The Issue Whether respondent is obligated to remit to petitioner, administrator of the State of Florida Employees Group Health Self-Insurance Program, an alleged underpayment of insurance premiums in the amount of $435.81, covering the period from October, 978,through June, 1983.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department enter a Final Order requiring respondent to remit $435.81, for total insurance premium underpayments, within 90 days, failing which respondent's insurance coverage under the State Employees Insurance Program should be cancelled and the underpayment obtained through certified payroll deductions from any salary due the respondent. DONE and ENTERED this 13th day of March, 1984, in Tallahassee, Florida. R. L. CALEEN, JR. 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 13th day of March, 1984. COPIES FURNISHED: Daniel C. Brown, General Counsel Department of Administration 435 Carlton Building Tallahassee, Florida 32301 Wyatt Wyatt Department of English University of Central Florida Post Office Box 25000 Orlando, Florida 32816 Nevin G. Smith, Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32301
The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
The Issue Should discipline be imposed by Petitioner against Respondent's insurance agent licenses, life including variable annuity (2-14), and general lines (2-20), pursuant to Chapters 624 and 626, Florida Statutes (2004)?
Findings Of Fact Stipulated Facts Respondent is licensed by Petitioner as a life including variable annuity (2-14) and a general lines (2-20) insurance agent and has been issued license D029506. During the time referenced in the Administrative Complaint, Respondent was licensed as a customer representative (4-40) and a life including variable annuity (2-14) agent. The Department has jurisdiction over Respondent's insurance licenses and appointments. At all times relevant to the dates and occurrences referenced in the Administrative Complaint, Respondent was employed or affiliated with Direct General Insurance Agency, Inc., a Tennessee corporation, doing business in Florida as Florida No-Fault Insurance Agency (Cash Register). Additional Facts: At times relevant to the case Respondent held his life including variable annuity license (2-14) under an appointment with Direct Life Insurance Company. At times relevant to the case Respondent had a customer representative license (4-40) under appointment with Direct General Insurance Agency, Inc. At present Respondent continues to hold the life including variable annuity license (2-14) under an appointment with Direct General Life Insurance Company. At present he has a general lines license property and casualty license (2-20) under appointments with Direct General Insurance Company and American Bankers Insurance Company of Florida. On February 8, 2005, Brandi Dean called Cash Register to receive a quote for the purchase of basic automobile insurance coverage. She was provided a quote at that time. On February 8, 2005, Brandi Dean, went to the Cash Register to purchase basic automobile insurance coverage. She had done business with the insurance agency before. Her policy with Direct General Insurance Company was Policy No. FLCR162714439, as reflected in Petitioner's Exhibit numbered 15, with a scan cover sheet entitled "Renewal Auto." On February 8, 2005, Ms. Dean purchased automobile insurance coverage that would be effective from February 10, 2005 through February 10, 2006. She was charged $316 for property damage liability (PD) and $216 for basic injury protection (PIP) for a total of $532, with a $25 policy fee. The application information within the exhibit reflects the customer's name, signature, and initials in various places. On February 8, 2005, Ms. Dean was provided another form referred to as an Explanation of Policies, Coverages and Cost Breakdown (including non-insurance products). Petitioner's Exhibit numbered 16. She signed that document. It reflected the auto policy coverage information. It also set forth under a category referred to as optional policies, the purchase of Lloyd's Accident Medical Protection Plan for $110. Petitioner's Exhibit numbered 17 is additional information concerning the Accident Medical Protection Plan application by the customer signed by her. It details a $110 annual premium for individual coverage of $1,000 medical expense, and 125/day-365 day hospital coverage. Within that same exhibit there is a form signed by the customer titled 100% certain underwriters @ Lloyd's/London (DB/33) Accident Medical Protection Plan. This reflects $110 cost, $125 daily coverage and the total annual benefit of $45,625. Petitioner's Exhibit numbered 18 is a scan cover sheet entitled Renewal Finance with Premium Finance Agreement Information in association with Direct General Financial Services, Inc., in which the customer Ms. Dean paid $69.63 down, financed $599.82, with a total price of $748.61 when considering the annual percentage rate for financing. This document in totality was initialed and signed by Ms. Dean. Ms. Dean was provided a receipt for her cash down-payment on the purchase. Petitioner's Exhibit numbered 14. Petitioner's Exhibit numbered 19 is an Insurance Premium Financing Disclosure Form signed by the customer, reflecting the cost of the automobile insurance and the hospital indemnity plan, the amount of total cost and includes the policy fee for the automobile insurance, document stamp tax, the down payment, and the total amount financed $599.82. Ms. Dean was left with the impression that she had only purchased automobile insurance. She believed that the monthly payments for the financing were only in relation to automobile insurance. Ms. Dean does not recall having the accidental medical protection plan explained to her as to its terms. She does not recall anyone explaining that it was an optional plan unassociated with automobile insurance. She told the agent that she dealt with that she was only interested in purchasing the state-required automobile insurance coverage. Had she realized that she was purchasing optional accident medical protection, not part of the automobile insurance purchase, she would have declined the optional policy. Ms. Dean does recall that the agent she dealt with made some brief explanation about the documents involved in the transaction but not every page was explained. Ms. Dean recalls explanations about the automobile policy but nothing about optional coverage. Ms. Dean glanced over the documents but did not read every word included in the documents. Ms. Dean does not recall whom she dealt with on February 8, 2005. Otherwise, the record does not reflect the person who sold the automobile insurance and accidental medical protection plan to her at that time. At times relevant, Denise Daley Turnbull worked at Cash Register. She was a customer representative license (4- 40), appointed by Direct General Insurance Agency, Inc. On March 24, 2005, William L. Green, Jr., came to Cash Register to purchase automobile insurance. He dealt with Ms. Turnbull. He made a $170.02 down payment for his purchases, as reflected in Petitioner's Exhibit numbered 4, which is a receipt provided to Mr. Green. A scan cover sheet related to an auto policy purchased, together with the application information for the automobile insurance purchased through Direct General Insurance Company is found within Petitioner's Exhibit numbered Mr. Green purchased automobile insurance for property damage liability (PD) in the amount of $590 and basic personal injury protection (PIP) for $370, with a $25 policy fee, totaling $985. He signed and initialed parts of the forms in association with the automobile insurance. Ms. Turnbull also signed forms in association with the automobile