Associates, LLC, 6622 Southpoint Drive South, Suite 350, Jacksonville, Florida 32216-6188. Respondent has been licensed as a life insurance agent, variable annuity and health agent, variable annuity agent, and a life and health agent, since April of 1988 and at all times relevant to this proceeding. McKinley was at one time registered with the Financial Industry Regulatory Authority (FINRA) as a broker representative with Intervest International Equities Corporation (Intervest) from May 2008 until November 2010, and was an associated person with other entities including The Leaders Group, Inc., from November 2006 through February 2008. Prior to the incidents giving rise to this case, Respondent was the subject of a complaint of misconduct related to the purchase of an annuity. As a result, and without admitting the allegations in that case, he agreed to a 30-day suspension of his FINRA credentials and a fine. Thereafter, he signed agreements with the Office of Financial Regulation (OFR) on March 8, 2007, September 24, 2007, and October 21, 2007, agreeing to strict supervision with respect to the sale of securities. During the period relevant to these proceedings, the brokers who filled the role as supervisor were Bill Beck and David Arnold. Neither gentleman supervised any of Respondent’s insurance responsibilities except with respect to the sale of variable annuities. Mr. McKinley has been appointed as an agent for various insurance companies, including John Hancock Life Insurance Company (Hancock), ING USA Annuity and Life Insurance Company (ING), Pacific Life Insurance Company (Pacific Life), Lincoln National Life Insurance Company (Lincoln), Reliastar Life Insurance Company (Reliastar), Government Personnel Mutual Life Insurance Company (GPM), Aviva Life and Annuity Company (Aviva), Nationwide Life and Annuity Insurance Company (Nationwide), West Coast Life Insurance Company (West Coast), Transamerica Life Insurance Company (Transamerica), and Metropolitan Life Insurance Company (Metlife). The Vaughn Family Merie Vaughn is a widow with two married sons and five grandchildren. She was born November 18, 1934, and is currently 81 years old. Mrs. Vaughn grew up in and lived in Jackson County, Florida, where she met and married her husband, Rufus Vaughn. She graduated from high school in Jackson County, took some post-secondary business courses, and worked in a variety of places while Mr. Vaughn attended college. Mr. Vaughn worked in the banking industry, and by his retirement had risen to the position of bank president of the Regions Bank in Marianna, Florida. During Mr. Vaughn’s banking career, Mrs. Vaughn sometimes worked as a teller at various banks that he managed. Mr. Vaughn retired in the ‘90s and died in 1997. Mr. Vaughn was a financially-savvy gentleman and believed in saving. During his lifetime, he and Mrs. Vaughn set up several trusts for the management of the funds they had accumulated during their life together. At the time of his death, there was a family trust and a marital trust, as well as an IRA. The trusts were administered by Regions Bank out of Birmingham, Alabama. At the time of Rufus Vaughn’s death in 1997, Ms. Vaughn’s assets were worth approximately $2 million. They were heavily invested in bank stocks. Mrs. Vaughn has two sons, David and Terry. David is approximately ten years older than Terry, is married to Yvette (Lori) Day, and they have four children: Avery, Carly, Chloe, and Dawson, who are 25, 22, 14, and 9 years old, respectively. David and his family live in the Jacksonville area. Terry Vaughn is married to Stephanie Vaughn, and they have one son, Connor, born February 1, 2008. The family lives in Tallahassee, Florida. Toward the end of 2008, Connor was diagnosed with mild autism. Terry has a congenital heart condition that may require valve replacement in the future. In approximately October 2001, Ms. Vaughn moved from Marianna to the Jacksonville area because it was easier for her to receive treatment at Mayo Clinic for an ongoing health problem. Her funds, however, remained with Regions Bank in Birmingham, which served as trustee for the trusts in effect at that time. By 2007, approximately 10 years after her husband’s death, Mrs. Vaughn’s assets had grown to between $7 million and $8 million. In addition to the trusts and an IRA, Mrs. Vaughn’s holdings included a lake-side home in Jackson County, 135 acres of undeveloped land, her home in the Jacksonville area, a car, and a boat. Mrs. Vaughn monitored her holdings on a computer software system purchased for her by one of her sons. At some time in 2007, Mrs. Vaughn became dissatisfied with the trustee at Regions Bank, because she wanted to buy a new car and he would not permit her to withdraw enough funds to do so. In addition, having the trusts handled in Birmingham while she was living in the Jacksonville area was cumbersome for her. She decided that moving the trusts to somewhere closer to her made sense. Around this time, Mrs. Vaughn’s son David introduced her to Respondent. David had met McKinley through his daughter Avery’s soccer team, for which McKinley was a coach. David had talked with McKinley about rolling over some IRAs after an employment change, and had purchased two annuities from him as a result. David met John Crawford, a well-respected, board- certified, estate planning attorney who worked with the law firm Marks Gray. The parties stipulated that Mr. Crawford is a well- respected expert in the field who works with one of Jacksonville’s pre-eminent and well established law firms. Mrs. Vaughn first met with both McKinley and John Crawford in approximately May of 2007. There were a series of meetings with Mrs. Vaughn beginning in May or June 2007, through the end of Mr. McKinley’s relationship with her in October 2010.3/ These meetings were, according to Mrs. Vaughn, generally 30 to 40 minutes long. Among the initial suggestions made to Mrs. Vaughn by Mr. McKinley, with the concurrence of investment planner Bill Beck and attorney John Crawford, was that Mrs. Vaughn diversify her investments. At the time of their initial meetings, Mrs. Vaughn was almost exclusively invested in banking stocks. Mrs. Vaughn followed this advice, which was timely, given the downturn in the stock market and damage to the banking industry that occurred the following year. With each meeting Mr. McKinley prepared an agenda for discussion purposes that he shared with Mrs. Vaughn or whoever attended the meeting. The handwritten notes on the agendas admitted into evidence have been disregarded, as no evidence was presented to demonstrate who made the notations and whether they were made in preparation of the meeting, during the meeting, or in an effort to summarize what was actually discussed. While Mrs. Vaughn did not remember some of the specific details reflected on the meeting agendas, she acknowledged that McKinley discussed in detail many of the specific items that were referenced in the agendas. Moreover, she acknowledged that there was ample opportunity to ask questions about any item mentioned on an agenda that was not initially covered. The focus of many of these meetings, especially the early ones, was creating an estate plan for Mrs. Vaughn that would meet her stated goals: to provide for herself during her lifetime; to provide for her children and grandchildren, and possibly future generations; and to reduce any estate taxes that might be due at her passing. Mr. Crawford’s role in these early meetings was as Mrs. Vaughn’s attorney. As is discussed in more detail below, Mr. McKinley, John Crawford, and Mrs. Vaughn agreed to an investment and estate planning strategy that involved the creation of several Irrevocable Life Insurance Trusts (ILITs), with John Crawford acting as trustee for them. Mr. McKinley assisted with the purchase of life insurance policies on the lives of Mrs. Vaughn, David Vaughn and Yvette Day, Terry and Stephanie Vaughn, and Avery, Carly, Chloe, and Dawson Vaughn. An educational trust fund was also created, as well as a special needs trust for the benefit of Connor Vaughn. Over the course of 2007 through 2010, a number of life insurance policies were purchased, and some of the policies originally purchased were either surrendered or allowed to lapse as other policies were purchased to replace them. At some point late in 2010, Mrs. Vaughn became dissatisfied with the amount of funds being used to purchase life insurance, and she terminated Mr. McKinley’s services. She voiced some of her concerns to David Arnold, who advised her to get an attorney.4/ She has since directed that several of the policies that were in place be terminated, and has filed a civil suit against Mr. McKinley. It is the propriety of the creation of the insurance trusts and the purchase of the life insurance policies contained in those trusts that gives rise to these disciplinary proceedings. Factors to Consider with the Purchase of Life Insurance Generally, the purchase of life insurance requires consideration of several factors, including but not limited to the purchaser’s financial goals, insurability, capacity, and the sustainability of the planned purchase. Life insurance can be used for a variety of purposes, including the traditional goal of providing for one’s family in the event of the one’s death. In addition, life insurance can be used to provide a source for the payment of estate taxes, to create capital and to create liquidity for one’s estate. For purposes of both estate planning and the purchase of insurance in general, it is imperative that all professionals in the process consider which of these uses are consistent with the client’s goals. Here, as stated above, Mrs. Vaughn’s goals were to provide for herself during her lifetime; to provide for her children and grandchildren, and perhaps future generations; and to reduce any estate taxes that might be due at her passing. In 2007, when Mrs. Vaughn began meeting with Gary McKinley and John Crawford, the exemption for estate taxes was $2 million, leaving approximately $5 million of her assets subject to a 45 percent tax rate, which would result in a tax bill estimated at anywhere from $1.8 to $2.25 million upon her death. There have been some dramatic changes in the tax law from 2007 to 2015: in 2011, Congress increased the estate tax exemption to $5 million, but the increase was originally only for two years, when it was scheduled to sunset. As of 2015, the exemption is $5,430,000, and indexed for inflation. However, at the time of most of the events in this case, the exemption remained at $2 million. Accordingly, during the time at issue in this proceeding, reduction of estate taxes for Mrs. Vaughn was an acceptable, realistic goal, in addition to the goals of providing for herself and her family. The insurability of the proposed insured must also be considered. There are many factors that can affect a person’s insurability, such as one’s age; health; habits, such as smoking or alcohol use; and lifestyle or potentially dangerous hobbies, such as skydiving, international travel, reckless driving, or other activities that increase the risk of death or injury. Questions about one’s health history and lifestyle are included on insurance applications, and usually a medical exam, including blood work, is required by underwriting. The questions regarding one’s health can be pretty extensive, and most insurance companies will not issue a policy without a physical given by a physician or a paramedic. There are some instances where an insurance company will insure a person with health problems or a riskier lifestyle, but the policy will be “rated,” meaning that the premium will be higher than the standard premium for the same coverage. With respect to some of the policies in this case, rating is reflected as, for example, 1.75 while others reflect the same rating as 175 percent. Both indicate that the premium would be 1.75 times the standard premium for the same coverage. In this case, two of the insureds had issues that caused a higher rating with respect to insurance premiums: Merie Vaughn was in her early 70s when she started meeting with McKinley and purchasing life insurance. She also had some health conditions, such as high cholesterol and blood sugar issues that caused some of her policies to be rated. Similarly, as noted above, Terry Vaughn has a congenital heart condition that resulted in higher-rated policies. Also to be considered is the insured’s capacity to buy the proposed insurance: in other words, how much insurance can the insured afford to purchase? According to Mike Saunders, while each carrier has different rules, most insurance companies will insure someone for 20 times the person’s income, or up to the person’s net worth. If a policy is a replacement policy, that can expand the person’s capacity. Insurance companies will not generally issue life insurance for more than they think is financially reasonable, unless there are special circumstances that are disclosed. Using Mr. Saunders’ numbers, Mrs. Vaughn’s capacity in terms of coverage would have been approximately $6-7 million. Mr. Saunders did not believe that Mrs. Vaughn was over-insured, and saw no indication that any carrier considering a policy application ever indicated that she was over-insured. Finally, an important consideration is whether the person seeking to purchase life insurance can realistically afford the premiums. Common sense dictates that one should only consider buying something that they can continue to afford to pay. There are allegations in the Administrative Complaint contending that McKinley’s purpose in purchasing so many life insurance policies was to waste Mrs. Vaughn’s estate and earn more commissions for himself. However, it does not appear, from the evidence presented, that it was the purchase of life insurance that caused the wasting of Mrs. Vaughn’s estate. Count I: Creation of the ILITs After numerous discussions over the course of several months with Mr. McKinley, John Crawford, and Tim McFarland, an estate planning attorney with John Hancock, Mrs. Vaughn agreed to the proposed strategy of creating a series of ILITs. An ILIT is an accepted estate planning strategy used to shield income from creditors and to reduce estate taxes upon a client’s passing. It is an irrevocable trust designed to hold life insurance policies, and is a common strategy used with the idea of removing the death benefit of an insurance policy from someone’s taxable estate. The ILIT must be set up so that the settlor has no incidents of ownership over the trust, or the proceeds will not be removed from the estate. ILITs are a commonly used and entirely appropriate vehicle in an estate plan in order to shift the client’s wealth from what the client owns to irrevocable trusts for the benefit of the settlor’s family. They are a management vehicle for wealth that protects that wealth from creditors, and allows assets to pass from the settlor to the trust, outside the estate, straight to the beneficiaries without being subject to estate tax. For a client with assets such as Mrs. Vaughn, the use of ILITs was an appropriate and beneficial estate planning tool. An essential element of an ILIT is the removal of the incidents of ownership from the settlor to the trustee. With respect to each of the ILITs discussed below, Merie Vaughn agreed to appoint John Crawford as the trustee. What this meant in practical terms, is that while Merie Vaughn funded each of the ILITs by paying the premiums for the life insurance policies purchased for the ILITs out of her assets (or those of the trusts for which she was the beneficiary), she relinquished ownership and control of the trust (and its contents) to John Crawford, as the trustee. Moreover, as trustee, John Crawford was considered the owner of the life insurance policies in each ILIT that was created, regardless of whose life was insured. As trustee, it was his responsibility to make the decisions regarding the purchase of insurance policies, and the payment of the premiums on those policies. Before the creation of the ILITs, McKinley showed Merie Vaughn multiple estate planning diagrams to illustrate the overall plan. He also made Mr. Crawford available for any questions she might have. When asked, Merie Vaughn acknowledged that she had multiple opportunities to ask questions, and that did not believe that McKinley was trying to hide anything from her. As a result of the estate planning strategy presented to Merie Vaughn, with which she agreed, the Rufus C. Vaughn Revocable Trust and the Merie M. Vaughn Revocable Trust from Birmingham, with Regions Bank as the trustee, were moved to Jacksonville, and John Crawford was appointed as the successor trustee. In addition, several ILITs were created between September 2007 and March 2010, also naming John Crawford as trustee. Mr. Crawford explained the various trust documents to Merie Vaughn during this process. The trusts created for Merie Vaughn’s estate plan are as follows: the Merie M. Vaughn Irrevocable Insurance Trust, executed September 25, 2007; the Merie Vaughn Retained Annuity Trust, executed October 23, 2007; the David C. Vaughn Irrevocable Insurance Trust, executed October 31, 2007; the Terry R. Vaughn Irrevocable Insurance Trust, executed October 20, 2007; the Stephanie Eller Vaughn Irrevocable Insurance Trust, executed May 21, 2009; the Yvette L. Day Irrevocable Insurance Trust, executed April 18, 2009; the Merie M. Vaughn Trust F/B/O Connor E. Vaughn, executed March 30, 2010; and the Vaughn Family Education Trust, executed March 30, 2010. With the exception of the Merie Vaughn Retained Annuity Trust, for which Merie Vaughn is the trustee, all of the other trusts, i.e., all of the ILITs, name John Crawford as trustee. With respect to each ILIT, the following provision, or one substantially similar to the following provision, is found at Article II, Section 2, of the trusts: I anticipate, but do not require, that the Trustees will purchase one or more policies of insurance on my life with any cash amount contributed to this trust, and I authorize the Trustees to so apply for insurance on my life (or on the life of anyone else other than a Trustee), in amounts and under terms that the Trustees, in their sole discretion, deem advisable and proper. All incidents of ownership in and to all insurance policies transferred to or purchased by the Trustees shall be vested in the Trustees, and the insured under any such policy shall not participate in any right or benefit respecting such policies or any other right under this trust, including a power of withdrawal hereunder, either individually, as guardian, custodian, trustee or in any other capacity.