The Issue The issue presented is whether Petitioner's application for licensure as a mortgage broker should be granted.
Findings Of Fact Petitioner is 54 years of age and has been a resident of the State of Florida for eighteen years. On January 28, 1983, Petitioner was convicted of six counts of mortgage fraud in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, Case No. 81-3411CF. That conviction arose out of certain conduct by Petitioner in approximately 1980. Petitioner was sentenced to five years of confinement, with credit for time served, and twelve years of probation. That conviction was affirmed by the District Court of Appeal on July 5, 1984, and re-hearing was denied on August 1, 1984. Zaremba v. State, 452 So.2d 1026 (Fla. 4th Dist. 1984). On February 25, 1987, Petitioner entered a plea of nolo contendere to the offense of grand theft in the Circuit Court of the Twentieth Judicial Circuit in and for Lee County, Florida, Case No. 86-0836CF. On that same date, he was adjudicated guilty and placed on probation for a period of five years to run concurrently with the probation imposed by the Circuit Court of Broward County in Case No. 81-3411CF. That charge arose out of a dispute with his employer, and Petitioner was required to make restitution during his probationary period in the amount of $16,082 pursuant to an order entered by the Court on March 5, 1987. Petitioner's probation was terminated in Case No. 81-3411CF on October 5, 1993, and in Case No. 86-0836CF on April 12, 1993. Petitioner timely made restitution in the total amount ordered by the Court. For the last eight years Petitioner has been employed by Atlantic Real Estate Company in Pompano Beach, Florida, a developer of time-share properties. As the closing officer for that company, Petitioner reviews the closing documents, including mortgages, deeds, and contracts. As the closing officer, Petitioner also handles the money and has for the last eight years. He accepts down payments and closing costs from people purchasing units by the week. He takes the money home at night and deposits it in the bank the next morning. Although he handles thousands of dollars a week in this manner, none of the money which has come into his possession has ended up "missing," and no one has ever accused him of improperly handling any of that money. Petitioner has been licensed as a real estate salesperson by the State of Florida since 1991. Although his application for that licensure was initially denied as a result of his criminal history, Petitioner requested an informal hearing before the Florida Real Estate Commission, and the Commission granted his application for a license. That real estate salesperson's license is current, having been renewed by the Department of Professional Regulation, Division of Real Estate, on August 7, 1993. Petitioner has also successfully handled monies belonging to others as a member of the Board of Directors of the Silver Seas Beach Club, a time-share resort on the Fort Lauderdale "strip." In that capacity, Petitioner has handled money from sales and has also operated the front desk on Saturdays receiving money from people renting units in that resort. He has so handled that money for four years. Petitioner was considered to be "an exemplary probationer" by his probation officer. Petitioner also enjoys a reputation for being competent, honest, reliable, and trustworthy in his handling of money belonging to other persons and in his business dealings, as evidenced by letters from his employer, from the management at Silver Seas, and from a local practicing attorney who was formerly employed by the State of Florida as a prosecutor. Petitioner has rehabilitated himself since the time of his activities which resulted in his two convictions. Petitioner has shown himself to be trustworthy and of good character. On July 29, 1993, Petitioner submitted to the Department his application for licensure as a mortgage broker. In that application he disclosed his two convictions and has provided to the Department all information requested relative thereto. That application reveals that Petitioner has complied with all procedures prerequisite to licensure, including filing the application, paying the appropriate application fee, providing fingerprints, attending the required mortgage broker education courses, and successfully passing the examination for licensure. By letter dated December 14, 1993, the Department denied Petitioner's application for licensure based solely on Petitioner's convictions. In denying Petitioner's application, the Department did not conduct any investigation as to Petitioner's rehabilitation or good character. Rather, the Department relied on its "policy" that no application for licensure as a mortgage broker will be granted if the applicant has ever been convicted of a crime involving fraud, dishonest dealing, or acts involving moral turpitude.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered granting Petitioner's application for licensure as a mortgage broker. DONE and ENTERED this 3rd day of August, 1994, at Tallahassee, Florida. LINDA M. RIGOT 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 3rd day of August, 1994. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 94-1229 Petitioner's proposed findings of fact numbered 9-13 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 1, 8 and 9 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 2-7 and 11 have been rejected as being irrelevant to the issues under consideration in this cause. Respondent's proposed finding of fact numbered 10 has been rejected as being unnecessary for determination of the issues involved herein. Respondent's proposed findings of fact numbered 12 and 13 have been rejected as not constituting findings of fact but rather as constituting argument of counsel. COPIES FURNISHED: Richard C. Booth, Esquire Booth & Associates Post Office Box 12639 Tallahassee, Florida 32302 Cassandra A. Evans, Esquire H. Richard Bisbee, Esquire Department of Banking and Finance Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 William G. Reeves, General Counsel Department of Banking and Finance The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 Honorable Gerald Lewis Department of Banking and Finance Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350
The Issue The issue in this case is whether Respondents have violated provisions of Section 627.837, Florida Statutes, through payment of alleged monetary inducements to insurance agents for the purpose of securing contracts which finance insurance premiums.