insurance. Petitioner's Exhibit numbered 6 is an explanation of policies, coverages and cost breakdown (including non-insurance products) reflecting the overall purchases by Mr. Green. He signed that form. It relates the automobile insurance purchase. It also relates the purchase of an American Bankers Travel Protection Plan for $60, a Lloyd's Accidental Medical Protection Plan for $110 and life insurance of $98. With fees and other costs the total purchase was $1270.99. Of relevance here, Petitioner's Exhibit numbered 9 is a scan cover sheet in relation to the life policy signed by Ms. Turnbull. It also includes application information to Direct Life Insurance Company with certain questions reflected that were initialed by the purchaser. Mr. Green signed the application. Respondent also signed the application, as well as printing his name and insurance license number on the form. Petitioner's Exhibit numbered 10 is a scan cover sheet for a New Finance with Direct General Financial Services, Inc., which reflects a $162.03 down-payment, $1105.17 in amount financed, with a $129 finance charge. The total sales price for all purchases was $1396.20, to include the life insurance with Direct Life Insurance Company. Mr. Green signed the premium finance agreement. Petitioner's Exhibit numbered 11 is a copy of the Insurance Premium Finance Disclosure Form signed by Mr. Green. Ms. Turnbull has no recollection of the Respondent's participation in the sale of the life insurance policy to Mr. Green. She does recall that Respondent was in the insurance agency office when the life insurance was purchased. She recognizes Respondent's signature in association with the life insurance application and purchase. Mr. Green had no intention of purchasing life insurance when he went to Cash Register on March 24, 2005. He recalls dealing with Ms. Turnbull. No one else sat with Mr. Green and explained policy information to him. Specifically, Respondent did not sit with Mr. Green and offer explanations about the policy. Mr. Green did not see Respondent sit with Ms. Turnbull and Respondent remained silent while she sold the life policy. Had Mr. Green realized that he was purchasing life insurance he would have declined the opportunity.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That Petitioner enter a final order finding a violation under Count I as set forth in the conclusions of law, dismissing Count II and suspending Respondent's license for six months for the violation. DONE AND ENTERED this 7th day of May, 2007, 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 May, 2007. COPIES FURNISHED: William Gautier Kitchen, Esquire Gregg Marr, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0333 L. Michael Billmeier, Jr., Esquire Galloway, Brennan and Billmeier, P.A. 240 East Fifth Avenue Tallahassee, Florida 32303 Michael L. Rothschild, Esquire Larry S. Davis, P.A. 1926 Harrison Street Hollywood, Florida 33020 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0307
The Issue The issues to be resolved in this proceeding concern whether the Respondent has violated various provisions of the Florida Insurance Code as alleged in an Amended Order to Show Cause and, if so, what penalty, if any, is warranted.
Findings Of Fact The Petitioner is an agency of the State of Florida charged with licensing and regulating viatical settlement providers in the State of Florida. The Respondent, Future First Financial Group, Inc., is licensed by the State of Florida as a viatical settlement provider. Its President and Chief Executive Officer is Mr. Randy Stelk. A viatical settlement contract involves the sale of a life insurance policy's benefits in exchange for an immediate discounted cash settlement to the original policy holder. A Florida resident "viator" (the insured) desiring to enter into a viatical settlement contract, acts through a Florida licensed broker, who provides the policy information to licensed viatical settlement providers like the Respondent, for subsequent re-sale of policy benefits to purchasers. Future First was initially licensed as a viatical settlement provider on December 26, 1997. The initial regulation of viatical settlement providers in the State of Florida by the Petitioner began at approximately the time Future First initially became licensed. Consolidated findings concerning Counts 1, 3, 4, 6, 7, 12, 15, 16, 20, 22, 28, 29, 34, 35, 36, 38, 39, 41, 43, 44, and 45: Future First was a licensee of and regulated by the Department of Insurance at all times pertinent hereto. The health status representations on the exhibits (referenced in the Department's Proposed Recommended Order) concerning each of these counts, which are the insurance policy applications in question in these counts, are materially inconsistent with the health status representations related to the later viatical settlement agreements contained in the other exhibits so referenced as to each of the above-enumerated counts. These latter exhibits constitute the showing of actual medical condition to the Respondent by the insureds or viators in each transaction referenced in these counts. The overall effect of this showing is to indicate to the Respondent that the viators in question in these counts were HIV positive or had the disease AIDS, along with related diseases and medical conditions, contrary to the representations initially made to the insurance companies issuing the subject policies, in the insurance policy applications referenced in these counts, wherein the viators represented that they suffered from none of the medical diseases or conditions referenced in those application forms, including AIDS. All the exhibits referenced in these counts came from the business files of Future First and were supplied to the Department by Future First upon the Department's request during the investigation process. These material inconsistencies should have caused Future First to be on notice or to know or believe that the viators in question in these counts had made or indeed may have made fraudulent or material misrepresentations on their insurance policy applications. Subsection 626.989(6), Florida Statutes, requires Department licensees to report to the Department any knowledge or belief that a fraudulent insurance practice, as defined in Section 817.234, Florida Statutes, had been or was being committed. Subsection 817.234(3), Florida Statutes, specifically prohibits the presentation of false, incomplete or misleading information in support of an insurance application or the concealing of any fact material to the application. Thus Subsection 817.234(3), supra, specifically prohibits the very act strongly suggested by the evidence presented in the exhibits supportive of the above-referenced counts of the Amended Order. Future First made no reports to the Department concerning these matters until it contends it first became aware of these inconsistencies in health status representations upon receipt of the Order to Show Cause and later the Amended Order to Show Cause. Consolidated Findings of Fact Concerning Counts 2, 5, 8, 9, 10, 11, 13, 14, 17, 18, 19, 23, 24, 27, 30, 31, 32, 33, 40, and 42: The facts established as to these counts are much the same as those referenced above. The health status representations on the insurance policy applications in question and in evidence (exhibit numbers cited in the Proposed Findings as to these counts in the Petitioner's Proposed Recommended Order) are materially inconsistent with the health status representation on the other exhibits which consist generally of the various documents of health or medical information provided to the Respondent by the viators in question, when the transactions leading to the viatical settlement agreements at issue were being entered