[5/] Likewise, all of the ILITs contained a provision at Article II, Section 1, providing, I, the undersigned Grantor, have this day absolutely and irrevocably transferred, assigned and delivered to the Trustees, and to their successors and assigns as Trustees hereunder (all being hereinafter referred to as the “Trustees”), in trust, certain policies of insurance as set forth in a receipt signed by the Trustees. Those policies, as well as any other cash or property that may be received by the Trustees from me or any other source, shall be administered by the Trustees under this agreement. Stephanie Vaughn and Yvette Day did not testify at hearing. Gary McKinley and John Crawford also did not testify. Both David and Terry Vaughn testified that they fully understood the terms of the trust agreements. Merie Vaughn testified that she did not understand the effect of the trust, but she acknowledged that she had ample opportunity to ask questions of both McKinley, and of John Crawford, the attorney she retained. She also acknowledged that she never told John Crawford that she did not understand the ILITs, and while McKinley offered to take as much time as she needed to review the estate plan, including the ILITs, with her, she did not take advantage of his offer. Count I of the Administrative Complaint, at paragraph 29, alleges that “[y]ou, Gary L. McKinley, completed a new account form on behalf of Mrs. Vaughn for the Leaders Group. On that form, you listed Mrs. Vaughn as being an experienced investor, her net worth as $8 million, her liquid net worth as $3 million and her annual income as $250,000. You knew or should have known that these representations were false.” While the investment application was shown to Mrs. Vaughn at hearing, she did not testify regarding the completion of the form, and did not identify who was responsible for the estimation of her net worth. There is simply no evidence as to who completed the form. Moreover, the estimation of her assets at $8 million, considering both her securities and her real property, is a reasonable estimate. The record does not include evidence as to what amount of her income is considered liquid.6/ However, Mrs. Vaughn testified that at the beginning of this process with Gary McKinley, she decided to take a monthly withdrawal of $12,500 to meet her expenses. She also received a minimum distribution on her IRA account, according to David Arnold, of approximately $80,000 a year. A monthly withdrawal of $12,500, plus her Social Security benefit of $1,204 monthly, and the minimum distribution provides annual income along the lines listed in the application. Ironically, there was similar information on a form David Arnold had Mrs. Vaughn complete. He testified that he did not ask her where the liquid assets were, he simply had Mrs. Vaughn complete the form. The more persuasive and compelling evidence presented did not establish that the trusts established as a part of Mrs. Vaughn’s estate plan, and the resultant sales of life insurance policies, were beyond Mrs. Vaughn’s estate planning needs. Likewise, the evidence did not demonstrate that the life insurance policies were not in her best interests or the best interests of her family members. The evidence also did not demonstrate that the insurance policies were sold for the sole purpose of obtaining fees and commissions. Contrary to the allegations in the Administrative Complaint, the evidence did not demonstrate that McKinley engaged in willful misrepresentations or deceptive acts and practices. In fact, Mrs. Vaughn testified that she did not believe that McKinley was trying to hide anything from her, and consistently offered to spend more time if necessary to explain anything she did not understand. The Administrative Complaint also alleges at paragraph 33 that McKinley wrote a total of 10 life insurance policies on Mrs. Vaughn with death benefits totaling $10,111,052 and premiums totaling $467,024.97. What the Administrative Complaint omits is that some of these policies replaced other policies, resulting in lower overall premium costs to Mrs. Vaughn at higher benefits. The annual cost of the premiums on the life of Mrs. Vaughn was significantly lower than that alleged in the Administrative Complaint. Mike Saunders, the only person represented as an expert in the practice of selling life insurance,7/ testified credibly that replacing policies with more “efficient” policies is an acceptable practice that benefits the client. Count II: ING Policies on the Life of Merie Vaughn Count II of the Administrative Complaint deals with the purchase of ING policy number 1624559 (ING 59). Mrs. Vaughn applied for this policy on August 17, 2007, and it was issued on or about November 7, 2007, with a death benefit of $375,323 and an annual premium of $20,000. The owner of the policy is the Merie Vaughn ILIT. This policy is one of the first policies purchased as part of the estate plan, and contains a signed acknowledgment that the premium is higher than usual, as the insured is rated at 1.75. There is a policy delivery receipt signed by John Crawford dated November 20, 2007, as well as an amendment changing the death benefit to $452,000. However, Respondent is correct that the policy contained in evidence appears to be incomplete: for example, the revised illustration delivered with the policy indicates that it is 16 pages long, but only six of those pages are included. While the Department alleges in the Administrative Complaint, and asserts in its PRO, that Gary McKinley earned a commission of $14,997.80 for the sale of ING 59, it points to no exhibit or testimony to support this proposed finding. Even assuming that this amount is correct, the credible, competent evidence at hearing established that the commissions received by McKinley were not improper. Competent, credible evidence at hearing established that the ING 59 policy was a good policy from a good company. Petitioner asserts that, had Mrs. Vaughn lived to her life expectancy of approximately 14 years, she would have paid $280,000 in premiums. Under those circumstances, the trust would have received a death benefit of $452,000, meaning that the trust would have received $152,000 more than it paid. An amendment to the policy application indicates that the original application was submitted on September 28, 2007, while the application itself reflects the August 17, 2007, date. In any event, Mrs. Vaughn met with McKinley on August 14, September 17, and September 25, 2007. Insurance applications are listed as agenda items for two of these meetings, and the ING application is specifically listed for the September 17, meeting. Mrs. Vaughn was and is a competent adult who had exhibited the capacity to track her investments and understand her assets. There is no competent, credible testimony to support the notion that Mr. McKinley used undue influence to convince her to purchase this policy. Count III: John Hancock Policies on the Life of Merie Vaughn Count III of the Administrative Complaint addresses the purchase of two John Hancock policies. Petitioner’s Exhibit 27 is the application for Hancock policy number 93541373 (Hancock 73), but the actual policy, including the receipt for the policy, is not included in the exhibits for this hearing.8/ The policy specifications at Petitioner’s Exhibit 28 indicate that Hancock 73 had a death benefit of $578,000, an annual premium of $20,000, and was owned by the Merie Vaughn ILIT. The application was also submitted August 17, 2007, and the policy issued November 16, 2007. There is no indication that the policy is rated higher than standard, non-smoking rates. It is difficult to tell if a complete copy of the second policy, John Hancock policy number 94331410 (Hancock 10), is in evidence. However, from the information presented, this policy had a death benefit of $828,518, required an annual premium of $30,000, and the policy was in force beginning in January 1, 2009. It also appears to be issued at the standard non-smoking rate. The policy receipt was signed by John Crawford on December 31, 2008, and the owner of the policy was the Rufus Vaughn Family Trust, with John Crawford as trustee. Both policies enjoyed very respectable rates of return and were considered to be good policies. The more persuasive and compelling evidence established that the policies were part of an acceptable and appropriate estate plan for Mrs. Vaughn. No evidence was presented to establish that the policies were purchased for the sole purpose of generating commissions for McKinley. The two policies lapsed in June and July 2010, respectively. Contrary to the allegations in the Administrative Complaint, however, absolutely no evidence was presented to support the allegation that “you, Gary McKinley, knew the importance of maintaining life insurance policies and not allowing them to lapse, but you allowed them to lapse because you desired to generate larger commissions on new replacement sales rather than settle for receiving smaller residual commissions on extent policies.” Under the express terms of the Merie Vaughn ILIT, the ultimate decision with respect to purchasing, paying for, or surrendering life insurance policies was to be made by the trustee, John Crawford, not by McKinley. Respondent did not have the authority to pay the premiums. Neither John Crawford nor Respondent testified in this proceeding, so little if anything is included in the record of this case regarding the decision-making related to allowing these policies to lapse. However, the record indicates that these two policies were meant to be replaced by Transamerica policies in 2010. The application for Transamerica 65140389 (Transamerica 89) specifically lists the John Hancock 73 policy, the ING 59 policy, and the Lincoln 09 and 28 policies as policies that may be replaced, while the application for Transamerica 65144360 (Transamerica 60) lists the John Hancock 10 policy as intended for replacement. While the John Hancock policies had a respectable rate of return, the rate for the Transamerica policies was better. The more compelling and persuasive testimony established that allowing a policy to lapse is the proper method for dealing with the policy when it is going to be replaced by a more efficient policy. No competent, persuasive evidence of any willful misrepresentations or deceptive acts or practices was presented. Count IV: GPM Policies on the Life of Merie Vaughn Count IV deals with the application process and issuance of three GPM policies, referred to as GPM 25, GPM 30, and GPM 39. On October 21, 2007, McKinley submitted an application for a GPM universal life insurance policy which would become GPM policy 758825 (GPM 25). The illustration for the policy indicates a death benefit of $500,000, with an annual premium of $20,000. The actual application lists under the plan for insurance a benefit of $330,123. The Administrative Complaint alleges that the application for GPM 25 was filled out by Gary McKinley, but no evidence was actually presented with respect to this allegation. The application is signed by both Mrs. Vaughn and Mr. McKinley. The application asks GPM to contact the agent with an offer, and lists the insured as Merie Vaughn, and the owner as a trust, with the trustee as payor.9/ The Administrative Complaint alleges that the application was incomplete in that none of the general information (pages 3 and 4) was completed, and that the application indicated that no other life insurance was in force on Mrs. Vaughn. With respect to the general information on pages 3 and 4 of the application, those pages are in fact blank in the initial submission. However, the Amendment of Application and Policy Delivery Receipt found at Petitioner’s Exhibit 45, page 258, states that “the answers on pages 3 and 4 were given by the proposed insured(s), age 15 and older, by telephone to GPM’s tele-underwriter, who typed in the answers.”10/ Further, contrary to the allegations in the Administrative Complaint, at page 238 of Petitioner’s Exhibit 43, the application amendment contains a listing of three insurance policies for Merie Vaughn. While the application listed the proposed owner as a trust, the policy was issued listing Merie Vaughn as both the owner and insured. All of this becomes irrelevant because, according to the records supplied to the Department by GPM, Mrs. Vaughn decided she did not want a universal life policy, but wanted a whole life policy. The documentation from GPM states: Policy No. 758825 was a universal life policy issued on the life of Merie Vaughn with an effective date of January 1, 2009, and a planned premium of $30,000 annually. Mrs. Vaughn did not accept this policy as issued, having decided she wanted whole life coverage instead. Our administrative system builds multiple screens for universal life policies that we are unable to change to accommodate a different plan of insurance. For administrative purposes only, we terminated the records for Policy No. 758825 as “not taken” and issued a new Policy No. 760030 for the whole life plan with an effective date of January 1, 2009. The $30,000 premium for Policy No. 788525 was reversed, along with all associated commissions, and re-applied as the initial premium of $29,999.97 for the whole life Policy No. 760030. As noted, GPM 30 was issued January 1, 2009, based on an application dated October 21, 2008, with a death benefit of $348,819 and a planned annual premium of $29,999.97. The policy was rated at 150 percent. Mrs. Vaughn did not remember a discussion related to whole life as opposed to universal life. However, whether such a discussion actually took place is also irrelevant. GPM 30 was owned by the Rufus Vaughn Family Trust, for which John Crawford was serving as trustee. The application for GPM 25 also listed the proposed owner of the policy as a trust, not as Merie Vaughn. Article XI, paragraph (k)(1) and (2) of the trust document specified: (k)(1) Unless the Grantor has been declared incapacitated (either legally or by the terms of this agreement), the Grantor may contribute or direct the Trustee to purchase insurance policies on the life of the Grantor and hold each such policy of insurance purchased by or contributed to the Trustee. . . . The Trustee shall be under no obligation to invest any cash value accumulated in any life insurance policy owned by the Trust regardless of investment yield on such value within the policy as compared to the net investment yield which could be obtained outside the policy. (2) The Trustee shall be under no obligation to pay the premiums which may become due and payable under the provisions of any policies of insurance that may be held in this trust, or to make certain that the premiums are paid by the Grantor or others, or to notify any persons of the non- payment of premiums. Upon notice at any time during the continuance of this trust that the premiums due upon any policy are in default, or that premiums to become due will not be paid, the Trustee, in its sole discretion, may apply any dividends or cash values attributable to the policy to the purchase of paid-up insurance or of extended insurance, or may borrow upon the policy for the payment of premiums, or may accept the cash values of the policy upon its forfeiture, with notice to the Grantor or beneficiaries of the trust or any other person . . . . Clearly, the decision-maker with regard to the purchase of and continued vitality of these policies was John Crawford, who did not testify in this proceeding. There was no evidence presented as to his thought process or any actions taken by him with respect to these policies. Further, the only person who testified at any length as to the standard process for submitting life insurance applications was Mike Saunders. Mr. Saunders described the process in detail, and stated that it is not at all uncommon to submit incomplete applications in order to get the process started. Applications are “scrubbed,” both by the insurance agent’s office and by the insurance company, and there are often amendments to the applications during the process. Mr. Saunders also testified that it was not uncommon to have a client just sign the signature page on an application (something done with several of the policies in this case), because there are going to be multiple “looks” at the application and multiple opportunities to amend as additional information is garnered. In fact, many of the amendment forms in evidence actually include a statement that information included in the amendment will be treated as if it was included on the original application. The failure to have the policy application completely filled out when first submitted is not clear and convincing evidence of a false statement. Mr. Saunders’ testimony, which is unrebutted, is accepted. There is no credible, persuasive evidence that demonstrates that the termination of GPM 25 and issuance of GPM 30 was as a result of McKinley’s “lack of reasonably adequate knowledge and technical competence.” Moreover, no evidence was presented to establish what standard represents “adequate knowledge and technical competence,” or how Respondent may have violated that standard. GPM 30 was terminated as of January 1, 2010, for non- payment of premium. As noted above, payment of premium was in the sole discretion of the Trustee. No testimony was presented as to why the premium was not paid, but it was not within McKinley’s authority to pay it. In any event, McKinley assisted in the process of having the policy reinstated. The application for reinstatement of GPM 30 contained information on all of the outstanding policies on the life of Mrs. Vaughn, which was, at this time, at or near the highest point in terms of both death benefit and premium costs. Clearly, the insurance company made the decision to reinstate the policy with full knowledge of the amount of life insurance held on her life at that time. As found above, life insurance “capacity” is a measure used by insurance companies to determine the maximum amount of insurance a company is willing to write on an individual. If Merie Vaughn was over-insured at this point, it is unlikely that the insurance company would have reinstated the policy. Indeed, at no point during the purchase of any of the policies does it appear that any insurance company refused to issue a policy based on lack of capacity. Paragraphs 61 through 65 of the Administrative Complaint reference events that occurred after McKinley’s services were terminated by Mrs. Vaughn. While the exact date of this termination is not in the record, testimony by Mrs. Vaughn and Mr. Arnold place it at late September or early October 2010. Moreover, these paragraphs allege actions by John Crawford as trustee, not actions by McKinley. Paragraph 64 of the Administrative Complaint alleges that John Crawford requested Michael Halloran to replace McKinley “due to your multiple