Findings Of Fact Petitioner is the Department of Insurance and Treasurer (Department). Respondents are Puritan Budget Plan, Inc., and Gibraltar Budget Plan, Inc., (Respondents). Findings contained in paragraphs 3- 23, were stipulated to by the parties. Stipulated Facts Common shares in Respondents' corporations were sold to insurance agent/shareholders for between $500.00 and $2,500.00 per share, depending on date purchased. Presently, and for the purposes of this litigation, marketing and/or administrative fees paid by Respondents to agent/shareholders range from $1.00 to $13.00 per contract produced, depending on the number of payments made, and the amount of the down payment. Each per contract marketing and/or administrative fee paid by Respondents to agent/shareholders is completely unrelated to the number of contracts produced by that agent/shareholder, and is based upon the characteristics of each contract, pursuant to the terms of the shareholder purchase agreement. Perry & Co., pursuant to a written agreement, manages the day to day activities of Respondents, including solicitation of new shareholder/agents. Alex Campos is currently President of Perry & Co. Perry & Co., Dick Perry or Alex Campos have no equity ownership, either direct or indirect, in Respondents corporations. No shareholder of Perry & Co. is also a shareholder in either Respondent, and no shareholder of the Respondents is a shareholder in Perry & Co. No officer or director of Perry & Co. is an officer or director of either Respondent, and no officer or director of either Respondent is an officer or director of Perry & Co. The individual management agreements between Perry & Co. and Respondents are terminable with proper notice by either party. Respondent Puritan Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Puritans' principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Respondent Gibraltar Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Gibraltar's principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Customers of Respondents are typically financing automobile insurance premiums. There is little if any variation among licensed premium finance companies in the State of Florida as to the interest rate charged to customers. In 1988, the Department inquired of Respondents' activities in relation to agent/shareholder compensation arrangements. After several meetings with representatives from Respondents, the Department closed the matter without taking any action. Also in 1988, the Department proposed the adoption of Rule 4-18.009, which in part would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes, but later withdrew the proposed rule. Again in 1994, the Department proposed a rule which would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes. After a hearing and adverse ruling by the hearing officer, the Department withdrew proposed Rule 4-196.030(8). Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in the unnecessary financing of contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in insurance agents adding or sliding unnecessary products to make the total cost of insurance more expensive and induce the financing of additional contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. An "inducement" is presently defined as "an incentive which motivates an insurance purchaser to finance the premium payment or which motivates any person to lead or influence an insured into financing the insurance coverage being purchased; or any compensation or consideration presented to a person based upon specific business performance whether under written agreement or otherwise." Rule 4-196.030(4), Florida Administrative Code (July 27, 1995). This rule is currently effective but presently on appeal. There is no evidence that Respondents unnecessarily financed any premium finance contracts or engaged in any "sliding" of unnecessary products to induce the unnecessary financing of contracts. Section 627.837, Florida Statutes, does not prohibit the payment of corporate dividends based on stock ownership to shareholders who are also insurance agents. According to the Final Bill Analysis for H.B. 2471, in 1995 the Legislature amended Section 627.837, Florida Statutes, relating to rebates and inducements. This section was amended to clarify that this statute does not prohibit an insurance agent or agents from owning a premium finance company. The statute, as amended, is silent on the issue of how owner-agents may be compensated. Other Facts Approximately 80 percent of Respondents' insureds will turn to the shareholder/agent to handle premium mailing and collection. When a shareholder/agent provides these valuable services and labor to Respondents through the servicing of the premium finance contract with an insured, payment for those services and/or recoupment of the expenses involved with their provision is made, at least in part, in the form of the marketing and administrative fees paid by Respondents to the shareholder/agent. The marketing and administrative fee payment by Respondents to shareholder/agents is made from the net profit of the corporation and represents payment of ownership interest (dividends) to shareholder/agents in addition to payment for shareholder/agent services or expenses. Respondents generally finance "non-standard" private passenger automobile insurance. Such insurance generally covers younger drivers and drivers with infraction points against their license. The average non-standard premium is $500 per year. Thirty percent of non-standard insureds will cancel their insurance prior to the renewal date. Cancellation of policies and financing arrangements by non-standard insurers require the agent to return unearned commissions, about $30 generally. In contrast, payment of an insurance premium in cash guarantees an agent his/her entire commission, an average of $90 per non-standard policy. Consequently, the financial interest of most agents is best served by cash sale of auto insurance as opposed to financing the insurance. The average amount generated by 95 percent of all premium finance contracts executed in Florida would yield an agent/shareholder approximately six dollars per contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered dismissing the Administrative Complaints. DONE and ENTERED in Tallahassee, Florida, this 28th day of November, 1995. DON W. DAVIS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1995. APPENDIX In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties. Petitioner's Proposed Findings 1.-11. Accepted to extent included within stipulated facts, otherwise rejected for lack of citation to the record. 12. First sentence is rejected as not substantially dispositive of the issues presented. Remainder rejected for lack of record citation if not included within stipulated facts. 13.-15. Rejected to extent not included within stipulation, no citation to record. Incorporated by reference. Rejected, no record citation, legal conclusion. 18.-19. Rejected, not materially dispositive. 20. Rejected, no record citation. 21.-23. Rejected, not materially dispositive. Rejected, record citation and relevancy. Rejected, weight of the evidence. Incorporated by reference. Respondent's Proposed Findings 1. Rejected, unnecessary to result. 2.-3. Accepted, not verbatim. 4. Rejected, unnecessary. 5.-7. Accepted, not verbatim. 8.-9. Rejected, unnecessary. 10. Accepted per stipulation. 11.-12. Rejected, unnecessary. 13. Accepted per stipulation. 14.-16. Accepted, not verbatim. Rejected, hearsay. Rejected, relevance. Rejected, unnecessary. 20.-22. Accepted per stipulation. 23. Rejected, unnecessary. 24.-57. Incorporated by reference. 58.-60. Rejected, unnecessary. 61.-62. Rejected, subordinate and not materially dispositive. 63.-67. Rejected as unnecessary to extent not included in stipulated facts. Accepted per stipulation. Rejected, unnecessary. Accepted per stipulation. 72.-76. Rejected, unnecessary. 77. Accepted per stipulation. 78.-79. Incorporated by reference. 80.-87. Accepted per stipulation. 88. Incorporated by reference. 89.-90. Accepted per stipulation. 91.-95. Rejected, subordinate. 96. Accepted. 97.-101. Rejected, unnecessary. 102. Incorporated by reference. COPIES FURNISHED: Alan Liefer, Esquire Division of Legal Services 612 Larson Building Tallahassee, FL 32399-0333 Steven M. Malono, Esquire Cobb, Cole & Bell 131 N. Gadsden St. Tallahassee, FL 32301 Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300
Findings Of Fact Respondent is an applicant to register as a securities salesman with Realty Income Securities, Inc., said application having been submitted to the Division of Securities on February 2, 1975 and is currently pending (Testimony of Dove). During the period of approximately February through - September, 1973, Respondent, a registered mortgage broker, was employed by Financial Resources Corporation of Fort Lauderdale, Florida, in the sale of promissory notes secured ostensibly by first mortgages upon land located in Highlands County, Florida. These notes and security documents were issued by Equitable Development Corporation of Miami Beach, Florida. The notes were payable to "investors" at 14 percent interest per year, payable monthly for several years at which time the full principal balance would become due. The mortgage deeds recited that Equitable Development Corporation held the land which secured the notes in fee simple, free and clear of all encumbrances except real estate taxes. The mortgage deeds further recited that Equitable reserved the right to convey the land to a purchaser under an installment land contract subject to the lien of the mortgage and would deliver to the National Industrial Bank of Miami, an escrow agent, a copy of any such agreement for deed and a quit-claim deed which would be held in escrow. They also provided a procedure by which under any default of Equitable, the escrow agent would deliver the escrow documents to the investor (Testimony of Dove, Petitioner's Composite Exhibit 1). Respondent's association with Financial Resources Corporation came about as a result of a visit by Mr. Robert Rinehart, President of the firm, who explained the mortgage sales program to him and stated that the security instruments were indeed first mortgages. Additionally, Rinehart supplied Respondent with brochures, letters, and documents containing questions and answers concerning the program and the protection afforded thereby to investors. Respondent personally viewed the property in question at Highland Park Estates and observed that over a hundred homes had been constructed which were of a value from $14,000 to $40,000. He also observed that docks had been built on the lake in the project area and that almost all of the roads had been paved. He was shown the MIA appraisal on the property which stated that Rinehart's representations as to property values were accurate. Equitable further represented to him that the notes in question were exempt securities in that they came within the provisions of Section 517.06(7), F.S., concerning the issuance or sale of notes secured by a specific lien upon real property created by mortgage or security agreement. In fact, Respondent became so convinced of the merits of these transactions that he had his mother invest twenty thousand dollars in the program (Testimony of Respondent, Watts; Respondent's Exhibits 1,2). In September 1973, Respondent formed Florida Income Resources Corporation, a mortgage brokerage firm. He did not sell any of the Equitable notes for a period of some months and, prior to commencing sale of them through his firm in the Spring of 1974, his attorney looked over the various aspects of the Equitable program and advised him that everything seemed "open and above board." Respondent thereafter on April 9 and August 1, 1974 sold to William H. Mott secured promissory notes of Equitable Development Corporation in the amounts of $2,000 and $2,250 respectively (Testimony of Respondent, Zawadsky; Petitioner's Composite Exhibit 1). During the period of these sales, letters of Albert George Segal, attorney, were being sent to investors advising them that he had examined the title to the real property purchased and that it was free and clear of encumbrances and constituted valid first mortgages (Respondent's Exhibit 3, Stipulation). Administrative proceedings were brought against Respondent by the Division of Finance involving sales of the notes in question resulting in a settlement by stipulation whereby Respondent did not acknowledge any wrongdoing, but agreed to a suspension of his mortgage broker's registration for two years. Respondent's firm secured no appraisals or title searches on the property involved in the sales to Mott (Testimony of Respondent).