into and finalized. The commonality among all of these counts as well as the counts in the above Findings of Fact (Part A above) consist of the viator's having been diagnosed with HIV or AIDS and/or related medical conditions sometime in the past prior to executing the insurance policy applications at issue and then responding in the negative on relevant questions on those policy applications, the overall effect of which was to deny the HIV positive test result, the HIV infection and the diagnosis of AIDS and related medical conditions. The viators at issue then openly revealed these conditions and the dates of the relevant diagnoses, all of which pre-dated the insurance policy applications, in the medical status representations they made to the Respondent and which were also revealed in the medical records provided to the Respondent at some point prior to the issuance of the Order to Show Cause and Amended Order. The health status representations made by the viators at these two different, germane points in time are materially inconsistent. Those material inconsistencies reasonably should have caused Future First and its operating officers to be on notice, to know or to believe that the viators made or may have made fraudulent or material misrepresentations on their insurance policy applications. Moreover, the evidence, as to these counts delineated in Part B above, shows that Future First was actually informed specifically that the policies in question had been rescinded by the insurers because the viators had made material misrepresentations on their policy applications. Exhibits such as the Future First policy summary forms show that Future First had been informed of the policy recisions as to the Counts referenced in Part B above. All of the documents constituting the Department's exhibits supportive of these findings, and the policy summary forms included, were found within the business files of Future First and were supplied to the Department by Future First upon its request during the investigative phase of this prosecution. Subsection 626.989(6), Florida Statutes, requires Department licensees to report to the Department any knowledge or belief that a fraudulent insurance practice as defined in Section 817.234, Florida Statutes, had been or was being committed. Subsection 817.234(3), Florida Statutes, specifically prohibits the presentation of false, incomplete or misleading information in support of an insurance application or the concealing of any fact material to the application. Thus, Subsection 817.234(3), supra, specifically prohibits the acts suggested by the documentary evidence presented by the Department, which supports the Findings of Fact herein. Future First made no report on these matters concerning the viators and policies to the Department, prior to the investigatory audit. Additional Findings of Fact Concerning Counts 2, 5, 41, 42, 43, and 44: Concerning Count 2, Exhibits 15 through 17 are viatical settlement purchase agreements entered into between Future First and various viatical settlement purchasers. These agreements represent to those purchasers that the policies, which are the subject of the agreements, are beyond the contestability period (typically two years) during which an insurer company may rescind its policy. The settlement purchase agreements specify that the "contestability period" runs for two years from the date of policy issuance. Exhibit 2 shows, however, that the policy in question was issued on January 22, 1998, and Exhibits 15 through 17, the agreements, were entered into in February, March and April of 1998, well before the January 22, 2000, conclusion of the contestability period. Future First thus had within its possession, in its files, the documents and information to show that the policies were not beyond contestability when the interests in those policies were sold to the investors or viatical settlement purchasers. The purchasers, by initialing the relevant portion of their purchase agreements had indicated and contracted for the purchase of non-contestable policies or policies which had survived the two-year contestable period before being purchased by these investors or viatical settlement purchasers. The vice-president in charge of underwriting, Mr. Sweeney, under the business practices of Future First, essentially made all the calculations and decisions involved in negotiating and effecting the settlement purchase agreements with the investors and the viatical settlement agreements with the original viators or insureds. As an experienced insurance executive and underwriter who had all of the relevant documents available to him, he is chargeable with knowledge that the policies he and Future First were conveying to the settlement purchasers were still within the contestability period, despite his being on documentary notice that the investors had contracted to purchase only non-contestable policies. The officers and directors of the Respondent allowed him to have this independence of action, freedom of conduct and bargaining power on behalf of Future First and therefore, Future First, the corporation, is chargeable with the conduct it allowed him to engage in, even assuming, arguendo, that no other officer, director or employee of the company knew of the relevant details of these transactions. Thus Future First misrepresented to its investors that the policies were beyond contestability when in fact they were not. It thus is chargeable with knowingly selling interests in contestable policies to investors, who had specifically contracted for the purchase for non-contestable policies. This misrepresentation was material to the purchases because the insurers' ability to rescind the policies during contestability, thereby destroying the very instrument securing the purchasers' investment, was not made known to those purchasers. The potential destruction of that instrument and the consequent loss of the investment to the purchaser is material to any reasoned decision to invest. CEO Randy Stelk's testimony at hearing to the effect that computer input error had caused contestable policies to be inadvertently sold to purchasers who contractually specified a non-contestable policy is rebutted by Future First's own documents from its records which correctly and explicitly identify the policy as contestable. See Exhibits 11a and 11f, at pages 1 and 4, and Exhibit 24, all of which correctly identify the policy as contestable. Exhibit 24 specifically notes the dates at which the policy was projected to emerge from its contestability period. Thus this documented evidence, together with the evidence of Mr. Sweeney's close and direct involvement with arranging for the transactions and making decisions as to which policies to sell to which investors belies Mr. Stelk's testimony in this regard. Concerning Count 5, Exhibits 50, 54, 55, 56 and 57, are viatical settlement purchase agreements which inter alia represented to the respective viatical settlement purchasers that the policy in question was beyond the contestability period during which an insurer may rescind the policy. The "contestability period" runs for two years from the date of policy issuance. However, Exhibit 39, shows that the policy in question was issued on February 3, 1998, and Exhibits 50, 54, 55, 56 and 57, were respectively entered into in February of 1998, well prior to the February 3, 2000, end of the contestability period. Here again, Future First's own records, which correctly and explicitly identify this policy as contestable also specifically note, at Exhibits 42d and 46, the date at which the policy was projected to emerge from the contestability period. The purchase agreements referenced above clearly show that the investors contemplated and