failures to assist in the maintenance of GPM 30.” No evidence was presented regarding John Crawford’s rationale for requesting Mr. Halloran to be reflected as agent of record, although it can be inferred that he was honoring Mrs. Vaughn’s wishes to no longer do business with McKinley. The Department did not present evidence of multiple failures by McKinley regarding the maintenance of GPM 30. The Administrative Complaint also takes issue with the application, issuance, and monitoring of GPM Policy 751339 (GPM 39). The application was originally submitted for GPM 39 in June of 2007, very early in Mrs. Vaughn’s relationship with McKinley.12/ A letter from McKinley dated June 21, 2007, referencing the policy number, states: Please find the enclosed application for Merie Vaughn. As we discussed, trusts will be executed over the next 2-6 weeks and ownership, beneficiaries and FEIN tax ID’s will be re-faxed upon completion. We may place some or all of this premium and death benefit with a standard offer from GPM. Likewise, the Agent’s Report found with the application indicated that McKinley planned to submit the case to other companies, and named John Hancock or best offer. As found above, the fact that the application is not complete is not clear and convincing evidence of a false statement. Moreover, when all of the documents are read together, it is clear that this application was a work in progress. There is no evidence to support the allegation that the policy was “sold” as a million dollar policy but only issued for $221,440. The reference to one million dollars is a reference to the insurance plan. At the point the application was completed, that was the target amount, and McKinley’s letter clearly states that they would place “some or all” of the death benefit with the company, depending on the offer. GPM 39 was issued October 16, 2007, listing Merie Vaughn as the owner, with a death benefit of $221,440 and an annual premium of $19,999.18. The policy was rated at 150 percent. While the portion of the policy included in Exhibit 39 indicates that the policy has 29 pages, only six pages are included in the exhibit. There is an amendment and policy receipt signed by John Crawford as trustee and by McKinley as agent on October 23, 2007, with a second amendment and policy receipt signed by Merie Vaughn as owner on October 29, 2007. The policy receipt showed the beneficiary of the policy to be the trust. However, without the entire policy with all amendments being included in the exhibits, no finding can be made that any type of material error occurred with respect to this policy. Finally, paragraph 58 of the Administrative Complaint alleges that in November 2009, Gary McKinley directed that GPM change GPM 30, GPM 39, and GPM 84, which will be discussed in more detail below, to paid-up policies with no further premiums to be paid. While this is so, the Administrative Complaint does not allege, and the evidence did not demonstrate, why this action was not in Mrs. Vaughn’s best interests. Further, the Administrative Complaint did not allege and the evidence did not demonstrate whether McKinley made these instructions independently, in consultation with others, or solely at the behest of John Crawford or Mrs. Vaughn. The more persuasive and compelling evidence established that the policies were part of an acceptable and appropriate estate plan for Mrs. Vaughn. No evidence was presented to establish that the policies were purchased for the sole purpose of generating commissions for McKinley. Count V: Lincoln Policies on the Life of Merie Vaughn Count V of the Administrative Complaint addresses the purchase of three policies from Lincoln: Lincoln Policy JJ7061061 (Lincoln 61); Lincoln Policy JJ7085909 (Lincoln 09); and Lincoln Policy JJ7085928 (Lincoln 28). The exhibits related to these three policies are Petitioner’s Exhibits 59 through 69. They are, however, incomplete and somewhat confusing. Petitioner’s Exhibit 59 is a copy of the application for Lincoln 28. However, it appears to be a reiteration of Petitioner’s Exhibit 60, with the word MODIFIED stamped on several of its pages. The application is dated April 26, 2009, but the fax legend for this modified document is dated April 28, 2009. With respect to question 50, no policy is listed, but the box to answer “no” is not checked. The exhibit also includes a Lincoln “appropriateness verification form,” used when the policy applied for is going to be used as a replacement policy. It appears that the document is incomplete, however: the fax legend indicates that there were 36 pages faxed, but the exhibit only includes pages 7-16, with one page bearing no legend. Petitioner’s Exhibit 60 also purports to be an application submitted April 26, 2009. The application also appears to be incomplete. For example, the fax legend at the top of the page reflects that there were 17 pages faxed. The exhibit only contains pages 2, 7-10, 13, 14, and 15. Similarly, the numbering on the application pages are 1 of 5, 2 of 5, 3 of 5, 3A of 5, 3D of 5, 4 of 5, and 5 of 5. For question 10 of the health summary, the application says “see attached,” but no attachment is included in the exhibit. Petitioner’s Exhibit 61 is part, but not all, of Lincoln Policy 28, issued July 28, 2009. The policy is owned by the Rufus Vaughn Family Trust, has a death benefit of $1,250,028, with a premium of $13,000, and is rated at 1.75 for the first 20 years. The exhibit includes a July 15, 2009, amendment to the application, but references an application date of May 7, 2009, as opposed to April 26, 2009, referenced above. The amendment supplies the identifying features of six policies in force for Mrs. Vaughn at that time. Petitioner’s Exhibit 62 is a mixture of documents related to Lincoln Policies 61 and 28. The first part of the exhibit appears to be an application for insurance for Lincoln 61, signed November 21, 2008. Like the application at Petitioner’s Exhibit 60, there are references in the application that say, “see attached,” with no attachments included. Following the application there is what appears to be part of the policy issued for Lincoln 61, listing the schedule of benefits with a death benefit at $912,388, an issue date of January 28, 2009, an annual premium of $30,000, and the use of standard rates. The portion of the policy included begins with page 3, and includes pages 4A-F only. Petitioner’s Exhibit 62 then reverts to documents related to Lincoln 28. It includes a schedule of benefits for that policy, indicating it was issued on July 28, 2009; includes an amendment to the application that references the application as being dated May 7, 2009 (as opposed to April 26, 2009); repeats some of the documents contained in Petitioner’s Exhibit 61; and includes a policy endorsement page and policy receipt for Lincoln 28, reflecting a premium of $60,000 as opposed to $13,000. Petitioner’s Exhibit 64 appears to be a modified application for Lincoln 61, dated January 13, 2009, whereas the original application was dated November 21, 2008. It also refers to attachments that are not included. There is a letter dated January 21, 2008 (although the fax legend reflects January 23, 2009), notifying Lincoln that from the time of application, two additional policies were placed in the Rufus Vaughn Family Trust. There are two copies of an endorsement page for Lincoln 61, identifying the date of coverage as January 28, 2009, and two copies of an amendment to the application, providing additional information for questions 19, 20, and 21. Petitioner’s Exhibit 66 is an application for Lincoln 09, marked as modified, and also dated April 26, 2009. It appears to duplicate the application at Petitioner’s Exhibit 59. Similarly, Petitioner’s Exhibit 67 is also an application dated April 26, 2009, which appears to duplicate Petitioner’s Exhibit 60. At page 430 of Petitioner’s Exhibit 67 is an endorsement for Lincoln 09 that actually references the April 26, 2009 application, as opposed to the May 7, 2009 application referenced (but not supplied) in Petitioner’s Exhibit 62. There is also a Policy receipt for Lincoln 09 dated and signed July 15, 2009, and an unsigned amendment for the policy. Finally, Petitioner’s Exhibit 69 contains a Schedule of Benefits for Lincoln 09, but not the policy in its entirety. The Schedule of Benefits reflects an issue date of July 29, 2009, for a policy with a death benefit of $832,853, with a premium of $40,000. The policy is rated at 1.75 for the first 20 years, then reverts to standard rates. The Schedule of Benefits is the only part of the policy included, and reflects pages 3, and 4A through 4F only. This mishmash of partial applications and partial policies undermines any confidence that the documents represent the whole of what took place with respect to the application and issuance process for these three policies. All that can be said is that Lincoln 61 was issued on January 28, 2009, with a death benefit of $912,388 and an annual premium of $30,000, with a standard rating. The owner of the policy was the Rufus Vaughn Family Trust. On July 28, 2009, Lincoln 09 and Lincoln 28 were issued. Lincoln 09 was owned by the Merie Vaughn Revocable Trust, had a death benefit of $832,853.00, an annual premium of $40,000, and a 1.75 rating. Lincoln 28 was owned by the Rufus Vaughn Family Trust, had a death benefit of $1,250,028, a $60,000 annual premium, and 1.75 rating. Any initial omissions with respect to the applications appear to have been resolved through amendments to the application, consistent with the process described by Michael Saunders. After issuance of Lincoln 61 and before the issuance of Lincoln 09 and Lincoln 28, Mrs. Vaughn signed a letter to McKinley dated April 1, 2009, confirming the strategy of replacing some of her life insurance policies with policies that had more efficient terms. The letter states in part: Gary: Please take all necessary steps to lower my premiums for the life insurance where I am the insured to consider getting the same insurance for a lower premium or leveraging and lowering my premiums to increase Death Benefits. Please check the financials of each company and do your best to confirm the company is indeed solvent and one of the top companies. I understand John Hancock and Lincoln will be the initial and possibly the carriers of choice. The reason I’m doing this is I have noticed and as you have pointed out, my most recent policy with Lincoln for 30k of premium bought me almost $100,000.00 more of death benefit and with the economical environment, it would be helpful if we can lower premiums by some 30k or 50k total this year and going forward, I would like the opportunity to do this. Even with the over 5 Mil saved, I must be prudent in times like this. I realize the initial calculations are that I might save approximately 30k to 50k annually and still be able to increase my Death Benefit by 500k to 1 mil dollars. This is certainly worth us considering consolidation and savings and I appreciate your monitoring my insurance portfolio regularly looking for these types of arbitrage. As of April 29, 2013, Lincoln 61 remained an active policy. Both Lincoln 09 and Lincoln 28 lapsed on January 3, 2011, several months after Mrs. Vaughn terminated McKinley’s services. The Administrative Complaint charges that McKinley failed to provide information in the applications on all in- force life insurance policies on Mrs. Vaughn’s life, specifically listing ING 59, Hancock 73, GPM 30, and GPM 39. As noted above, the applications were updated through the amendment process, which unrefuted evidence indicates is an accepted practice in the insurance industry. While the documents are incomplete, it appears that all necessary information was supplied. While the Administrative Complaint states that “Lincoln later added amendments to L 61, L 09 and L 28 to add the insurance coverage information that you, Gary McKinley, should have included when the applications were originally submitted to Lincoln,” there was no testimony at hearing to demonstrate who supplied the information for the amendments (McKinley or the insurance company), and with documents as incomplete as these, to make any conclusions regarding the source of the information would be speculative. The responsibility for the lapsing of two of the policies cannot be laid at the feet of McKinley: not only was he not responsible for paying the premiums with respect to these policies, but he was no longer working with Mrs. Vaughn at the time the policies lapsed. Moreover, no persuasive, competent evidence was presented to demonstrate that the purchase of these policies was inappropriate and without demonstrable benefit to Mrs. Vaughn. Rather, the more persuasive evidence indicates that the purchase of these policies was part of an integrated strategy to reduce premiums, increase death benefit, and continue the overall goals of reducing Mrs. Vaughn’s taxable estate while still preserving her wealth. Likewise, no evidence was presented from which it could be found that the policies were sold for the “sole purpose of obtaining a fee, commission, money or other benefit for [McKinley] and for John Crawford,” or for the premise that McKinley’s intention was to generate larger commissions on new replacement sales rather than settle for receiving smaller commissions on existing residual policies. Count VI: Transamerica Policies on the Life of Merie Vaughn Count VI of the Administrative Complaint deals with Transamerica 89 and Transamerica 60. Mrs. Vaughn signed an application for the Transamerica 89 policy on May 26, 2010. The policy issued on August 6, 2010, with a death benefit of $3,882,000 and an annual premium of $130,000. The owner of the policy was the Merie Vaughn ILIT, and the policy was issued at the standard rate. The policy application for Transamerica 89 indicated that four policies would be replaced by Transamerica 89: Hancock 73, with a death benefit of $578,006 and annual premium of $20,000; ING 59, with a death benefit of $452,000 and annual premium of $20,000; Lincoln 09, with a death benefit of $832,853 and annual premium of $40,000; and Lincoln 28, with a death benefit of $1,250,028 and annual premium of $60,000. In other words, the purchase of Transamerica 89 to replace these four other policies meant an increase in death benefit (from $3,112,887 to $3,882,000), with a reduction in annual premium (from $140,000 to $130,000). Transamerica 60 was issued August 13, 2010, with the owner as the Rufus Vaughn Family Trust. The death benefit was $805,000 with a $27,000 annual premium, calculated at the standard rate. It replaced Hancock 10, which had a death benefit of $828,518, and an annual premium of $30,000. McKinley received commissions on the sale of both policies. Mike Saunders described the Transamerica policies as very efficient. According to the rate of return analysis prepared by John Linnehan, whose testimony is accepted as credible and persuasive, the internal rate of return for these policies was excellent, ranging from 17.1 percent should Mrs. Vaughn live to life expectancy, to a return of 207 percent should she die at the third anniversary of the policy.11/ The same rates applied for both policies. These rates of return far exceed what would be expected as an acceptable rate of return on life insurance policies, and was higher than the rate of return for the policies that they replaced. The more persuasive and compelling evidence demonstrated that the purchase of these policies was intended to and did provide a benefit to Mrs. Vaughn and was appropriate, given her financial circumstances and estate planning goals. Paragraphs 81 and 83 of the Administrative Complaint allege details regarding the cancellation of these policies, at a time when McKinley was no longer working with Mrs. Vaughn. Moreover, John Crawford, as trustee, is the person with the discretion and authority to make decisions with respect to the maintenance or surrender of any and all of the life insurance policies held by the various trusts. No evidence was presented to indicate that McKinley participated in any way with respect to the decisions to surrender or cancel these policies. Likewise, no evidence was presented from which it could be found that the policies were sold for the “sole purpose of obtaining a fee, commission, money or other benefit for [McKinley] and for John Crawford,” or for the premise that McKinley’s intention was to generate larger commissions on new replacement sales rather than settle for receiving smaller commissions on existing policies. Count VII: Hancock Long-Term Care Policy In Count VII, the Department takes issue with McKinley’s sale of a Hancock long-term care policy. Merie Vaughn applied for the policy on November 20, 2009, and John Hancock policy 7222784 (Hancock LTC 84) was issued December 29, 2009. Hancock LTC 84 was a policy with a five-year benefit period, and a policy limit of $396,000. The long-term care benefit was for $6,600 per month, and had an annual premium of $12,262.50. Other features of the policy are described in Petitioner’s Exhibit 91, but are not necessary for purposes of this discussion. The Department charges, “[y]ou, Gary McKinley, being both a licensed insurance agent and a securities broker, knew or should have known that the sale of the Hancock long term care policy, in addition to all of the life insurance policies you sold her, was beyond Mrs. Vaughn’s needs, was not in Mrs. Vaughn’s best interests, was neither necessary nor appropriate for a person her age and financial circumstances, was without demonstrable benefit to her, served to waste her estate and was done for the sole purpose of obtaining a fee, commission, money or other benefit for yourself and for John Crawford.” The only factual evidence in the record regarding the purchase of this policy is from Merie Vaughn. She testified that she wanted this policy, and told Gary McKinley that if he could find some long-term care coverage, she would be interested in it. Long-term care coverage was something she wanted. There is no credible, persuasive evidence to demonstrate that McKinley sold this policy just to get a commission. There is no evidence as to what advice McKinley gave Mrs. Vaughn about this type of policy: whether he advised that she obtain it or whether she insisted on buying against his advice. There is no evidence to prove the allegations in the Administrative Complaint. Count VIII: The ING Annuities Count VIII of the Administrative Complaint deals with the purchase of three ING annuities: one purchased with funds from Merie Vaughn’s IRA, one purchased by the Rufus Vaughn Family Trust, and one purchased by the Rufus Vaughn Marital Trust. On September 30, 2007, Mrs. Vaughn’s IRA account was worth approximately $795,972.43. On