Recommendation That the allegations be dismissed and that Respondent Edgar A Dove be registered as a securities salesman if he otherwise meets the qualifications set forth in Section 517.12, Florida Statutes and Chapter 3E-30, Florida Administrative Code. DONE and ENTERED this 15th day of March, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Fred O. Drake, III Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 H. Gordon Brown, P.A. 301 W. Camino Gardens Boulevard Suite B P.O. Box 1079 Boca Raton, Florida 33432
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. At all times material to this proceeding, Respondent has been licensed and eligible for appointment in Florida as a life and variable annuities agent, a life, health, and variable annuities agent, and a general lines agent. The City of Port St. Lucie (the "City") has had a City-funded pension plan in effect for its employees since October 1, 1977 (the "plan"). The City funds the plan with a contribution of 10.5 percent of the gross income of each employee who is enrolled in the plan (the "participant"). The monthly contributions by the City are sent directly to The Prudential Insurance Company ("Prudential"). The plan is participant directed. It allows each participant to direct the investment of his or her share of the City's contribution into either an investment account or a split investment account. If a participant elects an investment account, all of the City's contributions for that participant are used to purchase an annuity contract. If a participant elects the split investment account, a portion of the City's contribution for that participant is invested in an annuity contract and a portion is invested in whole life insurance issued by Prudential. Each whole life policy builds a cash value and provides benefits not available in the annuity contract, including disability benefits. Each participant is completely vested in the plan after he or she has been enrolled in the plan for five years. Prudential issues annuity contracts and insurance policies on participants and provides plan services to the administrator and trustees of the plan. 1/ The City is the owner of both the annuity contracts and the insurance policies. Both the annuity contracts and insurance policies are maintained in the City offices of the plan administrator. Participants do not receive copies of either annuity or insurance contracts and do not receive certificates of insurance. Beginning in 1984, each participant has received monthly Confirmation Statements in their paycheck envelopes. The Confirmation Statements are prepared by Prudential and disclose the net investment activity for the annuity contract. From the inception of the plan, each participant has received an annual Employee Benefit Statement which is prepared by Prudential and discloses the amount of the employer contributions that were allocated to the annuity contract and the amount that was allocated to insurance. Participants are eligible to enroll in the pension plan after six months of service. Biannual enrollment dates are scheduled in April and October each year. Prior to each biannual enrollment date, the City conducts an orientation meeting to explain the pension plan to prospective participants. The City sends a notice to each eligible employee in his or her payroll envelope. The notice informs the employee of his eligibility and the date and time of the orientation meeting. At the City-run orientation meeting, eligible employees are told that the pension plan is a participant directed plan in which each of them must elect either a straight annuity investment or a split investment involving an annuity and life insurance. Thirty to forty percent of the prospective participants do not attend the City-run orientation meeting. Subsequent to the orientation meeting, Respondent meets individually with each eligible employee in a room located on the premises of the City. The enrollment sessions are scheduled by the City so that Respondent has approximately 30 minutes to meet individually with each prospective participant. During that 30 minutes, Respondent provides each eligible employee who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. 2/ Respondent explains the investment options, answers questions, asks the participants for the information contained in the applications and has the participants sign the appropriate applications. 3/ Each participant elects his or her investment option during the 30 minute enrollment session with Respondent. 4/ There is no separate written form evidencing the participant's election. The only written evidence of the election made by the participant is the application for annuity contract and, if the participant elects the split investment option, the application for insurance. If a participant elects the straight annuity investment option, Respondent completes and has the participant sign only one application. That application is for an annuity contract. If the split investment option is elected, Respondent completes and has the participant sign a second application. The second application is for life insurance. An application for an annuity contract is completed by Respondent and signed by the participant regardless of the investment option elected by the individual participant. 5/ An application for an annuity contract is clearly and unambiguously labeled as such. The top center of the application contains the following caption in bold print: Application For An Annuity Contract [] Prudential's Variable Investment Plan Series or [] Prudential's Fixed Interest Plan Series The participant must determine as a threshold matter whether he or she wishes to apply for a variable investment or fixedinterest annuity contract. Respondent then checks the appropriate box. The front page of the application for annuity contract contains an unnumbered box on the face of the application that requires a participant who applies for a variable investment annuity contract to select among seven investment alternatives. The unnumbered box is labeled in bold, capital letters "Investment Selection." The instructions to the box provide: Complete only if you are applying for a variable annuity contract of Prudential's Variable Investment Plan Series Select one or more: (All % allocations must be expressed in whole numbers) [] Bond [] Money Market [] Common Stock [] Aggressively Managed Flexible [] Conservatively Managed Flexible [] Fixed Account [] Other TOTAL INVESTED 100 % The application for annuity contract is two pages long. Question 1a is entitled "Proposed Annuitant's name (Please Print)." Question 4 is entitled "Proposed Annuitant's home address." Question 10, in bold, capital letters, is entitled "Annuity Commencement Date," and then states "Annuity Contract to begin on the first day of." There is an unnumbered box on the application relating to tax deferred annuities. Question 12 asks, "Will the annuity applied for replace or change any existing annuity or life insurance?" (emphasis added) The caption above the signature line for the participant is entitled "Signature of Proposed Annuitant." An application for insurance is also completed by Respondent and signed by the participant if the split investment option is elected. The application for insurance is clearly and unambiguously labeled as such. The upper right corner of the application for insurance contains the following caption in bold print: Part 1 Application for Life Insurance Pension Series to [] The Prudential Insurance Company of America [] Pruco Life Insurance Company A Subsidiary of The Prudential Insurance Company of America The term "proposed insured" also appears in bold print in the instructions at the top of the application for insurance. The application for insurance is approximately five pages long. 6/ It contains questions concerning the participant's treating physician, medical condition, driving record, and hazardous sports and job activities. 