contracted to purchase a non-contestable policy. These documents clearly were available to Mr. Sweeney and to Future First at the time Mr. Sweeney was making the underwriting decisions and entering into the agreements with the investors, and consequently this knowledge is chargeable to him and to Future First. Again Mr. Stelks' testimony that computer input error had caused inadvertent sale of contestable policies to purchasers who had contractually specified non-contestable policies is rebutted by Future First's own records, the evidence concerning Future First business practices and specifically Mr. Sweeney's underwriting methods and conduct. Thus, Mr. Stelk's testimony in this regard is not credited. Thus, it is inferred that Future First, through Mr. Sweeney, knowingly represented to investors that the policies were beyond contestability when they were not and such a representation was material to the purchase because the insurers' ability to rescind a policy during contestability and destroy the very instrument securing the investment was not made known to the purchaser. The potential destruction of that instrument and the consequent loss of investment is material to any reasoned decision to invest. Concerning Count 41, the fifth page of Exhibit 428, contains a paragraph entitled "Incontestability" which establishes that the life insurance policy in question was subject to a two-year contestability period, during which the insurer could rescind the policy. Exhibits 446, 447, 448, 449, 450 and 451, are all viatical settlement purchase agreements through which the viatical settlement investors purchased an interest in the death benefit of the life insurance policy in question. Each of those purchase agreements contains a standard section entitled "Minimum Criteria" which is initialed by the purchaser, thereby indicating the purchaser's decision to purchase an interest only in a policy which was beyond contestability. Future First nonetheless placed all of those investors' monies into the policy in question (See Exhibit 428) while it was still within the two-year contestability period without informing the purchasers of that fact. Future First had the policy in its possession and necessarily had to have a copy of it in possession in order to purchase the policy from the viator, which it did in July of 1998. It thus knew the policy was still within its contestability period when interest in it were sold to the purchasers in question. The same reasons found with regard to Counts 2 and 5 prevail here with regard to Mr. Sweeney's involvement. The documents were in Future First's possession and within its knowledge such that the circumstantial evidence clearly shows that Future First is chargeable with knowledge or belief that it sold contestable policies to investors who had no reason to believe they were purchasing contestable policies. Concerning Count 42, Exhibit 453 is dated March 24, 1998, and is a viatical settlement purchase agreement between Future First and the viatical settlement purchaser named therein. The agreement contains the same initialed provision found with regard to the agreements in Counts 2, 5 and 41, indicating the purchasers' decision to invest only in a policy which was beyond the two-year contestability period. The agreement bears the designation "PRA 58075" in the lower left hand corner of the first page (purchaser number). Exhibit 459 is a letter dated May 21, 1998, authorizing Charles R. Sussman, Trustee for the Fidelity Trust (identified in numerous exhibits, including 454 in this count, as the escrow agent used by Future First for viatical settlement contract transactions), to wire funds from that trust to Compass Bank for the purchase of an interest in the death benefits of the Farmers New World Life Insurance policy on the viator named therein, which purchase was accomplished through the execution of Exhibit 454 on June 6, 1998. Among the PRA numbers identified in Exhibit 459, is 58075, corresponding to Exhibit 453, the above-referenced purchase contract. Exhibit 455 is an internally prepared Future First document that clearly states that the life insurance policy in question was still well within its contestability period on May 21, 1998. The exhibits thus establish that Future First represented to the investor that the policy it would purchase with his funds was beyond contestability when, because of the unequivocal documents in its possession, Future First had to have known, through Mr. Sweeney, that it was not. Indeed all of those exhibits were found within the business files of Future First and Future First stipulated that included in those exhibits are its purchase request agreements that contain the contestability provision in question. Exhibits 462 and 463 establish that the Manhattan National Life Insurance policy referenced in those exhibits was issued on March 28, 1998. Exhibit 465, establishes that the Manhattan National Life Insurance policy was purchased by Future First on June 22, 1998. Exhibit 468, establishes that on July 1, 1998, purchaser 58075's funds were used to purchase an interest in that Manhattan National Life Insurance policy obviously well within the two-year contestability period since the policy was only issued on March 28, 1998. This was despite an express representation otherwise in the viatical settlement purchase agreement. Exhibits 471 and 472, show that the Manhattan National Life Insurance policy was rescinded during the contestability period in September 1998. Exhibit 473 establishes that Future First decided to switch the viatical settlement purchaser's funds out of the Manhattan National Life Insurance policy into a John Hancock Life Insurance Company policy. However, it did not inform the purchaser that the Manhattan National Life Insurance policy had been rescinded during its contestability period. Exhibits 485 and 486, establish that the Lincoln Benefit Life Insurance policy referenced therein was issued on January 23, 1998. Exhibit 487 establishes that the Lincoln Benefit Life Insurance policy was purchased by Future First in November of 1998, using the purchaser's funds referenced in Exhibits 488 and 489. Among those purchaser's funds were those of Purchaser 58075. Thus, Purchaser 58075's monies were used to purchase an interest in the death benefit of the Lincoln Benefit Life Insurance policy in question. Despite the "beyond contestability" representation made in the viatical settlement purchase agreement between Purchaser 58075 and Future First, Future First placed that purchaser's money into the Lincoln Benefit Life Insurance policy while it was still in its contestability period. Future First's own records refute Mr. Stelk's testimony that computer input error caused inadvertent sales of contestable policies to purchasers who had specified, contractually, their desire for non-contestable policies. The documents from Future First's own records in evidence, explicitly identify this policy as contestable and that the purchasers involved had desired non- contestable policies. In light of the foregoing reasons found as fact as to Counts 2, 5 and 41, which are adopted as to Count 42, Future First is chargeable with knowledge that it was selling contestable policies to purchasers who had specified contractually their wish and intent to purchase non-contestable policies. Count 43 involves the sale by Future First of interests in the death benefits of J.C. Penny Life Insurance Company Policy No. 25184/74L40L3762 in January of 1998, to three different viatical settlement purchasers. This is evidenced by Exhibits 498, 499 and 500, the respective settlement purchase agreements. Each of those purchase agreements includes a provision that required the purchase of an interest only in a policy