October 29, 2007, she applied for ING annuity 90275251 (ING Annuity 51), and on December 4, 2007, a one-time premium of $712,037.78 was paid from the assets in Merie Vaughn’s IRA to fund ING Annuity 51. ING Annuity 51 was issued on December 10, 2007, with a five- percent bonus on premium. A bonus is defined in the policy as “an amount equal to a percentage of the Single Premium, as stated on the Contract Data Page, that we add to the Contract’s Accumulation Value on the Contract Date. The Bonus is elected to the Strategies in the same ratio as you elect the Single Premium.” On August 4, 2008, John Crawford, as Trustee of the Rufus Vaughn Family Trust, applied for ING Annuity 90295107 (ING Annuity 07). On August 18, 2008, $500,000 was paid from the assets of the Rufus Vaughn Family Trust for the single premium of $500,000, and on August 19, 2008, ING Annuity 07 was issued with a five-percent bonus on the single premium. On August 4, 2008, John Crawford also applied for ING Annuity 90295108 (ING Annuity 08) as trustee for the Rufus Vaughn Marital Trust.13/ This annuity also had a single premium of $500,000, which was paid from trust proceeds on August 18, 2008. The ING Annuity 08 also issued on August 19, 2008, with a five-percent bonus on the single premium. While the Administrative Complaint alleges that “upon the advice and at the direction of you, Gary McKinley, . . . Ameritrade Clearing issued a check in the amount of $500,000.00 made payable to ING as the single premium” with respect to both annuities purchased by John Crawford as trustee, no evidence was presented to identify who arranged for payment of the annuities. Likewise, the Administrative Complaint alleges with respect to ING Annuities 07 and 08 that “you, Gary McKinley, with the cooperation of lawyer/trustee Crawford, gave your directions or consent . . . to having the [trust] disgorge $500,000.00 for funding the ING annuity,” there is no competent, credible evidence regarding the decision-making with respect to the purchase of these two annuities. Annuities are designed to provide a lifetime income from an initial investment of funds, or can be used to guarantee a certain identified rate of return over a fixed period. There are limitations on how much can be withdrawn from an annuity without incurring surrender fees. In the case of ING Annuity 51, Merie Vaughn withdrew $40,209.19 on December 22, 2008, and $69,675.89 on December 11, 2009. Both amounts were less than the 10 percent allowed annually without incurring surrender fees. From the dates of purchase until March 2012, each of the three annuities earned investment profits of approximately $75,000, for a total profit for the three annuities at $226,206.41. While the annuities have each made a significant profit, as of March 2012, they were not worth as much as they were when they were purchased, because of the amount withdrawn. However, no evidence was presented to identify who made the decision for distributions from the annuities or who decided how much those distributions would be. Moreover, the evidence suggests that with respect to ING Annuity 51, the IRA from which the funds were taken for its purchase was an IRA heavily invested in bank stocks. As noted previously, no one has questioned the advice to diversify those holdings and the testimony was uniform that diversification prior to the recession in 2008 was a positive development for the preservation of Mrs. Vaughn’s assets. There is no evidence as to what the return would have been had the IRA assets been left undisturbed. The returns offered by ING Annuity 51, as well as the other two annuities, were generally higher than that afforded by the market in general, and protected the assets from creditors. The Department did not prove what income would have been generated by the Rufus Vaughn Marital Trust and the Rufus Vaughn Family Trust had the annuities not been purchased for them and the trusts had remained with the mix of assets they each contained prior to the annuity purchases. The Administrative Complaint did not identify and the evidence did not reveal what, if any, willful representations or deceptive acts or practices McKinley committed with respect to the purchase of any of the ING annuities. McKinley earned commissions on the purchase of all three annuities. There was no testimony that the amount of commission was unusual for the products sold. Count IX: Policies on the Life of Terry Vaughn Count IX deals with those policies sold on the life of Terry Vaughn. Three of the policies were held in the Terry Vaughn ILIT, while the fourth was held in the Merie M. Vaughn Trust F/B/O Connor E. Vaughn. The four policies are Hancock 46300489 (Hancock 89), Aviva IL01198680 (Aviva 80), Lincoln 180003841 (Lincoln 41), and Lincoln 180004324 (Lincoln 24). Hancock 89 was taken out on Terry Vaughn’s life and held in the Terry R. Vaughn ILIT. While there was confusion as to when Terry Vaughn signed the application, in all probability he signed it on or about February 25, 2008, and the policy issued on March 6, 2008. The death benefit was $1,694,226, and the policy called for annual premiums of $25,000 for 10 years. The policy appears to be rated at 200 percent. Petitioner’s Exhibit 118, the policy specifications, references supplement dates of October 2, 2007; November 13, 2007; and January 28, 2008, but those supplements are not included in the record. On June 25, 2008, John Crawford, as trustee, applied for additional life insurance on Terry Vaughn’s life through Aviva, which became the basis for the Aviva 80 policy. The application was amended in August 2008, yet the policy reflects that it was issued July 23, 2008, with a death benefit of $1,588,310 and an annual premium of $25,000. The rating is not clearly indicated in the exhibits provided. The application indicates that the Aviva policy would be replacing a West Coast Life policy with a death benefit of $1,298,238. However, Terry Vaughn was unaware of the existence of that policy, which is listed as “personal,” and no other evidence regarding a West Coast Life policy is contained in the record. On October 26, 2009, John Crawford, as trustee of the Terry R. Vaughn ILIT, applied for a policy with Lincoln that became the Lincoln 41 policy. The application was also signed by Terry Vaughn as the insured and by McKinley. The application includes the question, “Please list amounts of all inforce life insurance on your life, including any policies that have been sold. (Please list in the box below.).” The application lists the Aviva policy, but indicates that it was issued in September of 2008 with a death benefit of $1.6 million. The Lincoln application also indicates with respect to the Aviva policy that there will be a replacement or change of policy. At the time of this application, the Hancock 89 policy was still in force, but there is no listing of that policy on the application. The Lincoln 41 policy was issued December 2, 2009, and then its issue date was changed to December 17, 2009. An endorsement to the policy states that Lincoln received all information necessary to issue the policy, but does not specify what information was received, other than the premium of $35,000, and no amendments or medical reports are included in the exhibit. There is also no signed policy receipt. The death benefit for the Lincoln 41 policy is $2,219,885. The policy was rated at two times the standard rate for the first 27 years. If there was certainty that the documents contained in the exhibits with respect to Lincoln 41 were in fact the complete documents submitted with respect to this policy, the undersigned would have no hesitation in finding that by failing to list the Hancock 89 policy as a policy on Terry Vaughn’s life, Respondent had misrepresented the amount of insurance outstanding at that time. However, there is no certainty regarding the completeness of the exhibits. As noted previously, the certification of records from Lincoln is a stand-alone exhibit, not attached to any particular document. (Petitioner’s Exhibit 89). Moreover, that document does not really certify much of anything. The form includes the following language: Pursuant to sections 90.803(6), and/or 90.902(11), Florida Statutes, I hereby certify the following: that as part of my regular duties I maintain custody and control of the records of the Company; that the attached documents consisting of pages, reflects entries of information that were made at or near the time of the occurrence of the matters set forth by, or from information transmitted by a person having knowledge of those matters; that it is the regular practice of the Company to make, keep and maintain the attached data and/or records during the course of regular conducted business; that the attached documents were made as a regular practice in the course of the regularly conducted activity; and that the attached documents are a true and correct copy of the original record contained in the Company’s business records. The space to indicate the number of pages supplied with the certification is left blank. There is no assurance that all of the documents received from this, or any insurance company, are included in the exhibits provided. No one at hearing testified that the records provided were complete, and Terry Vaughn testified that he signed a lot of documents, but often did not see the entire application. Given the unrefuted testimony that initial applications are often incomplete and errors and omissions are cleared up through amendments, without some assurance that the information in Petitioner’s Exhibit 122 and 123 comprise the entire application and insurance policy issued as a result, which they clearly do not, there is not clear and convincing evidence that McKinley made misrepresentations with respect to Lincoln 41. On April 1, 2010, John Crawford, as trustee, applied for additional insurance on the life of Terry Vaughn for the Merie M. Vaughn Trust F/B/O Connor E. Vaughn. The amount of the insurance for which he applied was $3 million, with an annual premium of $35,000. Both Terry Vaughn and McKinley also signed the application, which became the basis for Lincoln 24. The application for Lincoln 24 lists the Lincoln 41 policy as being in force on Terry Vaughn’s life. It does not list the Aviva 80 policy, but that omission is consistent with the stated intention in the Lincoln 41 policy application to replace the Aviva policy with the Lincoln 41 policy. The application does not list the Hancock 89 policy, which remained in force at that time, and there is some indication in the record that ultimately the Aviva 80 policy remained in force. Petitioner’s Exhibit 125, which represents those portions of the application in evidence, includes an appropriateness verification statement, which is included when the applied-for insurance is meant to replace some other insurance. The Lincoln 24 policy was issued April 7, 2010. The death benefit was $3 million, the amount for which the trust applied, with an annual premium of $35,000. The premium was rated at 2.5 for the first 27 years. Petitioner’s Exhibits 126 and 127 are parts of the Lincoln 24 policy. Petitioner’s Exhibit 126 includes the schedule of benefits and premiums at pages 3 and 4A-4F. Petitioner’s Exhibit 127 provides what appears to be most of the rest of the policy, but only includes page 17 of 17 of the illustration and, while it includes something called an indexed signature page, it does not include a policy receipt. In short, this policy, like Lincoln 41, does not appear to be complete. Like Lincoln 41, given the unrefuted testimony that initial applications are often incomplete and errors and omissions are cleared up through amendments, and given the incomplete nature of the documents related to Lincoln 41, the evidence is not clear and convincing that Respondent misrepresented information in the application by omitting reference to Hancock 89 and Aviva 80. There was some testimony regarding the appropriateness of establishing the trust fund for the benefit of Connor Vaughn. Merie Vaughn testified that she was very concerned with Connor’s future, and much of her time after his diagnosis in late 2008 was spent working with Connor. A special needs trust permits funds to be used for a disabled individual without jeopardizing the individual’s ability to receive governmental assistance. Even Petitioner’s expert noted that a special needs trust would be an option that he would have wanted Mrs. Vaughn to consider with respect to Connor. The Department has not demonstrated that establishing the special needs trust was not in Mrs. Vaughn’s or her family’s best interest. Clearly, Terry Vaughn did not believe that $3 million dollars was necessary to fund any of Connor’s future needs. He had received assistance through a program at Florida State University at little to no cost to the family. However, he was unaware of what research his mother may have done with respect to programs for autism, and acknowledged that there are many costly programs available for autism should someone want to avail themselves of such a program. The Administrative Complaint alleges that on June 7, 2011, John Crawford, as trustee, directed the cancellation of Hancock 89 and requested the return of any cash value. The policy was canceled and on June 21, 2011, Hancock remitted a check for $35,114.29. The cancellation of this policy was several months after McKinley was no longer providing services to the Vaughn family at Mrs. Vaughn’s behest. Likewise, the Administrative Complaint alleges that Lincoln 41 and Lincoln 24 lapsed and were canceled on January 20, 2011, and September 8, 2011, respectively. Both events occurred several months after Mrs. Vaughn had terminated McKinley’s services. Moreover, as stated previously, it is the trustee, and not McKinley, that is responsible for the payment of insurance policies held by the various trusts. The record in this proceeding contains no evidence regarding what Mr. Crawford considered in making the decisions to retain or cancel various policies owned by the trusts. The Administrative Complaint also charges that McKinley “willfully avoided underwriting protections designed to prevent the wasting of Vaughn family assets.” There is no persuasive evidence to support this allegation. Mr. Saunders testified that there is a master insurance bureau that has a database which includes negative information on insurance applicants. If one company has negative information about an applicant, a second company with which the applicant files an application would have access to that information. Here, Terry Vaughn’s policies were rated because of his health condition. There was no testimony from any insurance company that they issued a policy without sufficient information or based on false information provided by McKinley. Count X: Policies on the Life of David Vaughn Count X of the Administrative Complaint addresses two insurance policies purchased for the David C. Vaughn ILIT: GPM Policy 000753784 (GPM 84), and ING Policy 7218635 (ING 35). On November 2, 2007, an application for insurance was submitted to GPM. The proposed insured was David Vaughn, and the application indicates that a trust was to be established that would be both owner and beneficiary of the policy. The application is signed by Merie Vaughn as trustee, David Vaughn as the insured, and McKinley as the agent.14/ GPM 84 was issued December 1, 2007, as a whole life policy with a death benefit of $1,601,233 and an annual premium of $37,192, calculated at standard rates. While Petitioner’s Exhibit 137 indicates that the policy issued on December 1, 2007, the policy illustration included was prepared February 6, 2008. No policy receipt or amendments are included in the exhibit. On March 25, 2010, John Crawford, as trustee, wrote GPM requesting that the policy be changed to paid-up status. No evidence was presented to explain what Mr. Crawford considered in making the request to change the policy to paid-up status. While the change meant that no more premiums would be paid, it also meant that the death benefit was reduced, effective June 2, 2010, to $22,612. Sometime in late December 2007, McKinley submitted an application for ING 35. While the application has the date December 25, 2007, it is unclear which signature the date purports to signify, and David Vaughn did not execute the document on that day. The insured for this policy application is David Vaughn. The owner and beneficiary is the David C. Vaughn ILIT. A Verification of Coverage document as of December 12, 2010, indicates that ING 35 issued April 10, 2008, with a death benefit of $731,000 and an annual premium of $12,807. The rating is listed as “Super Preferred non smoker.” The documents in Petitioner’s Exhibit 145 include an undated and unsigned policy receipt and a premium notice dated April 11, 2011. On June 7, 2011, John Crawford, as trustee, requested the cancellation of ING 35, with any surrender value to be forwarded to him. No evidence was presented to explain what Mr. Crawford considered in making the request to cancel the policy. His request is copied to Merie Vaughn. As a result of his request, ING forwarded a check to John Crawford for $3,893.57, representing the surrender value of ING 35. While the Administrative Complaint alleges that McKinley violated the public trust by the sale of these two life insurance policies, there is no allegation describing what about the sale of these two policies actually violated that trust. There is no allegation that David Vaughn was over-insured or that the policies were not in his best interest. Count XI: Vaughn Family Education Trust Policies Count XI of the Administrative Complaint deals with policies purchased for the Vaughn Family Education Trust (Education Trust). The Administrative Complaint asserts that there were seven policies originally issued, but applications for and partial copies of only three policies are included in Petitioner’s exhibits. Merie Vaughn testified that the Education Trust was something she agreed to, although she told Gary McKinley to fund it from something other than her IRA. The life insurance purchased was consistent with the plan she agreed to with John Crawford. She also acknowledged at hearing that providing life insurance benefits to her grandchildren is valuable to them. Likewise, Mike Saunders testified that purchasing life insurance on children is “absolutely appropriate,” and is done to plan for the future. His testimony is accepted. Buying life insurance at this age is a good idea because insurability can change quickly, and having a policy in place before any change in insurability occurs is wise. It also allows for the buildup of cash value over time, and the ability to borrow against the policy. Included in Petitioner’s