7/ Question 1a is entitled "Proposed Insured's name - first, initial, last (Print)." Question 7 asks for the kind of policy for which the participant is applying. Question 9 asks if the waiver of premium benefit is desired. Question 12 asks, "Will this insurance replace or change any existing insurance or annuity in any company?" (emphasis added) Question 21 asks, "Has the proposed insured smoked cigarettes within the past twelve months?" The caption under the signature line for the participant is entitled "Signature of Proposed Insured," as is the signature line for the Authorization For The Release of Information attached to the application for insurance. Respondent met with each of the participants in this proceeding during the time allowed by the City for the enrollment sessions. Mr. Robert Riccio, Respondent's sales manager, was present at approximately 70 percent of those enrollment sessions. Respondent provided each participant who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. Respondent explained the investment options, and answered any questions the participants had. The name, occupation, and date of the enrollment session of the participants involved in this proceeding are: (a) Edmund Kelleher Police Officer 3-16-88 (b) Raymond Steele Police Officer 9-29-88 (c) Mark Hoffman Police Officer 10-29-86 (d) Joseph D'Agostino Police Officer 3-12-88 (e) Charles Johnson Police Officer 9-24-84 (f) Donna Rhoden Admin. Sec. 3-26-87 (g) John Gojkovich Police Officer 10-2-84 (h) John Skinner Police Officer 9-14-84 (i) John Sickler Planner 3-14-90 (j) James Lydon Bldg. Inspect. 9-13-89 (k) Robert McGhee Police Officer 9-18-84 (l) Richard Wilson Police Officer 3-21-89 (m) Lorraine Prussing Admin. Sec. 9-6-84 (n) Helen Ridsdale Anml. Cntrl. Off. 9-14-84 (o) Sandra Steele Admin. Sec. 4-3-85 (p) Linda Kimsey Computer Op. 3-18-89 (q) Jane Kenney Planner 3-13-85 (r) Alane Johnston Buyer 3-18-89 (s) Paula Laughlin Plans Exam. 3-18-89 Helen Ridsdale Anml. Cntrl. Super. 9-14-84 Jerry Adams Engineer 3-16-88 Cheryl John Records Super. for the Police Dept. 9-14-84 Each participant in this proceeding elected the split investment option during his or her enrollment session with Respondent and signed applications for both an annuity contract and an insurance policy. Each participant signed the application for insurance in his or her capacity as the proposed insured. The City paid 10.5 percent of each participant's salary to Prudential on a monthly basis. The payments were sent to Prudential with a form showing the amount to be invested in annuities and the amount to be used to purchase insurance. Each participant who enrolled in 1987 and thereafter received with his or her paycheck a monthly Confirmation Statement and all participants received an annual Employee Benefit Statement disclosing the value of the investment in annuities and the value of the investment in life insurance. The participants in this proceeding, like all participants, did not receive copies of annuity contracts and insurance policies and did not receive certificates of insurance. The annuity and insurance contracts were delivered to the City, as the owner, and maintained in the offices of the City's finance department. The participants in this proceeding had no actual knowledge that they had applied for insurance during the enrollment session with Respondent. Most of the participants had other insurance and did not need more insurance. Each participant left the enrollment session with Respondent with the impression that they had enrolled in the pension plan and had not applied for insurance. The lack of knowledge or misapprehension suffered by the participants in this proceeding was not caused by any act or omission committed by Respondent. Respondent did not, either personally or through the dissemination of information or advertising: wilfully misrepresent the application for insurance; wilfully deceive the participants with respect to the application for insurance; demonstrate a lack of fitness or trustworthiness; commit fraud or dishonest practices; wilfully fail to comply with any statute, rule, or order; engage in any unfair method of competition or unfair deceptive acts or practices; knowingly make false or fraudulent statements or representations relative to the application for insurance; or misrepresent the terms of the application for insurance. No clear and convincing evidence was presented that Respondent committed any act or omission during the enrollment sessions which caused the participants to believe that they were not applying for insurance. 8/ None of the participants testified that Respondent prevented them or induced them not to read the applications they signed. 9/ All of the participants affirmed their signatures on the application for insurance, but most of the participants did not recognize the application for insurance signed by them. Some participants could not recall having signed the application. The participants could not recall being hurried or harassed by Respondent and could not recall if Respondent refused to answer any of their questions. 10/ None of the participants provided a clear and convincing explanation of how Respondent caused them to sign an application for insurance without their knowledge or described in a clear and convincing fashion the method by which Respondent prevented them or induced them not to read or understand the contents of the documents they were signing. 11/ Eleven of the 22 participants cancelled their insurance policies after "learning" that they had insurance policies. Eight participants cancelled their policies on August 23, 1990. Two cancelled their policies on February 5, 1991, and one cancelled her policy on April 18, 1991. Financial adjustments required by the cancellations have been made and any remaining contributions have been invested in annuity contracts. Since 1983, Respondent has assisted Prudential and the City in the administration of the pension plan, including the enrollment of all participants. Prior to 1990, there was only one incident in which a participant complained of having been issued an insurance policy without knowing that she had applied for an insurance policy. The policy was cancelled and the appropriate refund made. Respondent has a long and successful relationship with the City and has no prior disciplinary history with Petitioner. Respondent is the agent for Prudential. The pension plan was intended by Prudential and the City to provide eligible employees with investment opportunities for annuities and life insurance. Respondent generally makes higher commissions from the sale of insurance than he does from the sale of annuities. 12/ Mr. Riccio receives 14 percent of the commissions earned by Respondent. Respondent encourages all participants to elect the split investment option by purchasing both annuities and insurance. If a participant states that he or she does not want life insurance, Respondent asks them for their reasons and explains the advantages of life insurance. If the participant then rejects life insurance, Respondent enrolls the participant in a straight annuity investment. Such practices do not constitute fraud, deceit, duress, unfair competition, misrepresentations, false statements, or any other act or omission alleged in the one count Administrative Complaint.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent not guilty of the allegations in the Administrative Complaint and imposing no fines or penalties. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14th day of January 1992. 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 14th day of January 1992.
The Issue The issue in this case is whether disciplinary action should be taken against the Respondent on the basis of her failure to timely comply with continuing education requirements established by Section 626.2815, Florida Statutes.