which was beyond contestability. Exhibits 494, 496, 498, 499 and 500, together however, show that the interest in the policy sold to those purchasers were sold while the policy was still contestable, without informing the purchasers. All of these exhibits came from the business files or records of Future First and Future First stipulated that included in those exhibits are the purchase request agreements that contain the provisions restricting purchases to policies which were beyond the two-year contestability period. In light of the findings made as to Counts 2, 5, 41 and 42, next above, it is determined that Future First, the Respondent, is charged with knowledge that it, and specifically its vice-president in charge of underwriting, Mr. Sweeney, sold those policies which were still contestable to the relevant purchasers; that those purchasers had specified in their purchase agreements their intent to purchase only policies which were uncontestable and that it had not so informed those purchasers. Count 44, concerns a viatical settlement purchase agreement entered into by Future First on March 24, 1998, relating to the sale and purchase of an interest in the death benefit of an insurance policy. See Exhibit 510, in evidence. That agreement represented to the purchaser that the interest to be purchased was to be from a policy which was beyond the two- year contestability period. See Exhibits 508 and 510. However, the policy selected for investment for that purchaser by Future First was not beyond contestability. Exhibit 506, obtained from Future First's own files, clearly shows that the issuance date of the policy was May 6, 1998, and Exhibits 504, 508 and 510 considered together, indicate that the policy was sold to that purchaser while it was still contestable. Future First thus subjected the purchaser's investment to the undisclosed risk of rescission of the policy. The existence of such a risk would certainly be material to that investor's decision about whether to so invest. Thus by investing the purchaser's funds in a contestable policy instead of an uncontestable policy, without advising that investor of such a deviation from their contractual agreement, is, in effect, a material misrepresentation in that transaction. For the reasons found as to Counts 2, 5, 41, 42 and 43 above, Future First is chargeable with knowledge that the policy was contestable and that it had invested the purchaser's funds in a contestable policy when it was contractually bound to only invest that purchaser's funds in an uncontestable policy, as established by the terms of the viatical settlement purchase agreement. Future First's business practices. Future First conducts its business in various states through representatives resident in such states known as viatical settlement brokers. Viatical settlement brokers gather all relevant information, including available medical information and usually provide it to various viatical settlement providers in order to solicit multiple bids on a particular policy. Future First does not solicit viators itself. During the time period relevant to the allegation in the Amended Order, when Future First initially received a package from a broker, it was divided into its insurance and medical components. The insurance component was provided to Mr. William Sweeney, Future First's Vice-President of Underwriting. The medical component was provided to a nurse on the staff with Future First for initial medical review and then forwarded to Future First's independent medical consultant, Dr. Michael Duffy. During the time period relevant to the Amended Order, Future First offered a one, two or three-year viatical purchase program. That is, viators must have a certified life expectancy of one, two or three years in order to qualify with Future First. After Dr. Duffy reviewed a particular file and the viator was deemed qualified as to one of the three available programs, Dr. Duffy would certify and assign a life expectancy to the viator and return the file to Mr. Sweeney. Life expectancy estimates are inherently subject to many variables, are unpredictable and constitute a risk to the purchaser. Mr. Sweeney's responsibilities included verification that the insurance information provided with any particular file was correct and complete (including insurance policy applications), that the policy actually existed and was in force, that premiums were paid up to date, that the insurance company had the appropriate rating, as well as conducting other verifications. Before a policy was approved for purchase, it was Mr. Sweeney's ultimate responsibility, pursuant to Future First's existing corporate policy, to compare the date of initial diagnosis of a potential viator's medical condition to the insurance policy application to look for any inconsistencies. Mr. Sweeney next completed a "file summary cover sheet" referencing certain information and verifications and attached it to the file. Mr. Sweeney was essentially a "one-man operation" in exclusive control of Future First's underwriting department and was ultimately responsible for deciding whether or not Future First would offer to bid on a particular policy. Future First's business operations in effect at the time relevant to the Amended Order were so compartmentalized that other officers or employees at Future First might not know any details associated with Mr. Sweeney's activities. After Mr. Sweeney authorized Future First to bid on a particular policy, the file was transferred to the bidding department. The bidding department did not re-visit or otherwise question Mr. Sweeney's decision to bid on a particular policy, but only reviewed the cover sheet to establish a bid price. If documentation was missing from any file, it was Mr. Sweeney's responsibility to contact the broker to request the missing documents. All viatical settlement brokers with whom Future First did business in Florida were required to be licensed by the Petitioner. Future First currently no longer conducts business with the broker "Funds For Life" because that particular broker dealt solely in "contestable" policies and Future First no longer purchases such policies, at least since the Petitioner's audit. Future First no longer has a business relationship with the Texas-based broker "Southwest Viatical," in part because Southwest Viatical routinely failed to provide complete documentation to Future First, including the insurance applications of viators. Southwest Viatical was specifically requested to provide insurance policy applications regarding the relevant policies referred to in the Amended Order but refused to do so. Most of the Southwest Viatical files purchased by Future First did not include insurance applications at the time of purchase. The insurance applications were ultimately obtained by Future First, however, at some point prior to the 1999 audit by the Petitioner. Future First became concerned about the character of individuals associated with Southwest Viatical and when requested by Southwest Viatical to forward commission funds to an offshore account, Future First declined to do so and immediately ceased doing business with Southwest Viatical. Future First cooperated thoroughly with Texas authorities in their investigation of Southwest Viatical, ultimately culminating, as a direct result of Future First's assistance, with the apprehension and subsequent incarceration of two principals of Southwest Viatical. During the period of time alleged in the Amended Order Future First received, on the average, between 400 and 600 policies per month from brokers requesting a bid. Future First rejected and never bid on the majority of policies referred to it by Southwest Viatical. On the average, Future First ultimately purchased