exhibits is an application for life insurance with Metlife on the life of Avery Elizabeth Vaughn, David Vaughn’s oldest daughter. She was 19 years old at the time of the application. The application is for a whole life policy and the amount of insurance listed on the application is $580,650. Avery Vaughn signed the application as the insured, John Crawford signed as trustee for the Education Trust, and McKinley signed as the insurance agent of record. The application was signed on April 22, 2010. While this application is included with a policy numbered 210238538A1 (Metlife 38), it does not appear to be the application that led to the issuance of Metlife 38. For instance, while the application is signed April 22, 2010, Metlife 38 was issued February 7, 2010, two months before the application was submitted. Moreover, while the application referenced $580,650 in death benefits, the issued policy was for $990,000, with a total premium of $8,118.50. No policy receipt or amendments are included. Metlife 38 was surrendered on or about October 14, 2011, after McKinley was no longer acting as Mrs. Vaughn’s insurance agent, and $79.39 was paid to the trust. Similarly, on April 20, 2010, John Crawford, as trustee, applied for life insurance on the life of Chloe Lorraine Vaughn, David Vaughn’s second daughter, who was nine years old at the time. The application was signed by McKinley, John Crawford, and, inexplicably, Terry Vaughn. The amount of requested coverage identified in the application was $946,611. Metlife Policy 210275718A (Metlife 18) was issued September 1, 2010, listing Chloe Vaughn as the insured and the Education Trust as the owner. Metlife 18 had a $9,000 annual premium and a death benefit of $2,528,249. No amendments or policy receipt are included in Petitioner’s exhibits, as well as no explanation of how the death benefit changed so dramatically. The policy was surrendered in June 2011, after McKinley was no longer acting as Mrs. Vaughn’s insurance agent. There is also a Metlife application submitted by John Crawford, as trustee for the Education Trust on the life of Dawson Caldwell Vaughn, David Caldwell’s then-4-year-old son. The application is also signed by Terry Vaughn as opposed to David Vaughn, and is signed by John Crawford as trustee and by McKinley. The application is for a whole life policy with a death benefit of $1,136,250, and a proposed premium of $5,999.83. The policy in Petitioner’s exhibits on the life of Dawson Vaughn is Metlife 210275676A (Metlife 76), a policy issued September 1, 2010, with a death benefit of $2,594,204 and an annual premium of $9,000. The portion of the policy in the record contains no amendments and no policy receipt, and thus no explanation as to how or why the death benefit and premium were changed. No testimony was presented to explain the difference. The policy was surrendered in June 2011, after McKinley was dismissed as Mrs. Vaughn’s insurance agent. Contrary to the allegations in the Administrative Complaint, competent, persuasive evidence was presented to show that purchasing life insurance on children is an accepted practice. While the amounts of the life insurance policies seem extravagant, the only person testifying who regularly sells life insurance did not believe that McKinley encouraged the purchase of too much life insurance. Further, while the Administrative Complaint alleges “by willful misrepresentations and deceptive acts and practices,” Respondent caused the wasting of Vaughn family assets, the Administrative Complaint does not identify just what “willful misrepresentation” or “deceptive act and practices” Respondent committed with respect to the purchase of these policies. Count XII: Policies on the Life of Stephanie Eller Vaughn As noted above, Stephanie Eller Vaughn is married to Terry Vaughn, and they live in Tallahassee, Florida. Terry and Stephanie married on March 31, 2007, and Stephanie gave birth to their son, Connor, on February 1, 2008. At some point in 2008, Terry and Stephanie met with a financial planner who had suggested it would be prudent for Stephanie to have life insurance. Contrary to the allegations in the Administrative Complaint, no evidence was presented to demonstrate that McKinley “convinced” Merie Vaughn and Stephanie Vaughn to buy the Sun Life policy discussed below. Purchasing life insurance was already something contemplated by Terry and Stephanie Vaughn, before meeting with McKinley. Terry and Stephanie met with McKinley to begin discussions regarding a life insurance policy for Stephanie in May of 2008. Stephanie Vaughn applied for a Sun Life policy on January 6, 2009. She is listed as both the insured and the owner of the policy, and Terry Vaughn is listed as the beneficiary. The application proposes a $1.5 million death benefit, with a proposed monthly premium of $712.50. Stephanie Vaughn paid $1,425.00 for two months of premium with the insurance application. Sun Life Policy 003016889 (Sun Life 89) was issued on April 3, 2009, for a $1 million death benefit and a monthly premium of $487.34. The premium appears to be computed using standard rates for a non-smoker. The record includes a revised illustration signed by Stephanie Vaughn on March 10, 2009, and a signed, undated request for alteration of application changing the death benefit to the amount ultimately issued, as well as including a charitable benefits rider, also included in the policy issued. The policy receipt for Sun Life 89 is signed by Stephanie Vaughn on April 9, 2009. Terry Vaughn testified that while he and his wife made the initial premium payment, premiums were taken over by his mother, and Terry and Stephanie were reimbursed for the premiums they originally paid on the policy. In May of 2009, McKinley’s office requested that the premiums be changed from monthly to yearly, and forms were sent to accomplish that. On June 5, 2009, John Crawford made a payment of $4,423.06 from his trust account for the remainder of the annual premium, and in September 2009, a request for the appropriate paperwork was submitted to change the ownership of the policy from Stephanie Vaughn to the Stephanie Vaughn ILIT. However, while payments were made by John Crawford, and McKinley requested that all payment invoices and correspondence be sent to John Crawford, it is unclear whether that change of ownership ever occurred. According to Terry Vaughn, Sun Life 89 is still in force, but currently no payments are being made on the policy. It is paid up to some point, and he understands that it has some value, so they opted not to cancel it. While the Administrative Complaint alleges that McKinley made a commission of $19,269.42, that amount is not clear from the record in this case. There are statements regarding commissions for many of the policies. However, on many of these statements, including the statement for Sun Life, there are columns labeled as commissions and columns labeled as overrides. No one testified as to how these statements are interpreted, and it is not clear on the face of the statements how much of the commission goes to the individual agent and how much goes to the agency for whom he works. It is clear that McKinley did indeed earn a commission (and that is how insurance agents are generally compensated), but it is not clear how much or that the amount was inappropriate. Stephanie Vaughn also applied for a life insurance policy with Nationwide. She submitted an application on March 9, 2009, with herself listed as the insured. The application contains a notation requesting that Nationwide contact the agent when preparing to issue the policy to see if the policy will be owned by Stephanie Vaughn or to a trust. The application contemplated a death benefit of $750,000, and was amended to include a long-term care supplement of $300,000 on June 19, 2009. On June 22, 2009, Nationwide Policy number B500118060 (Nationwide 60) was issued, listing Stephanie Vaughn as the insured and as the owner. The policy had a death benefit of $750,000, as requested, and an annual premium of $5,914, using non-tobacco standard rates. Terry Vaughn wrote a personal check for $1,762.08 for a premium payment on Nationwide 60 on July 15, 2009, and Stephanie Vaughn signed both the policy receipt and an amendment reflecting the long-term care rider that same day. John Crawford also wrote a check from his firm’s trust account for $5,000 on July 21, 2009. McKinley’s office requested that the overpayment of $838.08 be refunded to Stephanie Eller Vaughn at her address in Tallahassee. John Crawford also paid the $5,914 premium on May 25, 2010, and McKinley had requested earlier that year that John Crawford receive the invoices, as he was the one paying the premiums. As was the case with the Sun Life 89 policy, the premium payment made by Terry and Stephanie Vaughn was reimbursed by Terry’s mother, Merie Vaughn. Stephanie Vaughn requested cancellation of Nationwide 60 on July 5, 2011, because she and her husband did not want to continue paying for it. They did not receive any cash value for the policy. The Administrative Complaint alleges that Nationwide 60 was never placed in the Stephanie Vaughn ILIT. However, there is no allegation, nor proof, that McKinley was ever instructed to arrange for the transfer of the policy to the trust, nor is there any evidence indicating that there was a discussion of any kind regarding its ownership after it was issued. McKinley earned a commission on the sale of the Nationwide 60 policy. No evidence was presented to indicate that there was anything unusual about the commission earned. The Administrative Complaint alleges that by selling these two policies to Stephanie Vaughn, McKinley violated a public trust in violation of Florida Administrative Code Rule 69B-215.210. There is no indication in the Administrative Complaint as to how the sale of these two policies is a violation of the public trust, and no proof of such a violation was presented. Count XII: Policies on the Life of Yvette L. Day Finally, Count XII of the Administrative Complaint deals with the policies sold on the life of Yvette L. Day, the wife of David Vaughn. Those policies are Pacific Life Policy VP65887630 (Pacific Life 30) and John Hancock Policy 82233941 (Hancock 41). On April 15, 2009, Yvette Lori Day applied for a Pacific Life universal life insurance policy, which resulted in the issuance of Pacific Life 30. While the Administrative Complaint alleges that McKinley “convinced” Mrs. Vaughn and Ms. Day to purchase the policy, David Vaughn testified his wife actually insisted on picking the insurance company for the policy. The application lists Yvette Day as the insured, and the Yvette L. Day ILIT as the owner and beneficiary of the policy. The proposed coverage on the application is $137,447, with a planned premium of $5,000. The application is signed by Yvette Day, John Crawford, and McKinley. The policy issued on April 1, 2009, being backdated to take advantage of a lower premium. Pacific Life 30 was issued for the amount applied for and for the suggested premium of $5,000, and Ms. Day was considered a preferred non-smoker for rating purposes. An amendment to the policy was signed by both John Crawford and McKinley on September 14, 2009, as was the delivery receipt. Checks for $5,000 were issued from the Marks Gray trust account by John Crawford for premiums on September 1, 2009, and May 25, 2010. On June 7, 2011, John Crawford requested cancellation of Pacific Life 30, and return of any cash surrender value. Pacific Life responded by outlining the options to consider as alternatives to surrender, and advised that the tax loss upon surrender at this point would be $6,263.23. Mr. Crawford confirmed the intent to seek surrender, and on June 10, 2011, a check representing the surrender value of $3,760.90 was issued to the Yvette Day ILIT. A commission of $5,223.83 related to the policy was paid to Intervest, who in turn paid the premium to McKinley. Yvette Day also applied for a policy with John Hancock on April 15, 2009, with Yvette Day listed as the insured and the Yvette L. Day ILIT as the owner and beneficiary. The policy was issued on October 7, 2009, with a death benefit of $415,959 and a premium of $5,000. Yvette Day was listed as a preferred non-smoker for purposes of rating. John Crawford, as trustee, paid $5,000 in premium from his Marks Gray trust account on October 12, 2009. The policy receipt was signed by John Crawford on October 26, 2009, along with a form documenting that the policy would be backdated to April 17, 2009. Also completed on that day is an amendment answering a series of questions that were not answered on the original application, including questions related to the financing of the policy. The Administrative Complaint alleges that “when you, Gary L. McKinley, were asked by Hancock underwriting to respond to questions 10(a) and (b), you and attorney/trustee Crawford answered by providing Hancock with an application supplement dated October 26, 2009, stating that the premium payments would be coming from the insured’s income and ‘No’ as whether any entity other than the insured would be funding the premiums. Both answers were false.” In fact, however, McKinley did not sign the application supplement at all. The form is signed by Yvette Day and John Crawford. No evidence was presented to show that McKinley even knew about answers contained in the amendment. Moreover, contrary to the Department’s statement in its Proposed Recommended Order, the language on the amendment that “it is agreed that [the additions, corrections and amendments] are to be of the same effect as if contained in the application” does not transform a statement made by Yvette Day and John Crawford into a false statement by McKinley. The most logical meaning of this phrase, consistent with the testimony of Mike Saunders, is that the information provided by amendment is treated as if it was part of the original application. It does not mean that somehow Respondent’s signature on the original application embraces statements he did not make, but were in fact made by others in subsequent amendments. On June 7 and 11, 2011, John Crawford, as trustee, sent letters to Hancock requesting cancellation of Hancock 41 and the return of any cash value. Because of a discrepancy related to the identified date of the trust, a third letter was sent on August 8, 2011, correcting the listing of the trust date and providing a copy of the trust. Accordingly, on August 24, 2011, Hancock forwarded to John Crawford a check for $282.85, representing the unused premium for Hancock 41. McKinley received $5,336.23 in commissions related to the sale of Hancock 41. No person testified that the amount of the premium earned on this policy was unusual. Of the policies discussed above, 15 of them either lapsed or were canceled or surrendered after October 2010, when Respondent was no longer working with the Vaughns at Mrs. Vaughn’s direction. It cannot be determined what cash value would have been created had some or all of the policies remained in place. The most that could be said, based on the evidence that was presented, is that McKinley participated in the creation of an ambitious estate plan with a lot of moving parts. He replaced policies with more efficient policies, and while it may appear at first blush that he did so too quickly, the more persuasive evidence indicates that he did so to take advantage of changes in insurability while the opportunity to do so existed. There is no question that Respondent consulted with Mrs. Vaughn numerous times and made every effort to help her understand not only the overall plan but the specifics of the plan as well. Moreover, McKinley did not act alone. The trusts were established based on the recommendations of the estate planning team, which included Mrs. Vaughn, McKinley, and various other professionals and advisors. Attorney and trustee John Crawford, as well as attorney Tim McFarland, provided legal advice regarding the implications of the creation of the trusts, and the team considered a number of relevant factors in advising Mrs. Vaughn to establish these trusts. Once the decision was made to go forward with the identified estate plan, Respondent worked with Crump and Capitas insurance organizations, as well as representatives from various nationally-recognized and state- certified insurance companies, to obtain appropriate products to effectuate the goals established by the team. It is also clear that, while a significant amount of money was spent on life insurance premiums, the replacement of policies was undertaken with the goal of reducing the amount used for premium and increasing the death benefit, a course of action which Mrs. Vaughn approved in writing. Financial expert John Linnehan testified that the products purchased provided benefits to Mrs. Vaughn and her family, and that there were sufficient assets to sustain the premiums incurred for life insurance, even assuming her stated living expenses. His testimony is credited. Moreover, the reduction in Mrs. Vaughn’s assets was in large part caused by something other than the payment of insurance premiums. When asked where the rest of her money went, she answered, “I don’t know. It’s just gone.”
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order dismissing the Administrative Complaint. DONE AND ENTERED this 4th day of April, 2016, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of April, 2016.
The Issue This case concerns the issue of whether Respondent's license as an Ordinary Life including Disability agent should be suspended, revoked, or otherwise disciplined for making certain misrepresentations to a Mr. Roger L. Robert in connection with the sale of a life insurance policy to Mr. Robert. A second issue relating to such disciplinary action is whether the Respondent improperly applied to become an insured under a group insurance policy. At the formal hearing, the Petitioner called as witnesses John E. Riley, Roger L. Robert, Angela Stackler, Marie Ellena Mullins, Frederick P. Quinn. The Respondent called as witnesses Baron Kramer, and the Respondent, Stanford J. Sabarsky. The Petitioner offered and had admitted into evidence Petitioner's Exhibits 1 through 7. Counsel for the Petitioner and counsel for the Respondent submitted proposed findings of fact and conclusions of law to the Hearing Officer for consideration. To the extent that the findings of fact herein are consistent with those proposed findings, the proposed findings were adopted by the Hearing Officer. To the extent that the findings herein are inconsistent with the proposed findings the proposed findings were considered by the Hearing Officer and rejected as having been unsupported by the evidence or as being unnecessary to the resolution of this cause.