Findings Of Fact The Respondent is currently licensed by the Florida Department of Insurance ("Department") as a General Lines (2-20) Agent. During the period from August 1, 1995, through July 31, 1997, the Respondent was licensed as a General Lines (2-20) Agent and as a Life, Health, and Variable Annuity (2-15) Agent. At all times material to this case, insurance agents licensed in Florida have been required to complete continuing education courses every two years. Licensed insurance agents can meet their continuing education requirements by attending seminars, taking classroom courses, or taking self-study courses. During the period from August 1, 1995, through July 31, 1997, the Respondent was required to complete 28 hours of continuing education courses. /3 The required courses could be taken and completed at any time during that two-year period. At all times material, the Respondent has been aware of the continuing education requirements applicable to licensed insurance agents. The Respondent resides in Key Largo, Florida, and has lived at the same address for at least 10 years. Miami, Florida, is about 60 miles from Key Largo. Key West is about 100 miles from Key Largo. During the period from August 1, 1995, through July 31, 1997, there were 11 continuing education courses offered in Key largo. During that same period there were 73 continuing education courses offered in Monroe County. During that same period there were approximately 3,000 continuing education courses offered in Dade County. The Respondent waited until July 16, 1997, which was 15 days before the end of her two-year continuing education deadline, before taking any action to comply with the continuing education requirements. On that day she ordered two self-study courses from a course provider named Noble. If an insurance agent chooses a self-study course to fulfill the continuing education requirements, the course is not considered to be completed until the agent has taken a monitored examination on the course material and has achieved a score of at least 70 percent. The Respondent finished her study of the course materials she bought from Noble by the end of July 1997, but she did not take and pass the examinations on those materials until the end of August 1997, which was three or four weeks past the end of her compliance deadline. In July of 1997, the Respondent was nursing an infant child. Although Noble had a testing site in Miami, the Respondent did not want to go to Miami to take the examinations for her self-study courses, because a trip to Miami would interfere with nursing her child. The Respondent waited until the end of August, because by that time Noble had opened a testing site in Key Largo. All insurance agents who failed to comply with the continuing education requirements for the period ending July 31, 1997, were sent a Preliminary Notice of Non-Compliance. All agents who did not respond to the Preliminary Notice of Non- Compliance were sent a Final Notice of Non-compliance. Both preliminary and final notices were sent to the Respondent. The Department initiated disciplinary action against all insurance agents who were found to have failed to comply with the continuing education requirements. The Department offered each of the non-compliant agents an opportunity to settle the disciplinary actions by payment of an administrative fine in the amount of $250.00. Numerous insurance agents settled on those terms. In one case, such a disciplinary action was resolved by a stipulated six-month license suspension.
Recommendation On the basis of all of the foregoing, it is RECOMMENDED that the Department of Insurance issue a final order concluding that the Respondent is guilty of failing to comply with statutory and rule provisions regarding continuing education, and imposing a penalty consisting of a six-month suspension of the Respondent's license. DONE AND ENTERED this 8th day of October, 1999, in Tallahassee, Leon County, Florida. MICHAEL M. PARRISH 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 8th day of October, 1999.
The Issue The issue is whether the following rules are invalid exercises of delegated legislative authority: Florida Administrative Code Rules 64B1-2.008; 64B1-6.002(1), (4) (only the following language: "is responsible for filing provider approval applications and"), (5), (8) (only the following language: ". . .n approved"), and (10) (only the following language: "individual,"); 64B1-6.005(4); 64B1-6.006(1), (8) (only the following language: "approved"), and (11); 64B1-6.007(1) and (2); and 64B1-6.008(1) and (2).
Findings Of Fact Petitioner received his degree in Acupuncture and Oriental Medicine in 1997. He subsequently obtained a license, under Chapter 457, Florida Statutes (2003), and is now an acupuncture physician, practicing Acupuncture and Oriental Medicine. Petitioner has been a member of numerous acupuncture organizations. Respondent has approved Petitioner, individually, as a continuing education provider, under provider number BP02-92. To obtain such approval, Petitioner has twice paid Respondent $100 for a two-year approval as an acupuncture continuing education provider. Respondent has also approved the Acupuncture and Oriental Medicine National Coalition Corp. (NCC), which is a Florida for-profit corporation, as an acupuncture continuing education provider. Incorporated on March 3, 2003, NCC has paid Respondent $100 for approval as an acupuncture continuing education provider. Petitioner and David Sontag are the sole officers, directors, and shareholders of NCC. Each shareholder owns half of the company's stock. The purpose of NCC is to raise the standards of the acupuncture profession nationally, including educational standards, and to support the advancement of "acupuncture and oriental medicine." NCC has about 300 members residing in Florida and 1000 members nationally. Membership, which is free, entitles the member to benefits, such as access to information on the NCC website and negotiated discounts from other service providers, but not to rights in governing the corporation. Respondent has approved NCC as a "State or National Acupuncture and Oriental Medicine Organization," pursuant to Section 457.107(3), Florida Statutes (2003). In November 2001, Petitioner coordinated an acupuncture continuing education program in Fort Lauderdale for another provider. In 2002, Petitioner sponsored an acupuncture continuing education program in Florida on electro-acupuncture. On August 23, 2003, Petitioner taught a weekend acupuncture continuing education program sponsored by NCC. Petitioner obtained Respondent's approval for the electro-acupuncture course, but the process took nine months to complete. However, the record is insufficient to determine the cause or causes for the delay and, thus, who was responsible for it. At least 60 days before conducting the course, Petitioner paid the $50 program approval fee and submitted the approval forms. When Petitioner inquired about the approval, Respondent's executive director advised him to provide the course, pending approval. Petitioner thus was unable to advertise the course as approved by Respondent and instead advertised only that the sponsor had applied for Respondent's approval. Nearly 100 persons attended the electro-acupuncture course, paying $65 each. However, Petitioner netted only $350 on the program because of the expenses in advertising the program, renting a hotel, and other items. NCC obtained Respondent's approval for its course in August 2003 within two weeks of submitting its application. NCC submitted the required forms and the required $100 check. Persons attending the NCC course received their acupuncture continuing education credits from Respondent. Petitioner is substantially affected by the rules that he has challenged. Petitioner has sponsored an acupuncture continuing education course and, as an employee, taught another course that was sponsored by NCC. It may be reasonably expected that Petitioner will participate in future acupuncture continuing education programs in one or both of these capacities. The rules concerning a filing fee for approval require a modest fee, but NCC's net on the one course for which detailed financial information was provided suggests that the provider is substantially affected by even a modest fee, given the relatively little profit that ensued from that course. In their entirety, the subject rules in this case are as follows (challenged portions underlined): 64B1-2.008 Continuing Education Program Approval Fee. The continuing education program approval fee shall be $50. Specific Authority 457.104, 457.107(3), Florida Statutes. Law Implemented 457.107(3), Florida Statutes. History–New 5- 12-87, Amended 9-15-92, Formerly 21AA-2.008, 61F1-2.008, 59M-2.008, Amended 10-15-97. 