approximately 25 percent of the policies submitted to it for a bid. Mr. Sweeney was primarily responsible for communicating with brokers as to all aspects of a potential viatical settlement transaction and to request all required documentation, including insurance policy applications. During the course of Mr. Stelk's affiliation with Future First he personally became familiar with the handwriting of William F. Sweeney. It is Mr. Sweeney's initials which appear on the cover sheets entered into evidence by the Petitioner, exemplified by Petitioner's Exhibit 4a. All the remaining "cover sheet" exhibits of the Petitioner contain the initials "WFS" on the top right hand corner which are Mr. Sweeney's initials. Mr. Sweeney is not currently an officer, director or employee of Future First because he was removed from any position with the Respondent corporation by order of the Petitioner. No other officers, directors or employees of the Respondent have been subject to a similar removal order, nor has Future First itself. The criminal proceedings currently pending against the Respondent are the direct result of Mr. Sweeney's activities while employed by Future First. The Petitioner's lead investigator reviewing Future First's business activities recommended that individual charges only be brought against Mr. Sweeney and against no other individual employed by or affiliated with the Respondent. Future First has a business relationship with licensed life insurance agents and/or securities brokers throughout the United States to solicit funds from individuals for ultimate purchase of viatical settlements. Those licensed individuals present an approved Purchase Request Agreement (PRA) to a potential purchaser to discuss the various Future First programs available and to help the purchaser finalize a PRA. Depending on what state the purchaser resided in, the purchaser would then issue a check either to Future First directly or to the Fidelity Trust (Future First's escrow agent), to be held until such time as Future First could purchase from a viator a policy matching the program desired by that purchaser. Thereafter, a formal "closing" would occur when the purchaser was, where appropriate, made a beneficiary on one or more insurance policies; all verifications and notifications to the insurance company and other entities were completed; an attorney and the trustee, would approve all aspects of the transaction within their purview, and a copy of the closing package would be sent to the purchaser for his or her records. After the closing, Future First would engage Life Watch Services, Inc., an unaffiliated company, to monitor the health status of the viator on a monthly basis in order that all appropriate actions may be taken at the time of the viator's death, so that the policy benefits may be promptly paid to the purchaser. Future First initially engaged in the purchase of contestable policies only after being approached by groups of agents with potential purchasers willing to assume the risk associated with contestable policies. Understanding the risk associated with such policies, Future First reserved 20 percent of its potential profit from such transactions and placed those funds in trust in a "Guaranty Fund" in the event that an insurance company rescinded a policy within the contestable period. In the event an insurer rescinded a contestable policy, Future First purchased a new policy for its customer out of the Guaranty Fund, at no additional cost to the customer. No purchaser ever lost any "investment time" if a policy was rescinded by an insurance company because that purchaser would be provided a new policy involving a viator with the same ultimate remaining life expectancy. Thus, without any prompting by a governmental authority, Future First made the business decision to voluntarily exceed the protections of Florida law by establishing the Guaranty Fund in order to purchase replacement policies for its customers if the initial policy was rescinded by the insurer. The Guaranty Fund was also utilized to make the purchaser whole even when an insurance company cancelled or non- renewed an insurance policy on an entire group, or if a new insurance carrier for a particular group later reduced the benefit level assigned to the purchaser. The Guaranty Fund was also used for the benefit of purchasers if a viator as a member of an employer group, quit his or her job and the viator exercised a statutory right to have the group policy benefits converted to an individual policy. Because benefit levels on such individual policies are typically lower, the Guaranty Fund was used to purchase additional insurance benefits to assign to the purchaser. Additionally, if a policy lapsed for any reason, the Guaranty Fund was used to procure a new policy or policies in order that the purchaser would be fully protected according to the terms of the PRA. No policy purchased by Future First has ever lapsed for failure of Future First to pay the premium. Funds from the Guaranty Fund have been used to purchase new policies when a viator committed suicide and the insurance company later rescinded the policy, as well. The Guaranty Fund maintained by Future First existed to cover other contingencies beyond just the possible recession of insurance policies because of the misrepresentation of the viator discovered by the insurer within the contestable period. Future First, through use of the Guaranty Fund, has replaced approximately 17 million dollars in face value of insurance policies, equating to about 12.4 million dollars in direct cost to Future First and, as a result, no Future First purchaser has ever been harmed. The 12.4 million dollars used to purchase replacement policies would otherwise have been retained by Future First as profit. Today Future First does not purchase contestable policies in the regular course of its business. The only exception to that occurs when an insured group undergoes a carrier change and a new contestable period is automatically instituted by the new carrier. There is no prohibition in Florida either presently or during the times relevant to the Amended Order, against the purchase of contestable policies by a viatical settlement provider. The recission of the contestable policies at issue in fact immediately followed an inquiry from the Department of Insurance to the insurers, which alerted them that the Department suspected fraud in the inception of the policies. That is, it suspected fraud on the part of the viators or insureds on those policies, not Future First. Future First immediately utilized the Guaranty Fund and began replacing the policies. None of the rescinding insurers have accused Future First of any complicity in any alleged fraud with respect to the policies referenced in the Amended Order, nor has the Department of Insurance alleged any such fraud against Future First. All but one or two of the rescinded policies have been replaced and the purchasers made whole, pursuant to the terms of their original PRA. One of the two policies not fully replaced as of the date of the hearing was being contested by Future First as to the legality of the insurance company's rescission, and Future First will replace the policy, if needed, at such time as that legal issue is resolved. Of all the policies at issue in the Amended Order, including, as well, any replacement policy subsequently purchased by Future First with money from the Guaranty Fund, only one or two contestable periods had not expired as of the date of the hearing. Those contestable periods were to expire thirty to sixty days after the date of the final hearing in this matter. Future First regularly monitors and verifies the status of all policies assigned to its purchasers, including the status