Findings Of Fact COUNT I As to Count I of the Administrative Complaint, the parties stipulated to certain facts alleged in the Administrative Complaint, and those facts are found as facts in Paragraphs 1 through 9 below: Respondent, Stanford J. Sabarsky, at all times material herein, represented the All American Life Insurance Company as a licensed Ordinary Life, including Disability Agent. Stanford J. Sabarsky did on or about September 16, 1980, contact one Roger L. Robert, President of Freight Sales Centers, Inc. of Tampa, Florida for the purpose of soliciting an application for life insurance from Mr. Robert. At that time and place, Respondent represented to Mr. Robert that he could purchase a seven hundred fifty thousand dollar ($750,000.00) life insurance policy to be issued by the All American Life Insurance Company with an initial annual premium payment of fourteen thousand two hundred and eighty-five dollars ($14,285.00) As a result of said application, the All American Life Insurance Company subsequently issued to Mr. Robert policy number L1124920 effective November 11, 1980, in the face amount of seven hundred fifty thousand dollars ($750,000.00). Premium payments on policy number L1124920 were made by Mr. Robert on a monthly basis from October, 1980, to November, 1981. On or about November, 1981, Mr. Robert received notice from the All American Life Insurance Company that the second annual renewal premium on policy number L1124920 was due. On or about December 4, 1981, Mr. Robert requested that the renewal premium be paid from the cash value of his policy. As a result of the request, the second year annual renewal premium on policy number L1124920 was paid for by a policy loan against said policy, thereby reducing the net insurance protection of that policy. That Respondent, Stanford J. Sabarsky, earned a sales commission due to the issuance of policy L1124920. Prior to purchasing policy L1124920, Mr. Robert was given a sales presentation in his office by the Respondent. It was represented to Mr. Robert, by Mr. Sabarsky, that after the first year's premium was paid, the premium would thereafter be paid by the cash value and he would not have to make any more premium payments. Mr. Sabarsky also explained to him that the cash value could be borrowed out of the policy at approximately seven percent interest. It was Mr. Robert's understanding that after he paid the first year's premium, he would never have to pay out any more money for the life insurance coverage. He expressed this understanding to Angela Stackler, an employee, in the presence of Respondent, and Respondent did not inform him that his understanding was incorrect. In approximately November, 1981, Mr. Sabarsky returned to Mr. Robert's office. At that time, Mr. Sabarsky was questioned by Mr. Robert and his employee Ellena Mullins about the fact that they had received a bill for the next year's premium. In response to the inquiry, Mr. Sabarsky related that the first year's premium would carry the policy and that Mr. Robert wouldn't have to pay any more money. Mr. Sabarsky did not explain to Mr. Robert in November, 1980, or in November, 1981, the out-of-pocket expense which Mr. Robert would have to pay each year in order to borrow the cash value to pay the premium. In order to obtain those loans annually, Mr. Robert, within six years of the policy, would have out-of-pocket interest expense of $3,779.00, and in ten years, would pay interest of $10,163.00 in order to maintain the policy in effect. On April 1, 1982, Mr. Robert, after making inquiry to All American Life Insurance Company, received a letter setting forth the out-of-pocket expenses which would be required of him in order to maintain the life insurance policy in effect. COUNT II As to the allegations of Count II of the Administrative Complaint, the parties stipulated to those facts found in Paragraphs 14 through 16 below. That at all times pertinent to the dates and occurrences referred to in this Administrative Complaint, Respondent, Stanford J. Sabarsky, was qualified and licensed as an insurance agent in this state. On or about January 29, 1979, Stanford J. Sabarsky, while licensed as an insurance agent for Home Security Life Insurance Company, did solicit and sell to Roger L. Robert, President of Freight Sales Center, Inc. of Tampa, Florida, a group disability insurance plan for the employees of Freight Sales Center, Inc. That on or about February 12, 1981, Stanford J. Sabarsky, signed an application to Home Security Life Insurance Company to have his name added to said group disability insurance plan and indicated on said application that he was an employee of Freight Sales Center, Inc. Prior to signing the application on February 12, 1981, the Respondent had asked Roger L. Robert to allow him to add his name to the group disability insurance plan of Freight Sales Center, Inc. As a result of the February 12, 1981, application, the Respondent was, in fact, added as an insured to the group disability insurance policy. He remained as an insured under the policy until approximately May, 1981. In March, 1981, the Respondent submitted a claim to Home Security Life Insurance Company. The claim was paid. The application signed by the Respondent (Petitioner's Exhibit 6) on February 12, 1981, reflected that he worked a minimum of 30 hours per week for Freight Sales Center, Inc, that his date of employment was 1/30/81, and that his base earnings was $600 per week. These facts were not true. At no time from January 30, 1981, to May, 1981, was the Respondent an employee of Freight Sales Center, Inc. The Respondent was aware at the time that he signed the application that he was not an employee of Freight Sales Center, Inc.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department enter a final order suspending Respondent's license as an Ordinary Life including Disability agent for a period of one (1) year. DONE and ENTERED this 12th day of August, 1983, in Tallahassee, Florida. MARVIN E. CHAVIS, 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 12th day of August, 1983. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 George W. Greer, Esquire 302 South Garden Avenue Clearwater, Florida 33516 Honorable Bill Gunter Insurance Commissioner and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32301
The Issue Whether Petitioner is entitled to a refund of state group life insurance premiums retroactive to the date she became disabled and continuing through the date of approval of a waiver of premium based on disability.
Findings Of Fact During her entire career with the State, Petitioner was employed by the Department of Corrections (DOC). At all times material, DOC, like all State governmental agencies, had its own personnel office. At all times material, the Division of Retirement (Retirement) handled all governmental agencies’ employees’ retirement issues. At all times material, the State has provided its employees, including Petitioner at DOC, with various types of insurance through Respondent Department of Management Services (DMS), Division of State Group Insurance (DSGI), the Respondent herein. For more than 20 years, ending January 1, 2007, the State of Florida provided state officials, employees and retirees basic life insurance coverage through Prudential Insurance Company of America (Prudential). Although Petitioner retired on full disability in mid- 2000, at all times relevant to these proceedings, Petitioner has continuously participated in the State Group Insurance Program’s (Program’s), life insurance plan (Plan). The Program is authorized by Section 110.123, Florida Statutes. Because of enhanced benefits, employees were required to complete a new life insurance enrollment form during “open enrollment,” conducted in 1999, for coverage beginning January 1, 2000. Petitioner completed the life insurance enrollment form and dated it "10/04/99." Directly below Petitioner's signature on this enrollment form, the following statement appears: Waiver of Premium for Disability If you are totally disabled for a continuous 9 months and are less than 60 years of age at the time disability begins, Prudential will continue your coverage with no premium due, provided you report your disability within 12 months of its start and submit any required proof to Prudential. The second page, last paragraph of the 1999, enrollment form provided an address and a toll-free telephone number for Prudential, and advised participants that the form was intended to provide a summary of benefits, as more completely set out in the certificate. Petitioner produced the enrollment form in response to Respondent's request for production of documents. She identified her signature thereon at hearing, and had the enrollment form admitted in evidence as Exhibit P-1. She also admits in her Proposed Recommended Order that she signed it. Although her testimony waffled in some respects, on the whole, she testified to the effect that she had retained a copy of this form where she had access to it at all times material. She is, therefore, found to have had knowledge of its contents since 1999. Petitioner testified that she never received either a life insurance policy nor a certificate of insurance, from Prudential or from any entity of Florida State Government, and that neither her DOC Personnel Office, Retirement, Florida First,1/ or DMS/DSGI advised her at the time of her retirement in mid-2000, that she could apply to Prudential for a life insurance premium waiver. However, Petitioner also had admitted in evidence as Exhibit P-2, a “Continuation/Termination Form” which she signed on “4-11-00,” stating a retirement date of “3- 10-00.” That form specifies that “. . . the amount of life insurance shall be $10,000 . . .” with a footnote reading, “This [referring to the $10,000, amount] would only apply if Waiver of Premium is not approved.” (Bracketed material supplied.) Also, the credible testimony of Respondent’s witnesses and of exhibits in evidence show that a complete certificate of life insurance was mailed to Petitioner in a timely manner. There is no proof that the insurance certificate varied the substance of the enrollment form as quoted in Finding of Fact 7. Indeed, the certificate provided, in pertinent part: The Policyholder will continue the full premium for continuance of insurance in accordance with item 8 above, [referring to “Total disability commencing before age 60— Unlimited for Employee Term Life Insurance”] provided the employee furnishes written proof of such total disability when and as required by the Policyholder. * * * Period of Extension Protection for a Disabled Employee— one year after receipt by Prudential’s Home Office of written proof that his total disability has existed continuously for at least nine months, provided the employee furnishes such proof no later than one year after the later of (1) the date premium payments for the employee’s insurance under the Group Policy are discontinued or (2) the cessation of any extended death benefit under the provisions for “Extended Death Benefit for Total Disability” above, and successive periods of one year each after the year of extension under (1), provided the employee furnishes written proof of the continuance of the employee’s total disability when and as required by Prudential once each year. Only employees disabled before retirement and under 60 years of age were eligible for the premium waiver. Employees who became disabled during retirement were not eligible for the waiver. By the terms of her enrollment form and certificate, if Petitioner did not notify Prudential before the twelfth month, she could not receive the waiver. When, precisely, Petitioner became “totally disabled” for purposes of her State life insurance certificate’s definition is debatable, because for some time prior to her actual retirement date, she was working off and on while pursuing a “permanent total disability” determination, pursuant to the definition of that term as expressed in Chapter 440, Florida Statutes, The Florida Workers’ Compensation Law. Petitioner ultimately received the workers’ compensation ruling she sought, possibly before March 10, 2000. Petitioner’s last day of work was March 10, 2000, when, she testified, a superior had her forcibly removed from DOC property. Despite her assertion that she was not approved for in-line-of-duty retirement until September 1, 2000, Petitioner also testified that the State granted her retirement upon disability, effective April 1, 2000, and April 1, 2000, is the date put forth by Respondent as Petitioner's disability retirement date, as well. Upon that concurrence, it is found that Petitioner qualified for total disability for State life insurance purposes before retirement and that she qualified for the waiver by age at retirement. When Petitioner retired on disability in 2000, employees of both DOC and of Retirement knew that she was retiring on disability. Retirement provided Petitioner with printed materials referring her to the insurance company and/or DMS/DSGI for insurance questions and stating that Retirement did not administer any insurance programs. There is no evidence Petitioner asked anyone about the waiver in 2000. From her retirement date in mid-2000, until Prudential ultimately granted her a premium waiver in 2007, Petitioner paid the full life insurance premiums to the State Life Trust, either via deduction from her retirement or directly by her own check. From the date of her retirement through December 2006, Petitioner paid $4.20, per month for life insurance, and beginning January 1, 2007, through November 2007, she paid $35.79, per month. According to Petitioner, she only became aware of the availability of the potential waiver of premiums when she received a booklet during open enrollment in October 2007, advising her that beginning January 1, 2008, the State life insurance coverage would be provided through Minnesota Life Insurance. The specific language that caught her eye was: No premium to pay if you become disabled --- If you become totally disabled or as defined in your policy, premiums are waived. Petitioner conceded that there is no substantive difference between the foregoing instruction and the statement on her 1999, enrollment form for Prudential. (See Finding of Fact 7.) Petitioner applied for the Minnesota life insurance, with premium waiver, triggering a series of bureaucratic decisions that maintained her continuous life insurance coverage by Prudential and permitted Petitioner to apply to Prudential for waiver of the life insurance premium as described in her 1999, enrollment form. Although bureaucratic delays occurred through DOC’s personnel office, Prudential accepted Petitioner’s proof of age, disability, etc., and granted the waiver of premiums based on disability. The monthly premiums of $35.79, that Petitioner paid in October and November 2007, were retroactively reimbursed to her by the State, based upon Prudential's receipt of Petitioner's waiver package on October 3, 2007. Beginning in December 2007, Prudential activated the waiver of premium, so that Petitioner has not had to pay any premium since. Adrienne Bowen, a DSGI manager of Prudential contracts for twenty years, testified that, in 1999-2000, Prudential’s waiver did not apply until after nine months of continuous disability and after the participant had reported the disability to Prudential, and after Prudential had approved the waiver of premiums. She further testified that she believed that there was no provision for the waiver to apply retroactively. For this testimony, Ms. Bowen relied upon Exhibit R-11, a “Group Life Administration Manual,” which had been devised so that the State life insurance plan would be consistently administered. On the foregoing issues, The Group Life Administration Manual states, in pertinent part: WAIVER OF PREMIUM When an employee becomes disabled and is unable to work because of a disability, the employee may be eligible to extend the group life coverage without premium payments. In order to extend coverage, the employee must submit proof of disability within the period shown on the Group Contract (generally at least 9 months but less than 12 months after the total disability starts). If the proof is accepted, you may stop the premium on behalf of the employee’s group coverage. We recommend that premium payments continue for that employee until a decision is made regarding the claim. (Emphasis in original.) However, Ms. Bowen also testified that DSGI and Prudential now allow an insured to request the waiver at any time after nine months of continuous disability, without automatic denial if the employee’s first request is not made within 12 months after she first becomes disabled. This was done in Petitioner's situation in 2007. Prudential did not refuse to waive premiums because Petitioner’s application was not made within 12 months of total disability. However, the premiums refunded related back only to the first day of the month in which she made application for waiver. Petitioner seeks a reimbursement for overpayment of premiums from April 1, 2000, to September 30, 2007. Her first request to Respondent for an administrative hearing appears to have been made on or about May 12, 2008. After several levels of internal agency “appeals,” the cause was referred to the Division of Administrative Hearings on or about August 28, 2008.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Group Insurance, enter a final order which calculates the State group life insurance premiums Petitioner paid between May 12, 2006, and October 1, 2007, and orders payment to Petitioner of that amount within 30 days of the final order. DONE AND ENTERED this 23rd day of December, 2008, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 23rd day of December, 2008.
The Issue The issues for determination in this proceeding are whether Respondent committed the acts alleged in the Amended Notice And Order To Show Cause and, if so, what, if any, penalty should be imposed.