64B1-6.002 Definitions. “Approved” means acceptable to the Florida Board of Acupuncture. “Board” means Florida Board of Acupuncture. “Committee” means Committee on Continuing Education of the Board. “Contact Person” means one who is responsible for filing provider approval applications and insures compliance with these rules, maintains complete rosters of participants, and is knowledgeable about the provider’s program(s). “Correspondence Program” means an approved program offered by mail with a defined course of study to be completed by the participant for which an evaluation of performance is made and a rating of satisfactory or unsatisfactory completion of the course is given by the provider. “Credit Hour” means a minimum of 50 minutes and a maximum of 60 minutes of class time. One-half (1/2) credit hour means a minimum of 25 minutes and a maximum of 30 minutes of class time. “Department” means the Department of Health. “Participant” means an acupuncturist who attends a program presented by an approved provider in order to achieve the stated objectives of the program. “Program” means a planned educational experience dealing with a specific content based on the stated objectives. “Provider” means the individual, organization or institution conducting the continuing education program. Specific Authority 456.013, 456.025, 456.033, 457.104, 457.107(3) Florida Statutes. Law Implemented 456.013, 456.025, 456.033, 457.107(3), Florida Statutes. History–New 2-24-88, Formerly 21AA-6.002, 61F1-6.002, Amended 1-16-97, Formerly 59M-6.002. 64B1-6.005 Standards for Approval of Continuing Education Credit. A continuing education program must contribute to the advancement, extension or enhancement of the licensee’s skills and knowledge related to the practice of acupuncture and oriental medicine. Programs should concern the history and theory of acupuncture, acupuncture diagnosis and treatment techniques, techniques of adjunctive therapies, acupuncturist-patient communication and professional ethics. All continuing education courses are subject to evaluation and approval by the Board to determine that the continuing education course meets the criteria established by the Board which has final determination as to the number of hours of acceptable credit that will be awarded for each program. Each program offered for continuing education credit must be presented or taught by a person who at a minimum holds a bachelor’s degree from an accredited college or university or a post-secondary education institution licensed by the State of Florida, with a major in the subject matter to be presented; or has graduated from a school of acupuncture, or has completed a tutorial program which has a curriculum equivalent to the requirements in this state and was approved by a state licensing authority, a nationally recognized acupuncture/oriental medicine association or a substantially equivalent accrediting body, and has completed three (3) years of professional experience in the licensed practice of acupuncture; and has a minimum of two (2) years teaching experience in the subject matter to be presented, or has taught the same program for which approval is sought a minimum of three (3) times in the past two (2) years before a professional convention, professional group or at any acupuncture school, or has completed specialized training in the subject matter of the program and has a minimum of two (2) years of practical experience in the subject. In order to meet the continuing education requirements, the continuing education program submitted by the licensee must meet the criteria established by the Board. No credit will be given for programs which are primarily devoted to administrative or business management aspects of acupuncture practice. To receive credit for programs on HIV/AIDS, the program must be, at a minimum, two (2) hours in length and must address the areas mandated in Section 456.033, F.S. The Board accepts HIV/AIDS programs presented or conducted by the Department of Health and programs approved by other professional regulatory boards for the health professions. Continuing education programs related to laboratory test or imaging findings shall be designed to provide course content on the clinical relevance of laboratory and diagnostic tests and procedures as well as biomedical physical examination findings and to advance, extend or enhance the licensee’s skills and knowledge related to the safe and beneficial use of laboratory test and imaging findings. Specific Authority 456.013(9), 456.033, 457.104, 457.107(3), Florida Statutes. Law Implemented 456.013(9), 456.033, 457.107(3), Florida Statutes. History–New 2-24-88, Amended 8-6-89, Formerly 21AA-6.005, 61F1-6.005, Amended 3-18-97, Formerly 59M- 6.005, Amended 6-1-99, 1-7-03. 64B1-6.006 Requirements for the Provider. Each provider shall: File all information necessary for provider and program approval on Forms DOH/AP007, Continuing Education Course Approval Applications, DOH/AP006, Continuing Education Provider Approval, which are hereby incorporated by reference and will be effective 2-18-98, copies of which may be obtained from the Board office. Insure that the continuing education program(s) presented by the provider complies with these rules. Maintain a complete, alphabetized, legible roster of participants for a period of 3 years following each program presentation. Maintain a “sign-in” sheet and a “sign- out” sheet with the signatures of participants. Provide each participant with a certificate certifying that the participant has successfully completed the program. The certificate shall not be issued until completion of the program and shall contain the provider’s name, title of program, date of program, location, and number of credit hours. Notify the Board of any significant changes relative to the maintenance of standards as set forth in these rules. Ensure that no person receives credit for the same program more than once. Notify the Board of any change in the presenters or instructors of any approved program, and demonstrate the new instructor meets the criteria set forth in subsection 64B1-6.005(2), F.A.C. Designate a contact person who assumes responsibility for each program, and who is knowledgeable about each program. The contact person shall notify the Board of any significant changes in programs or a lapse in the maintenance of standards. In a correspondence continuing education program, each provider is responsible for obtaining from each certificateholder a signed statement which states that the participant did in fact read the material, performed the exercises and took the examination personally. A clearly defined refund policy shall be in the flyer. There shall be adequate personnel to assist with administrative matters and personnel with competencies outside content areas in cases when the method of delivery requires technical or other special expertise. Providers shall maintain records of individual offerings for inspection by the Board; records shall include subject matter, objectives, faculty qualifications, evaluation mechanisms, credit hours and rosters of participants. Specific Authority 456.013, 457.104, 457.107(3), Florida Statutes. Law Implemented 456.013, 457.107(3), Florida Statutes. History–New 2-24-88, Amended 7-25- 88, Formerly 21AA-6.006, 61F1-6.006, Amended 3-18-97, Formerly 59M-6.006, Amended 2-18-98. 64B1-6.007 Preapproved Providers. Subject to the requirements of Rule 64B1-6.005 and subsections 64B1-6.007(3) through (5), F.A.C., the Board approves for continuing education credit programs offered by: (a) The Continuing Education Committee of the American Association of Oriental Medicine (AAOM); (b) The Florida State Oriental Medicine Association (FSOMA); (c) Individual member schools of the Colleges of Acupuncture and Oriental Medicine (CCAOM); and (d) The National Alliance for Acupuncture and Oriental Medicine. A nonrefundable processing fee of $50 must be submitted with each registration of course offering. Each program offering shall contain: A detailed program outline or syllabus; A current curriculum vitae of each speaker or lecturer; The procedure to be used for recording attendance; and Evidence of meeting all the requirements of Rule 64B1-6.005, F.A.C. Upon processing of a program offering, the Board will assign an identification number to that program. Upon receipt by the provider of the course identification number, the provider may identify the program as “approved by the Florida Board of Acupuncture for purposes of Continuing Education Credit” in any flyer or other advertisement. Specific Authority 456.013(7), (8), (9), 457.104, 457.107(3), Florida Statutes. Law Implemented 456.013(7), (8), (9), 457.107(3), Florida Statutes. History–New 2- 24-88, Formerly 21AA-6.007, Amended 7-4-94, Formerly 61F1-6.007, Amended 4-10-97, Formerly 59M-6.007. 