of all replacement policies. The direct costs to Future First to purchase replacement policies for the rescinded policies referenced in the amended order was approximately $1.5 million dollars paid out of the Guaranty Fund. Since its initial licensure in the State of Florida, Future First has cooperated with the Petitioner concerning pending legislation, rule development and other contacts with the Petitioner agency. It has cooperated fully with the Petitioner when the audit of Future First occurred in February of 1999, provided all requested information and documentation and made all personnel available to confer with examiners in a full and frank manner. In the course of the four-week on-site audit, Mr. Stelk personally met with the Petitioner's examiners once or twice a week to discuss the Petitioner's suggestions for improving compliance. The Petitioner issued a draft "Report of Examination" as a result of its audit on August 5, 1999. It contained suggestions, comments and recommendations which had been discussed during Future First's staff meetings with the examiners. Future First addressed many of the Petitioner's concerns raised in the Report of Examination (report) and implemented certain suggested changes in its business practices. Mr. Stelk directed that a formal response to the report be filed, addressing the specific points raised by the Petitioner and explaining any corrective action taken where applicable. Future First viewed certain of the findings and suggestions made at the earlier meetings and later contained in the draft report as potentially helpful to its business. It therefore implemented those suggestions even before receiving the draft of the report. Certain suggestions in the report of such as a request to formalize a refund policy, were not strictly required by a controlling statute. However, Future First nonetheless voluntarily implemented such a refund policy. Future First has cooperated with all governmental agencies interested in reviewing its files at all times during the course of its licensure as a viatical settlement provider and during the course of the relevant investigations. There has been no allegation or suggestion that it has in any way altered any documents, tampered with its files or that any information was purposely missing. The Respondent contends that the Petitioner had no knowledge as to when any particular documents were received into Future First's files, including insurance applications, medical diagnosis information or other documents and has conceded that some policy applications or medical documentations may not have been received until after the bid process and viatical transactions in some cases were actually closed. Thus, Future First would not have been able to compare documents to detect possible fraud as to those situations. Therefore, Future First could not have been guilty of fraud or misrepresentation to its purchasers as to such transactions and files if it had no documentation at the point of the transaction being closed to indicate to it that possible insurance fraud in the inducement, by a viator, had occurred. In point of fact the Petitioner is not accusing Future First of fraud. However, as of the time of the audit in February 1999, because of the discussions and information it received at meetings with Department agents and employees, and certainly as to formal notification on August 5, 1999 in the Department's report, the Respondent knew that many insurance applications in its files had medical diagnosis information or disclosures by viators which were at odds with the medical information it obtained in the viatical settlement and contracting process. It still failed to report that knowledge (and indeed circumstantial evidence clearly indicates that at least Mr. Sweeney had that knowledge even before the February 1999 audit, as to many of the files). Future First still did not report potential fraud on the part of viators to the Department that it obviously had knowledge of until it began to actually report it in a formal way, after the first Show Cause Order was served (January 2000). It is also clear that the Department knew about this inconsistent medical information and probable insurance fraud by the time of its February 1999 audit. In November of 2000, as part of its efforts to cooperate with the requirements of the Department and the relevant statutes and rules, Future First filed an Anti-Fraud Education and Training Plan (Plan) with the Department, Division of Insurance Fraud. Neither Future First nor any of its representatives received any notice from the Department that the Plan was in any way deficient or otherwise non-compliant with Florida law. It has implemented that Plan and adherence to it has had a positive effect on Future First's business. The Anti-Fraud Plan stresses that Future First will not bid on a policy for purposes of viatical settlement unless the viator's insurance application is present in the file at or before the time of the bid. Future First's corporate policy, even prior to the implementation of the Anti-Fraud Plan has been that the insurance application must be reviewed and compared with available medical documentation for any inconsistencies prior to bidding on a policy. It is also apparent, however, that Mr. Sweeney and those under his direction and control apparently did not do so in many cases. During the course of the investigation, the "free- form" stage of this proceeding and the formal stage of this proceeding, Future First has made numerous form and other filings with the Petitioner seeking approval in connection with a new PRA and various other purchaser disclosures required by recent amendments to Florida Statutes. After comments and questions from the Department, resulting in some revisions to such documents, the new PRA and disclosure documents were approved by the Department, approval of the last document being obtained in April 2001. The Respondent, by its involvement through Mr. Stelk with the Viatical Life Settlement Association of American and the National Association of Insurance Commissioners, has made a bonafide effort to gain knowledge of specific, appropriate business practices of other viatical settlement providers doing business in the United States as well as in Florida. Unlike certain other viatical settlement providers operating in Florida and elsewhere, Future First has never made premium payments on insurance policies out of the personal checking accounts of officers, directors or employees, has never instructed viators not to contact insurance companies and has never required viators to sign undated, change-of-ownership forms for filing with the insurer after the contestability period expired for any reason whatever, including as part of an effort to conceal from an insurance company the fact that an insurance policy was subject to viatical settlement. No such activity or effort to conceal has been alleged. (Compare, Accelerated Benefits Corporation documents in evidence pursuant to the Petitioner's Motion for Official Recognition). On March 19, 2000, February 8, 2001, and March 6, 2001, Future First filed with the Department identifying information and documents pursuant to the requirements of Subsection 626.989(6), Florida Statutes, to the effect that fraud may have been involved in the procurement of all of the rescinded insurance policies referenced in the Show Cause Order and the Amended Order. The three separate fraud notifications constitute the Respondent's Exhibits 7, 8 and 9 and correspond to the time period shortly after service of the initial Show Cause Order and the Amended Show Cause Order.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the administrative complaint, and if so, what action should be taken.