Findings Of Fact Parties Petitioner is the state agency responsible for regulating insurance and insurance related activities in Florida. Petitioner is the agency responsible for regulating any licensed or unlicensed person or entity engaged in unfair insurance trade practices within the meaning of Section 626.951, Florida Statutes. 1/ Respondent, Leroy Preston, is licensed to sell life and health insurance in Florida. The other Respondents are not licensed to transact insurance in Florida and are not otherwise licensed by Petitioner pursuant to Chapters 624 through 632, 634, 635, 637, 638, 641, 648, and 651 (the "Florida Insurance Code"). Respondent, American Family Benefits Group, Incorporated ("AFBG, Inc.") is a Florida corporation wholly owned by the four individual Respondents. Respondent, Roy L. Beach, is an officer and director of AFBG, Inc., and is an attorney licensed to practice law in Florida. Respondents, Preston, Kenneth King, and Robert King, are officers and directors of AFBG, Inc. The individual Respondents comprise American Family Benefits Group ("AFBG") and the board of directors for AFBG, Inc. (the "Board"). Background Respondents designed a marketing program for the sale of memberships in AFBG, Inc. Promotional materials describing the benefits of membership were reviewed and approved by each member of the Board and mailed to thousands of prospective customers in 50 states. Memberships were offered to individuals at a price of $99 per membership. The benefits of membership included: life insurance up to $350,000 at no cost to members; a certificate of deposit of $5,000; a major bank credit card, regardless of credit history, secured by the certificate of deposit; non- qualifying mortgage loans; non-qualifying automobile leases; discounted long distance service; and discounted catalog prices. Respondents received approximately 140,000 applications for membership. Approximately 600 applications included payment of the $99 membership fee. Petitioner issued a Notice And Order To Show Cause on February 10, 1994. The marketing program for the sale of memberships in AFBG, Inc. was terminated by Respondents. Respondents returned the membership fee paid by approximately 300 applicants. On May 6, 1994, Petitioner issued an Amended Notice And Order To Show Cause ("Amended Notice"). The Amended Notice charges that Respondents violated Sections 626.9521, 626.9541(1)(a), (b), (h), (l), and (n). The Amended Notice charges that Respondents violated Section 626.9541(1)(a) by making misrepresentations for the purpose of effecting an assignment or pledge of insurance policies to secure a loan. Respondents allegedly violated Section 626.9541(1)(b) by representing that insurance policies obtained on the life of members would be used to secure a loan that would fund membership benefits. Respondents allegedly violated Section 626.9541(1)(h) by offering the payment of money to induce customers to enter into an insurance contract. The Amended Notice charges that Respondents violated Section 626.9541(1)(l) by inducing customers to pledge, assign, borrow on insurance policies, convert insurance policies, or to take out an insurance policy with another insurer ("twisting"). Finally, the Amended Notice charges that Respondents violated Section 626.9541(1)(n) by offering free insurance as an inducement for the purchase or sale or services directly or indirectly connected with real or personal property. Pledge Or Assignment To Effect A Loan: Section 626.9541(1)(a) Respondents knowingly issued and circulated a statement or sales presentation (the "promotional materials") that was a misrepresentation. The misrepresentation was made for the purposes of: effecting a pledge or assignment of an insurance policy; and effecting a loan against an insurance policy. Payment of the $99 membership fee did not entitle a new member to any of the benefits of membership. A new member was not required to elect any membership benefit, including the insurance benefits. Such a member could simply pay Respondents $99 and choose to receive none of the benefits of membership. A new member who wished to elect any of the benefits of membership was in substantially the same position as a new member who chose to receive no benefits. A new member who desired any one of the benefits of membership was first required to elect the insurance benefits. Insurance benefits entitled a new member to five universal life insurance policies on the life of the new member. Each policy was to be issued for $70,000. 2/ No life insurance policies were available unless a new member applied for and obtained all five policies and assigned four of the five policies to a bank. The bank must then make a loan in an amount and terms that were sufficient to fund all of the benefits of membership. 3/ A loan in the gross amount of $84,000 was needed to fund the benefits of membership. The net loan proceeds were to be used to purchase an annuity, a certificate of deposit to secure the credit card for the new member, pay Respondents a profit of $5,000, pay commissions and referral fees to independent parties up to $3,000, pay administrative costs, and fund the other benefits of membership. 4/ Respondents' pro forma projections of economic feasibility for the membership program showed an annual interest rate of six per cent, an amortization period of 20 years, and level periodic payments of principal and interest. Respondents' pro formal projections were based, in relevant part, on three assumptions. First, the insurance policies would be used as part of the collateral securing the loan needed to fund the benefits of membership. Second, Respondents were to be personally liable for each loan. Third, an annuity would secure the loan, pay the debt service on the loan, and pay the premiums for the insurance policies assigned to the lender. The insurance policies that new members were required to assign to the lender to secure the purported loan had no loan value. Respondents represented to prospective members that the life insurance policies were universal life policies. However, the policies were "skeleton" universal life policies that had de minimis cash value and no loan value. The loan to value ratio of any loan secured by the insurance policies would necessarily exceed 100 percent. Respondents' personal liability for loans to new members lacked economic substance. Capital contributions to AFBG, Inc. and Respondents' individual assets were inadequate to secure individual loans of $84,000 to 140,000 members. The annuity needed to pay the debt service on the loan and the insurance premiums on the policies securing the loan was not economically feasible. 5/ The membership fee of $99 was inadequate to pay the first year insurance premium on one $70,000 policy, much less the other four policies required to fund any of the benefits of membership. The economic reality of the membership program required a new member to pay Respondents $99 and to apply for and obtain five insurance policies from independent insurance agents. There was little or no probability of receiving any of the benefits of membership because the loan needed to fund those benefits had little or no economic reality. Thus, the membership program required a new member to pay $99 to Respondents for no benefits of membership. If $99 had been paid by all 140,000 applicants, Respondents would have received $13,860,000 in return for illusory promises of membership benefits. Insurance Policies To Secure Loan: Section 626.9541(1)(b) Respondents knowingly published, circulated, disseminated, and placed before the public an untrue statement concerning the business of insurance. Respondents represented that the universal life insurance policies obtained by individual members would be used as collateral to secure the loan needed to fund their insurance benefits. Respondents knew that the insurance policies were skeleton policies with little or no cash value and no loan value. The untrue statements issued by Respondents concerned the business of insurance. Respondents used economic incentives to induce prospective members to obtain life insurance policies. Without life insurance policies, new members were not entitled to any of the other benefits of membership including, a certificate of deposit, a credit card, non-qualifying mortgages, and non- qualifying car leases. The purchase and assignment of life insurance policies was an integral part of the business conducted by Respondents. The economic incentives used by Respondents were designed to effectuate a contract of insurance. Respondents effectuated approximately five contracts of insurance. The subsequent assignment of insurance policies to a lender also constituted the business of insurance. Those assignments constituted the transaction of matters subsequent to the insurance contract and arising out of the insurance contract. Unlawful Rebates: Section 626.9541(1)(h) 27. Respondents knowingly offered an indirect rebate of an insurance premium to prospective members as an inducement to enter into an insurance contract. Respondents' offer to pay the insurance premiums on members' insurance policies was a valuable consideration intended to induce new members to enter into insurance contracts. Twisting: Section 626.9541(1)(l) 28. Respondents knowingly made misleading representations with respect to insurance policies for the purpose of inducing or tending to induce new members to pledge, assign, borrow on, or convert an insurance policy or to take out a policy of insurance in another insurer. Respondents representations were misleading. 29. Respondents' representations led prospective members to believe that a pledge, assignment, or conversion of their insurance policies could be used to secure a loan needed to fund other membership benefits. The representation that a loan could be obtained by new members upon assignment of their insurance policies had no economic reality. Free Insurance: Section 626.9541(1)(n) Respondents offered to provide free insurance as an inducement for new members to purchase real or personal property. The benefits of membership included non-qualifying mortgages in real property, non-qualifying car leases, and non-qualifying bank credit cards. None of those benefits were available to new members unless they obtained life insurance policies and assigned those policies to a lender. The insurance policies were free to new members. There was no cost to new members. The insurance premiums were to be paid out of the annuity to be purchased from the net loan proceeds.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents guilty of all of the charges in the Amended Notice and ordering Respondents to permanently cease and desist the marketing of memberships in AFBG, Inc. It is further recommended that a fine of $4,000 should be imposed on each of the Respondents, not to exceed the aggregate amount of $20,000, and that the license of Respondent, Leroy Preston, should be suspended for 30 days. RECOMMENDED this 28th day of March, 1995, in Tallahassee, Florida. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 1995.
Findings Of Fact Arnold J. Smith is currently qualified and licensed as an Ordinary Combination Life and Variable Annuity, including Health Insurance Agent in the State of Florida. Smith received these licenses based upon applications filed in early September, 1986, to mid-December, 1986. He currently works as a life insurance agent for Prudential Insurance Company of America, working out of that company's Jacksonville office. Prior to being licensed in Florida, Smith engaged in the insurance business in Tucson, Arizona. He primarily operated through or under the names Arnie Smith and Associates, Ltd., or MBS Insurance Company, or MBS Insurance Services, Inc. The earliest Arizona insurance agency in which Smith had an ownership interest was Smith, Kelly, and Houston, Inc., in which Smith was one of three principals. In 1982, Smith formed Arnie Smith and Associates, Ltd. On April 16, 1984, the Articles of Incorporation of Arnie Smith and Associates, Ltd. was changed by renaming the corporation as MBS Insurance Company. Subsequently, the name of Smith, Kelly and Houston, Inc., was changed in 1984 to Arnie Smith and Associates, Ltd. Ostensibly, this Arnie Smith and Associates, Ltd., is different then the Arnie Smith and Associates, Ltd., which was incorporated in 1982. Smith also did business as Arnie Smith Insurance and MBS Insurance Services, Inc. MBS Insurance Services, Inc., was never incorporated to do business in the state of Arizona. Smith continued to do business under the name Arnie Smith and Associates, Ltd., and MBS Insurance Services, Inc., through August, 1986. MBS Insurance Company's Certificate of Authority to transact business as a corporation was revoked by the State of Arizona on June 10, 1985. Arnold J. Smith was the President/Chief Executive Officer, Chairman of the Board of Directors and principal stockholder of Arnie Smith and Associates, Ltd., and MBS Insurance Company. During 1984, 1985, and 1986, Smith's agency encountered mounting financial problems. Major debts to various insurance companies and to banks were mounting. In April, 1985, Smith's auto insurance business was transferred to another agency, the Thim Agency, located in Tucson. On July 1, 1985, Smith sold the remainder of his property and casualty portion of the insurance business to another Tucson agency, the Lamb Agency. Smith retained only the life insurance business. However, he was unable to significantly reverse the financial problems. In June, 1986, Smith accepted that his agency would not be able to satisfy the mounting debts. He transferred his remaining files to another insurance agency in Tucson owned by a former employee of Smith's, Dennis Liljegren. In July, 1986, Smith left Tucson and moved to Florida. On August 12, 1986, Smith and his wife filed a Voluntary Petition for Bankruptcy under Chapter 7 of the United States Bankruptcy Code in Tucson, Arizona. In 1982, Smith executed an Agency Agreement with Auto Owners Insurance Company on behalf of Arnie Smith and Associates, Ltd. The Agreement provided that Arnie Smith and Associates, Ltd., held funds belonging to Auto Owners as Trustees. Pursuant to this Agency Agreement, Arnie Smith and Associates, Ltd., engaged in the sale of auto insurance from November, 1982, until Auto Owners terminated the Agency Agreement for nonpayment of indebtedness on March 27, 1985. Over this period of time, Arnie Smith and Associates, Ltd., became indebted to Auto Owners for more than $125,000.00 for premiums paid by insureds but never forwarded to Auto Owners. Following the termination of the Agency Agreement, in April, 1985, Auto Owners transferred the Smith Agency Auto Owners business to the Thim Agency. The Agency Sale Agreement transferring the business to the Thim Agency called for the reduction of the debt to Auto Owners by the Thim Agency from commissions on the Smith Agency's business over the next two years. The Agency Agreement between Auto Owners and Arnie Smith and Associate, Ltd., states that the "Agent shall remain liable for the balance of any indebtedness" under circumstances such as these. By the terms of that contract, the Agent is named as Arnie Smith and Associates, Ltd. Smith signed that contract as president of Arnie Smith and Associates, Ltd. While the Thim Agency did reduce the Smith Agency's debt, in 1987, two years after the transfer of the Auto Owners business to the Thim Agency, Arnie Smith and Associates, Ltd., remained indebted to Auto Owners in the amount of approximately $124,189.78 plus accrued interest. Smith bankruptcy's petition listed Auto Owners Insurance Company as an unsecured creditor without priority, having contingent and disputed claims. No evidence was presented to show that Auto Owners ever made any claim against Arnie Smith and Associates, Ltd., or against Smith personally after the termination of the Agency Agreement and transfer by Auto Owners of the Smith Agency's Auto Owners Insurance business to the Thim Agency. Apparently no claim was filed by Auto Owners in conjunction with the bankruptcy proceedings. In March, 1982, Smith signed a contract with Western Life Insurance Company on behalf of Smith, Kelly, and Houston, Inc. Smith also signed a personal guarantee of that contract. By signing that guarantee, Smith agreed to joint and several liability for any and all debts or other monetary obligations to the company. Subsequently, in September, 1982, Smith assigned the contract with Western Life to Arnie Smith and Associates, Ltd. This Arnie Smith and Associates, Ltd., was the corporation which changed its name to MBS Insurance Company in March, 1984. Thereafter, Smith continued to do business with Western Life under both the name Arnie Smith and Associates, Ltd., and MBS Insurance Company. In November, 1985, Smith executed a contract with Western Life Insurance on behalf of MBS Insurance Services, Inc., the corporation which was never authorized to do business in Arizona. Throughout the period of Smith's involvement with Western Life, he sold that company's products called LP-85 and LP-95 policies. He sold approximately 200 of these type policies while he was working in Arizona. The LP-85 and LP-95 policies are a high premium product which builds a large cash value in the first two years. The manner in which it was marketed by Western Life allowed the insured to borrow through a "minimum deposit loan agreement" to pay the premiums from the cash value. Generally, the payment of ten months premium provided sufficient cash to fund the policy premium payments through this minimum deposit loan arrangement for at least four or five years. The agent was able to receive advance annualized commissions upon the sale of these products, when the agency sent the initial premium to Western Life. In cases where ten months in premium were paid and a minimum deposit loan agreement was used to pay the balance of the first year premium and the full second year premium, the Smith Agency actually could receive, and did receive, a second year advanced annualized commission. In January, 1986, Smith sold and Western Life issued one of these life insurance policies to Dr. Bert Strug. In May, 1986, Smith stated in a letter that the annual premium on Strug's policy was $880,000. Later, in a letter dated August 1, 1986, Smith told Strug that the annual premium was $880.00. In fact, the annual premium was really $19,200.00. Shortly after initially writing the policy, the Smith Agency received an annualized commission of $17,500.00. However, Smith did not deliver Strug's policy to Dr. Strug until August 1, 1986. Smith used the annualized commission which he received to pay the premiums on Strug's policy for the first ten months. This permitted Smith to collect the annualized commission and the low premium payment from the insured and to then use this money to pay the first ten months of premium before the minimum deposit loan arrangement took over payment of the premiums. Thereafter, Smith would be able to collect the annualized commission even though no premiums were being paid. On February 17, 1986, Smith sold and Western Life issued one of these life insurance policies to Gerry S. Hendrickson. Hendrickson never paid a premium on this policy and Smith never delivered the policy to Hendrickson. However, Smith was paid an annualized commission by Western Life of $7,300.00. It is required that policies be delivered within thirty days. Smith sold and Western Life issued one of these life insurance policies to Dr. Frank P. Hall on April 11, 1986. Dr. Hall never paid a premium on this policy and the policy was never delivered by Smith to Dr. Hall. Smith was paid an annualized commission by Western Life of $12,000.00. In May, 1986, Smith sold and Western Life issued one of these life