64B1-6.008 Process for Program Approval. Each program to be offered by an approved provider must be approved by the Board. Applications for approval Form DOH/AP007, Continuing Education Provider Approval, which are hereby incorporated by reference and will be effective 2-18-98, copies of which may be obtained from the Board office shall be submitted to the Board Office at least 60 days prior to the date of presentation. Each program application shall contain: A detailed program outline or syllabus; A current curriculum vitae of each speaker or lecturer; The procedure to be used for recording attendance; Evidence of meeting all the requirements of Rule 64B1-6.005, F.A.C.; and A nonrefundable fee of $50.00. Upon approval of a program, the Board will assign an identification number to that program. If approved, the provider may identify the program as “approved by the Florida Board of Acupuncture for Purposes of Continuing Education Credit” in any flyer or other advertisement. Specific Authority 456.013(7), (8), (9), 457.104, 457.107(3), Florida Statutes. Law Implemented 456.013(7), (8), (9), 457.107(3), Florida Statutes. History–New 2- 24-88, Formerly 21AA-6.008, 61F1-6.008, Amended 1-16-97, Formerly 59M-6.008, Amended 2-18-98. The forms mentioned in Florida Administrative Code Rule 64B1-6.006(1) involve two approval processes. Form DOH/AP007, which is also mentioned in Rule 64B1-6.008(1), is the application for Respondent's approval of the provider. Form DOH/AP006 is the application for Respondent's approval of the program. Form DOH/AP007 comprises two pages of instructions, a copy of Florida Administrative Code Rule 64B1-6.005, and a four- page application. The instructions state: "Application Fee: $100 (Non- Refundable). The remainder of the instructions explain the items set forth in the application. The checklist at the end of the instructions restates the requirement to submit a $100 check or money order. The first page of the application states: "$100 non- refundable application fee." It asks whether the application is a "renewal application." The first page also asks the name of the "organization" and its "continuing education director," as well as contact information, such as mailing address. The first page asks four questions: Does your organization monitor attendance to assure those in attendance have been present for the entire program for which they receive credit? Does your organization assign an identifiable person to be present at continuing education activities who is responsible for recording attendance? Does your organization have facilities available to store records for at least 3 years? Have you attached a curriculum vitae for each instructor? The first page concludes with an affidavit signed by the continuing education director, although not notarized, and stating that he or she represents that the information in the completed form is accurate and will comply with the rules contained in Florida Administrative Code Chapter 64B1-6.006. The second page of the application is a certificate of completion. It requests the name, license number, and address of the licensee attending the program; the name and address of the provider; and the site, course title, continuing education hours awarded, and name of the instructor. The third page of the application is Form C: Course Offering Data Form. This page requires the provider to list the educational objectives of the course and the continuing education hours and subject matter for each objective. The form also requires the identification of the teaching methods. The fourth page of the application is Form D: Course Offering Data Form. This page requires the provider to list the name and job title of each instructor and his or her relevant education and experience. Form DOH/AP006 is the application for Respondent's approval of the program. Form DOH/AP006 comprises one page of instructions, a copy of Florida Administrative Code Rules, 4B1-6.005 and 64B1-6.008, and a three-page application, the last two pages of which are identical to the last two pages of the Form DOH/AP007 application. The first numbered instruction requires: "Prior to offering or advertising a continuing education course, the provider must have registered by way of submitting this application: the course, along with any materials to be offered and the name and qualifications of the instructor . . .." This instruction warns: "If you have failed to submit all of the above, you will not be eligible to offer the course for continuing education credit. NO RETROACTIVE CREDIT IS GRANTED BY THE BOARD." The second numbered instruction requires the provider to submit any material to be used in a home-study course. The third numbered instruction requires a "nonrefundable fee of $50" with "each program application." The first page of the application requires identifying information for the provider and program, as well as disclosure of whether the course for which approval is sought is a previously approved course with a new or additional instructor, a new course, or a previously approved course with different credit hours. The first page also states that instructors must meet the qualifications of Florida Administrative Code Rule 64B1-6.005(2)(a) or (b).
The Issue Whether proposed amendments to Rule 4-7.009, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority. Specifically at issue in this proceeding are the proposed amendments to Rule 4-7.009 which restrict, under certain circumstances, compensation paid to sellers of credit insurance products and which require premium refunds to some purchasers of credit insurance.
Findings Of Fact Credit insurance is a form of group insurance marketed and sold to consumers by creditors or, in the case of motor vehicle financing, by vehicle dealers. The insurance can be purchased by a debtor at the time the debtor enters into a loan agreement. Credit insurance is purchased by debtors as protection against risk of loss caused by unexpected events occurring during the term of the insurance contract. Credit insurance provides for the payment of the balance of the debt upon the death or disability of the insured debtor. Otherwise stated, the benefit of such insurance to the debtor is the assurance that, if the debtor becomes unable, due to death or disability, to make the required periodic payments, the insurer will pay off the balance of a loan or other debt obligation. Sellers of credit insurance products are compensated in the form of commissions paid to sellers by insurers. Additional compensation is periodically paid by some insurers to sellers based upon the profitability of each seller's line of business. Beginning in late 1990, the Department of Insurance ("Department") proposed amendments to administrative rules relating to credit life and credit health and accident insurance products. The Petitioners have challenged the provisions of the proposed rule restricting the level of compensation paid to the sellers of credit insurance products and requiring insurers to make "experience refunds". As set forth in the Department's Notice of Change, published in the November 27, 1991 edition of the Florida Administrative Weekly (Vol. 17, No. 48), the proposed rule amendment provides in relevant part as follows: 4-7.009 Determination of Reasonableness of Benefits in Relation to Premium Charge General Standard. Under the Credit Insurance Law, benefits provided by credit insurance policies must be reasonable in relation to the premium charged. In determining whether benefits are reasonable in relation to premium, the Department shall consider loss experience, allocation of expenses, risk and contingency margins, and policy acquisition costs. This requirement is satisfied if the premium rate charged develops or may be reasonably expected to develop a loss ratio of not less than 1. (a) 55% for credit life insurance and 2. (b) 50% for credit accident and health insurance, and either the insurer does not pay compensation in excess of 30% of the net direct written premium based upon the applicable prima facie rates set forth in Rules 4-7.010 and 4-7.011, or the insurer demonstrates to the satisfaction of the Department that payment of compensation in excess of said 30% is actuarially sound. "Compensation" means money or anything else of value paid by the insurer and/or by any reinsurer to any agent, producer, creditor, or affiliated body. On the basis of relevant experience, uUse of rates not greater than those contained in Rules 4-7.010 and 4-7.011 ("prima facie rates") shall be deemed currently reasonable premium rates reasonably expected to develope the required loss ratio, subject to a later determination of experience refunds, if any, as described herein. An insurer may only file and use rates with such forms which are greater than the prima facie rates set forth in Rules 4-7.010 and 4-7.011 upon a satisfactory showing to the Department Commissioner that the use of such rates will not result on a statewide basis for that insurer of a ratio of claims incurred to premiums earned of less than the required loss ratio. Furthermore, the extent to which an actual rate is greater than that set forth may not exceed the difference between (a) claims which may be reasonably expected and (b) the product of the required loss ratio and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 for the coverage being provided. (2) The Department Commissioner