Findings Of Fact At all times material hereto, Allison Kay Werner (Respondent) was licensed by the Department of Insurance and Treasurer (Petitioner) as a life and variable annuity contracts and life insurance agent. She was issued license number 106486443 in 1989. Prior to being licensed in Florida, in or around 1981 Respondent was a licensed agent in the State of New York. On February 15, 1991, Ms. Estelle Lewis went to the California Federal Bank (Bank), located at 4601 Sheridan Street, Hollywood, Florida, to redeem a $10,000 Certificate of Deposit (CD) which had matured. Ms. Lewis was 81 years old. Also, she was unemployed even though, in her earlier years, she worked. Through the years, Ms. Lewis engaged in short term, two year investments, not long term investments. Nor did she invest in annuities for her belief was that annuities were for young people who are planning towards retirement. Being a senior citizen and unemployed, Ms. Lewis needed her money for income, using the proceeds from her investments as income. She did not want to tie-up her money for long periods of time. Ms. Lewis approached the teller at the Bank to redeem her CD. The teller referred Ms. Lewis to Respondent to discuss re-investing her money. It was not unusual for a teller at the Bank to refer a Bank customer to Respondent. Also, at times, Bank employees assisted with scheduling appointments with Respondent. Respondent's office was located inside the Bank, within a glass enclosure, and could be seen from the teller's location. A sign identified Respondent's office as Kemper-Invest Financial Corporation for which Respondent was a representative. Respondent provided Ms. Lewis with her business card which only identified Respondent as an Invest Financial Corporation (Invest) representative located at the Bank. No where on the business card was Respondent identified as an insurance agent. No where on the business card were the terms "insurance" or "annuity." Furthermore, Respondent did not inform Ms. Lewis that she was an insurance agent. Ms. Lewis trusted the Bank and her trust extended to Respondent even though Ms. Lewis understood that Respondent was a representative of Invest and not employed by the Bank. Because the Bank teller had referred Ms. Lewis to Respondent and because Respondent's office was located within the Bank, Ms. Lewis believed that Respondent had a connection with the Bank. Without this trust, Ms. Lewis would not have engaged in any business with Respondent. Ms. Lewis informed Respondent that she wanted a two year investment. Respondent was not unfamiliar with discussing investments with senior citizens for most of her clients were age 70 and above. Ms. Lewis agreed upon a two year investment at a return of eight percent. Unbeknownst to Ms. Lewis, she had invested in an annuity which would mature in 20 years. The annuity also had an investment time of seven years, which meant that the annuity could be surrendered without a surrender charge in its seventh year. The maximum issuance age for the annuity was 85 which meant that anyone up to age 85 could purchase the annuity. That same day, February 15, 1991, Respondent completed an account application for the investment, which included writing Ms. Lewis' responses to questions on the application which included Ms. Lewis' age and date of birth. Respondent submitted the application to Ms. Lewis for her review. Ms. Lewis skimmed the application only for responses that she felt were important, i.e., her name and social security number. Finding those items correct, she signed the account application. No where on the account application were the terms "life insurance" or an "annuity" mentioned. Invest Financial Corporation and Kemper Fiancial Services were clearly displayed on the application. Also, the investment objective indicated on the application was growth instead of income. An application for an annuity, referred to as the All Savers Plan on the application, was also completed on that same date. However, this application contained the terms life insurance and annuity. Believing that life insurance or an annuity did not apply to her since neither were requested and were not agreed upon, Ms. Lewis signed this second application. Additionally, on February 15, 1991, Ms. Lewis gave Respondent the $10,000 and Respondent provided Ms. Lewis a receipt for the $10,000. The receipt contained a notation that the money was received for "Kemper All Savers." Invest and Kemper Financial Services were displayed on the receipt. No where on the receipt were the terms annuity or life insurance. As with other annuities sold by Respondent, she received a commission for the annuity that she sold Ms. Lewis. Paying commissions to insurance agents for annuities sold is a common practice. Subsequently, Ms. Lewis received an undated letter of thanks from Respondent for obtaining the services of Invest. The letter was on Invest letterhead, with Kemper Financial Services indicated on it. Additionally, on the letter Respondent identified herself as an Invest representative. The letter made no mention of what services Ms. Lewis had obtained or of life insurance or an annuity. Further, Ms. Lewis received two letters dated February 20, 1991 and February 28, 1991 from Kemper. The letters were on "Kemper Investors Life Insurance Company" letterhead and referenced Ms. Lewis' investment as an annuity. Ms. Lewis did not believe that the two letters applied to her since she had not purchased an annuity or life insurance. Consequently, she ignored the letters. Ms. Lewis received a copy of the annuity policy in the mail but did not read it. She filed it away with the rest of her documents associated with the transaction. Ms. Lewis received account summaries regarding her investment. The summaries indicated that they reflected the activity for an annuity called Kemper All Savers Annuity and that they were from the Kemper Investors Life Insurance Company. The summaries showed the performance of her investment. Ms. Lewis ignored the summaries as reflecting activities for an annuity in which she had invested. She continued to believe that she had not invested in an annuity. On or about February 15, 1993, approximately two years after the transaction, Ms. Lewis returned to Respondent's office located in the Bank to redeem her investment. At that time, Ms. Lewis was informed by Respondent that a penalty fee of $525.89 would be assessed for early withdrawal. Respondent advised Ms. Lewis further that she had an annuity which could be cashed-in at no penalty (no surrender charges) after seven years. The meeting on February 15, 1993, was the first time that Ms. Lewis was informed of a penalty by Respondent. Also, the meeting was the first time that Respondent had informed Ms. Lewis that she had purchased an annuity and that the annuity was a seven year investment. Ms. Lewis did not want to wait the additional years to avoid the penalty and insisted on surrendering what she knew now to be an annuity. Subsequently, Ms. Lewis received her $10,000 plus interest less the penalty. Respondent has vast experience in annuities. She has sold annuities since around 1981 when she was employed with Merrill Lynch and Shearson in New York. At all times material hereto, Ms. Lewis had no mental or physical infirmity which interfered with her mental capacity to think and understand. At all times material hereto, Ms. Lewis could read and write. Ms. Lewis has never been offered restitution or a refund of the penalty.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order suspending the license of Allison Kay Werner for one-year. DONE AND ENTERED this 1st day of March, 1996, in Tallahassee, Leon County, Florida. ERROL H. POWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of March, 1996.
Findings Of Fact Edward Berk, Respondent, was at all times here relevant licensed as an ordinary life, including disability, insurance agent to represent Founders Life Assurance Company, Standard Security Life Insurance Company of New York, American Variable Annuity Life Assurance Company, Wisconsin Life Insurance Company, Columbian Mutual Life Insurance Company, and Lone Star Life Insurance Company. He is licensed as a disability insurance (2-40) agent to represent American Family Life Assurance Company of Columbus and an ordinary life (2-16) agent to represent Estate Life Insurance Company of America. (Exhibit 1). On April 12, 1979 Respondent pleaded guilty in the U. S. District Court for the Southern District of New York of violation of 18 USC 1341 and 1342 to wit: unlawfully, willfully and knowingly devising and intending to devise a scheme and artifice to defraud and to obtain money from The Travelers Insurance Company by means of false and fraudulent pretenses, representations , and promises. He was found guilty and sentenced to two years imprisonment on each of five counts, the sentences to run concurrently. The execution of the sentence was suspended and Respondent was placed on probation for a period of two years (Exhibits 2)