insurance policies to Dr. Vernon W. David. This policy was never delivered to Dr. Davis by Smith. Smith did receive an annualized commission from Western Life in the amount of $12,000.00. A policy was issued to Richard Flynn on February 21, 1986, pursuant to a sale of one of these insurance policies by Smith. Smith's invoice states that the annual premium was $485.00. The actual annual premium on this policy was $9,280.00. Smith was paid an annualized commission by Western Life in the amount of $8,000.00. In each of these instances, Smith intended to and did pay the premiums on the policies from the annualized commission which he received. Each of these policies was paid through an automated bank draft arrangement. While the usual and customary arrangement for paying an insurance policy through a bank draft arrangement presupposes usage of an account of the insured, in the present case, the bank drafts were being paid from an account controlled by Smith. For a period of time, the automated bank drafts were being paid through an account called "PPF" of the Arnie Smith and Associates, Ltd., agency. Until the PPF account was created, for a period of time, the bank drafts were being paid from an account in the name of MBS Insurance Services, Inc. The name was changed from MBS to the premium financing account, PPF, at the instruction of Western Life official in February, 1986. At that time, Western Life was concerned with the company sending advanced commissions by check made out to the same entity as the entity that was sending premium payments to Western Life. Western Life was concerned that this arrangement gave the appearance that the agency was paying the premiums. In fact, the agency was paying the premiums. Subsequently, in June, 1986, Western Life contacted Smith and advised that all bank drafts currently authorized through the PPF account would have to be changed to draft payments from bank accounts of the individual insureds. Coincidentally, it was at this same time that Smith reached the conclusion that he was not going to be able to solve the financial problems of his business and he began preparations for turning the business over to Liljegren. As of July 31, 1986, the combined balance due Western Life Insurance Company from Arnie Smith and Associates, Ltd., and from MBS Insurance Services, Inc., was approximately $16,000.00. Following Smith's departure for Florida, Western Life, through its representative, Dean Glenn, began to examine the various policies and payment practices connected with the Smith agencies. Eventually, Western Life reached the decision that it would not honor the policies sold by Smith under the above- described payment arrangements. Instead, Western Life rescinded approximately 25 policies and charged back the unearned commissions against the Smith Agency accounts. It does appear that in the course of the charging back process, Western Life did not give credit to the Smith Agency for the policy premiums which it paid from advanced annualized commission. However, the records of Western Life Insurance Company show that Arnie Smith and Associates, Ltd., is indebted to Western Life in the amount of $134,150.98, and that MBS Insurance Services, Inc., is indebted to Western Life in the amount of $57,847.12. Smith listed Western Life as an unsecured creditor with a contingent and disputed claim in the amount of $100,000.00 in the bankruptcy petition. In his various applications for different licenses filed with the Department, Smith answered "no" to question 11. Question 11 states: "Does any insurer or general agent claim you are indebted under any agency contract or otherwise?" As previously found, Smith listed Western Life Insurance Company, Auto Owners Insurance Company, and other insurers as unsecured creditors with disputed and contingent claims under Schedule A-3 of the bankruptcy petition. According to Smith, none of these insurance companies have any claim against him personally. He bases this position on advice of counsel. On all the applications filed with the Department by Smith, he answered "no" to question 12. Question 12 states "Have you ever had any agency contract cancelled?" It is undisputed that by letter dated March 27, 1985, Auto Owners Insurance Company terminated the Agency Agreement with the Smith Agency for nonpayment of indebtedness. Smith was the owner and principal of the agency. Smith takes the position that the word "you" in that question refers only to him personally and not to his corporate agency. It is found, however, that such a construction is unreasonable and that the word "you," in question 12 can only be reasonably interpreted to apply to Smith and any of his corporate or business entities which are solely owned and controlled by him.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasury enter a Final Order and therein revoke the licenses previously issued to Arnold J. Smith and therein deny Smith's pending application for licensure. DONE AND ORDERED this 24th day of November, 1987, in Tallahassee, Leon County, Florida. DIANE K. KIESLING 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 this 24th day of November, 1987. APPENDIX TO RECOMMENDED ORDER CASE NOS. 87-1652 and 87-2975 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case. Specific Rulings on Proposed Findings of Fact Submitted by Arnold J. Smith 1. Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(2 & 3); 2(1); 4(22); 5(24); 7(5,8,21); 11(2); 12(2); 13(6,8); 15(6); 17(4); 20(4); 21(8); 26(21); 30(10); 31(10); 32(10,11); 39(4); and 44(12). 2. Proposed findings of fact 3, 8, 9, 14, 16, 18, 19, 22-25, 27-29, 37, 38, 41, 42, 45-48, 65, 68-86 are subordinate to the facts actually found in this Recommended Order. 3. Proposed findings of fact 6, 10, 33-36, 40, 43, 49-64, 66 and 67 are rejected as irrelevant or unnecessary. Specific Rulings on Proposed Findings of Fact Submitted by Department of Insurance & Treasurer 1. Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(1); 2(22); 3-5(9); 6-8(2); 9(9); 10(2); 11(20); 12(20); 13(19); 14(21); 15(3); 16-19(6); 20(8); 21(8); 23(12); 24(12): 25-27(13); 28- 30(14); 31(15); 32(15); 33(13); 34-36(12); 37(16); 38(16); 39(6); 40(12); 41(16); 42(13) 43(14); 44(15); 45- 48(18); and 49(24) 2. Proposed finding of fact 22 is rejected as unnecessary. COPIES FURNISHED: Robert V. Elias William W. Tharpe Department of Insurance and Treasurer Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Tom R. Moore, P.A. Robert C. Apgar, P.A. 119 E. Park Avenue Tallahassee, Florida 32301 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue Should discipline be imposed by Petitioner against Respondent's licenses as a life agent (2-16), life and health agent (2-18), and health agent (2-40), held pursuant to Chapter 626, Florida Statutes (2004)?
Findings Of Fact Respondent in accordance with Chapter 626, Florida Statutes (2005), currently holds licenses as a life agent (2- 16), life and health agent (2-18), and a health agent (2-40). On June 24, 2003, in an Administrative Complaint brought by Petitioner against Respondent, also under Case No. 64776-03-AG, accusations were made concerning violations of Chapter 626, Florida Statutes (2003). On October 4, 2004, the parties resolved the earlier case through a settlement stipulation for Consent Order. On October 20, 2004, the Consent Order was entered. In pertinent part the Consent Order stated: The Settlement Stipulation for Consent Order dated October 11, 2004, is hereby approved and fully incorporated herein by reference; * * * (c) Respondent agrees that he has a continuing obligation for claims, which may not have arisen or otherwise be known to the parties at the time of the execution of the Settlement Stipulation for Consent Order and this Consent Order Respondent shall be responsible for satisfying claims that were covered under the Plans sold by Respondent, up to the amount covered by such Plan, less any applicable deductibles or co-payments. Respondent may attempt to negotiate with the providers for compromised amounts, but any such compromise must result in the release of the consumer from any responsibility for the amounts that would have been covered under the terms of such Plan, less any applicable deductibles or co-payments; * * * (f) Within ninety (90) days following the issuance of this Consent Order, the Respondent shall complete the Section 626.2815(3)(a), Florida Statutes, continuing education requirement relative to unauthorized entities; * * * Within thirty (30) days of the issuance of this Consent Order, Respondent agrees to pay to the Department, a fine, in the amount of ONE THOUSAND AND 00/100 ($1,000.00) DOLLARS. Within ninety (90) days following the issuance of this Consent Order, Respondent shall satisfy any unpaid claims for persons insured under the Local 16 Plans he sold, including claims which may not have arisen or otherwise be known to the parties at the time of the execution of the Settlement Stipulation for Consent Order and this Consent Order. Respondent shall only be responsible, however, for satisfying claims that were covered under the Plans sold by Respondent, up to the amount covered by such Plan, less any applicable deductibles or co- payments. Respondent may attempt to negotiate with the providers for compromised amounts, but any such compromise must result in the release of the consumer from any responsibility for the amounts that would have been covered under the terms of such Plan, less any applicable deductibles or co- payments; Within one hundred (100) days following issuance of this Consent Order, the Respondent shall provide proof to the Department that the full amount of claims or losses under all contracts or health plans solicited or sold by Respondent on behalf of Local 16 have been paid or satisfied. Failure of the Respondent to comply with this paragraph shall constitute a material breach of this Consent Order, unless otherwise advised in writing by the Department; Respondent in the future shall comply with all the terms and conditions of this Consent Order; and, shall strictly adhere to all provisions of the Florida Insurance Code, Rules of the Department, and all other laws of the State of Florida. The Respondent shall give the Department full and immediate access to all books and records relating to the Respondent's insurance business, upon request; If, in the future, the Department has good cause to believe that the Respondent has violated any of the terms and conditions of this Consent Order, the Department may initiate an action to suspend or revoke the Respondent's license(s) or appointments, or it may seek to enforce the Consent Order in Circuit Court, or take any other action permitted by law; Respondent paid the $1,000.00 administrative fine required by the Consent Order, but the payment was 20 days late. Respondent completed the continuing education on unauthorized entities. He completed the course on June 3, 2005, beyond the deadline called for in the Consent Order by a number of months. Respondent took the course at Florida Community College in Jacksonville, Florida, an institution that he was familiar with. He took the course to be completed on June 3, 2005, because it was the earliest course available at that school. Respondent was unfamiliar with other schools who may have offered the course at a time that would meet the due date set forth in the Consent Order. Consistent with the expectations in the Consent Order, Petitioner's employees have reviewed their files to determine whether Respondent has satisfied unpaid insurance claims in relation to the insurance plan for Local 16. Those employees involved in that review are Kerry Edgill, a legal assistant in the Legal Division in charge of complaint settlements and Pamela White who works with the Division of Consumer Services as a senior management analyst. Neither employee found any evidence that Respondent had satisfied the unpaid insurance claims as called for in the Consent Order. In correspondence from Respondent to Petitioner's counsel in this case, dated December 6, 2004, there is no indication that the unpaid insurance claims have been satisfied. Respondent in his testimony explained the extent to which he had attempted to determine who had outstanding unpaid insurance claims. Respondent went to the location where Local 16 union members were employed. His contact with union members had to be outside the building proper. He spoke to several members at that time. This contact took place on June 1, 2005. Respondent identified the persons contacted as James, Luther, Gregory, and Michael. Michael's last name may have been Williams, as Respondent recalls. Of the persons Respondent spoke with on June 1, 2005, none of them had an unpaid insurance claim which needed to be satisfied. Respondent provided correspondence to a person or persons whose name(s) was or were not disclosed in the testimony. The June 6, 2005, correspondence was addressed to the Amalgamated Transit Union, in reference to insurance claims for Local 16. Respondent's Exhibit Numbered 17 is a copy of that correspondence. In the body of the correspondence it stated: June 6, 2005 Amalgamated Transit Union Local 1197 P.O. Box 43285 Jacksonville, FL 32203 Re: Claims for Local 16 To union members and trustees, This letter is to follow up me meeting members at the station on June 1, 2005 to discuss any issues or concerns that you may be or have had relating to the unpaid claims with Local 16 National Health Fund. Although, I feel I am not responsible for the issue I would gladly help assist with resolving any problems or concerns that you may have. Should any members have any correspondents that need immediate attention please forward them to me at: David Bright, P.O. Box 441963, Jacksonville, FL 32222. Should you need to speak to me I can be reached at 904-207-0141. Thanks for your cooperation in this long due matter! In relation to what Respondent refers to as accounts for Local 16 which he was servicing, that refers to insurance coverage, it involved a couple of hundred insureds. Respondent in his testimony acknowledged that union members had insurance claims that were unpaid.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That a final order be entered finding Respondent in violation of Sections 626.611(7) and (13), and 626.621(2) and (3), Florida Statutes (2004), finding no violation of Section 626.611(9), Florida Statutes (2004), or 626.9521, Florida Statutes (2004), and suspending Respondent's respective licenses as a life agent (2-16), life and health agent (2-18), and health agent (2-40), for a period of six (6) months. DONE AND ENTERED this 7th day of October, 2005, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of October, 2005.
The Issue The issue to be determined is whether Respondent violated section 626.611(5), (7), (9), and (10), and section 626.621(6) and (9), Florida Statutes (2002), as alleged in the Administrative Complaint, and if so, what penalty should be imposed?
Findings Of Fact The Department is the state agency charged with the licensing and regulation of insurance agents in the State of Florida, and is responsible for administering the disciplinary provisions of chapter 626, Florida Statutes, pursuant to section 20.121(2)(g) and (h). Respondent has been licensed as a life, including variable annuity and health, agent (2-15), life, including variable annuity, agent (2-16), and a life and health agent (2- 18) at all times relevant to this proceeding. During the period relevant to these proceedings, Respondent was the president of BCMI, Inc. Pamela Johnson was employed by the Volusia County Sheriff's Department and on duty when she was involved in a motor accident on I-95 on September 4, 1998. Ms. Johnson was injured in the accident and was unable to continue working as a result. Ms. Johnson filed suit against the company owning the truck that hit her, and in 2000 received a compensatory award of approximately $650,000. She hired an investment advisor to handle the award, and placed her funds in a money market account. Until that time, she had no prior investment experience. Ms. Johnson describes herself as a person who wants to take very few risks with her money. She wanted all of her investments to be very safe and conservative. In 2002, she spoke to Respondent regarding possible investments. She was acquainted with Respondent through her sister. After Respondent met with her at her home, she decided to remove $100,000 from her money market account and invest in an annuity that Respondent was offering. She received a check for $100,000 from the money market account and signed it over to Respondent. Respondent assisted her in filling out an application for an annuity. He then deposited the check into his business account. Respondent did not, however, actually purchase the annuity with the funds entrusted to him. Ms. Johnson did not receive any paperwork regarding her purchase of the annuity, other than her initial application, and asked Respondent when she would receive the paperwork. At first, Respondent told her that he had received his copy and she should receive hers in the mail. She did not. Ms. Johnson called Respondent repeatedly and made several appointments with him between June and October, 2002, in order to obtain more information regarding her investment. Ms. Johnson was finally able to meet with Respondent in October of 2002, and learned for the first time that Respondent had not purchased on her behalf the annuity for which she had applied. Instead, he decided (without input from her) to use the money in a real estate investment. He represented to her that she had already made $5,000 on her investment. At this time, Respondent told Ms. Johnson that if she still wanted to purchase an annuity, she would have to write him another check. She did so, this time directly to Transamerica Life and Annuity instead of to Respondent. She has since moved the management of that annuity to another insurance agency. Ms. Johnson continued to seek documentation for her first investment, to no avail. She told Respondent she needed some documentation in order to complete her taxes, so in February 2003, he showed her a sheet of paper entitled "Account Summary," which listed her two investments. The first investment was her annuity with Transamerica Life and Annuity. The second investment is entitled "Corporate Note," with "real estate" in parenthesis, an identification number (which is her social security number), and an account balance of $105,000. The document stated at the bottom below Respondent's name and address, "**No taxes are due on these accounts at this time." Despite multiple contacts by both Ms. Johnson and a friend of Ms. Johnson, no further documentation regarding her investment has ever been provided. Finally, in May of 2004, Respondent told Ms. Johnson that an employee of the real estate company had embezzled all of the funds and that her entire investment was lost. Both the Financial Industry Regulatory Authority (FINRA) and Ms. Johnston eventually filed complaints with DFS regarding Respondent's handling of her first $100,000 investment. Respondent has offered several payment plans to Ms. Johnson over the years, but he has never actually returned any money to her. He did not have her permission to invest in a real estate transaction. He only had permission to purchase an annuity.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED that the Department of Financial Services enter a Final Order finding Respondent guilty of violating section 626.611(5), (7), (9), and (10) and section 626.621(6); revoking his license; and requiring that he make restitution to Pamela Johnson in the amount of $100,000 pursuant to the authority in section 626.692. DONE AND ENTERED this 23rd day of June, 2011, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of June, 2011.