shall, on a triennial basis, review the loss ratio standards set forth in subsection (1), above, and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 and determine therefrom the rate of expected claims on a statewide basis, compare such rate of expected claims with the rate of claims for the preceding triennium, determined from the incurred claims and earned premiums at prima facie rates reported in the annual statement supplement, and adopt the adjusted actual new statewide prima facie rates for Rules 4-7.010 and 4-7.011 to be used by insurers during the next triennium. The new rates will be set at levels that would have produced the loss ratios set forth in subsection (1), above. To make this comparison and redetermination, insurers shall report in the annual statement supplement format, each year, claims and earned premiums, separately, for business written with premiums based on Rules 4-7.010 and 4-7.011. * * * Insurers will calculate a dollar amount of loading each year based upon the insurer's earned credit life and credit accident and health premium in this state for the same year. Loading will be calculated as 45% of earned premium for life insurance and 50% of earned premium for credit accident and health insurance. For this calculation, earned premium shall be based on the rates set forth in Rules 4-7.010 and 4-7.011. Insurers shall calculate an Experience Refund Amount each year for credit life and credit accident and health insurance written in this state after the effective date of this rule. Experience Refunds can be positive or negative. Positive Experience Refunds are to be refunded in the following manner: Experience refunds are to be allocated to accounts which have positive Experience Refund Amounts in proportion to the ratio of each account's refund amount to the total of all positive refund amounts. For the purpose of this allocation, all individual policies are to be treated as one account. The Experience Refund Amount allocated to a particular account is to be refunded to all certificate holders or individual policyholders of such account in proportion to the premiums earned for each certificate holder or individual policyholder to the total of all premiums earned for such account. Earned premiums for Experience Refund purposes are to be equal to paid premiums for the calendar year less unearned premium reserves at the end of the calendar year plus unearned premiums at the beginning of the calendar year. Unearned premium reserves are to be calculated pro rata. Credit policies issued on a non-contributory basis are excluded. Non-contributory means that individual insureds pay no part of the insurance premium. Premiums are paid by the policyholder out of policyholder funds. Individual credit policies issued on a participating basis are to be excluded. All new loans insured after the effective date of this rule are subject to the Experience Refund calculation and distribution, if any. Individual refunds of less than $10 do not have to be made. Experience Refunds are to be determined for each calendar year as follows: Earned Premium, less Loading as determined above, less Incurred claims, less The sum of any carry forwards for the three previous years. An insurer that uses rates which are 10% or more below the rates set forth in Rules 4-7.010 and 4-7.011 shall not be required to calculate or make an Experience Refund. The Florida Bankers Association ("FBA") is the trade association of the Florida banking industry, many of whom sell credit insurance to their customers. The Florida Automobile Dealers Association ("FADA") is a trade association of franchised new car and truck dealers, approximately 65% of whom sell credit insurance. The Florida Recreational Vehicle Dealers Trade Association ("FRVDTA") is a trade association of recreational vehicle dealers, approximately 35% of whom sell credit insurance. The FBA, the FADA, and the FRVDTA are substantially affected by the proposed rule amendment at issue in this case. Specifically the FBA, the FADA, and the FRVDTA are substantially affected by the proposed regulation of compensation paid to sellers of credit insurance products and by the proposed requirement that, under some circumstances, refunds be made to credit insurance purchasers. The Consumer Credit Insurance Association ("CCIA") is a trade association of credit insurance companies, at least 50 of whom sell credit insurance in Florida. The CCIA is substantially affected by the proposed rule amendment provision related to premium refunds to some insureds. Credit insurance is priced and sold without regard to sex or age of the debtor. There is little underwriting of credit insurance risks. Due primarily to the age of the population and the effect of mandated coverages, Florida's credit insurance claims are higher than in other states. There are currently in excess of eighty million credit insurance policies in force in the United States. Credit insurance is sold under master policies issued by insurers to producers, such as banks and vehicle dealers. Producers sell the insurance product and maintain records of the credit insurance purchasers, who hold certificates issued under each master policy. Credit insurance premiums are based upon the amount financed by the debtor and are calculated according to rates established on a statewide basis by the Department. Credit insurers may not charge more than the prima facie rates for credit insurance, therefore, there is no benefit to consumers to "shop around" for credit insurance. Although credit insurers are not prohibited from charging less than the prima facie rates, there is no evidence that any insurer charges less than the Department's adopted rates. Since 1982, the Department-approved prima facie credit life premium rate was $.60 for every $100 financed. The rate was based on the Department's determination that a $.60 prima facie rate would result in insurers paying out approximately 60% of premium dollars in claims paid to insureds, and that a 60% "loss ratio" was reasonable. The "loss ratio" is the fraction of premium dollars paid out in claims. The $.60 prima facie rate did not yield a 60% loss ratio. The loss ratios for some insurers was substantially less that 60%. On September 1, 1991, the Department reduced the prima facie credit life and credit health and accident rates. In establishing new prima facie rates, the Department established a 55% loss ratio for credit life insurance and a 50% loss ratio for credit disability. The revised prima facie rates are based upon data from calendar years 1986, 1987 and 1988. Such data includes information related to paid claims, earned premium, and insurer administrative overhead expenses. The setting of such rates is an actuarial exercise intended to provide a reasonable projection of premium rates and loss ratios. There is no evidence that the revised prima facie rates result in premiums which are excessive in relationship to the amount of the loans insured. The revised prima facie rates are reasonably expected to yield the revised loss ratios. The rule provides a triennial review mechanism to ascertain whether the expected loss ratios are being met and to adjust prima facie rates if such is indicated. The review is a reasonable method of assuring that such loss ratios are met. Currently, commissions are paid by insurers to producers (i.e. banks and dealers) as compensation for selling the product. The amount of commission is determined by agreement between the insurer and producer. Commissions for the sale of credit insurance vary widely and, in some cases (generally involving the sale of credit insurance related to automobile purchases) may be as high as 60% of the premium paid by the consumer. In addition to payment of commissions, some insurers retrospectively compensate producers by periodically paying an amount based upon the profitability of each producer's business. Compensation levels largely determine which credit insurer's product a producer chooses to sell. The proposed rule limits total compensation levels, absent specific authorization by the Department, to 30% of the net direct written premium based upon the applicable prima facie rates. Compensation levels have no impact on the premiums charged to consumers purchasing credit insurance. Premiums charged are based on the Department's prima facie rates. The proposed rule permits a credit insurance company to exceed the 30% compensation restriction where the insurer can establish that the payment of compensation in excess of the 30% is "actuarially sound". The determination of whether payment of commission in excess of 30% is "actuarially sound" is left to the discretion of the Department. There is no statutory, rule, or commonly accepted definition of the term, although the Department's actuary stated that a product determined to be "actuarially sound" would be a "self-supporting" product, either profitable or "breaking even". He further opined that he would consider investment income in a determination of actuarial soundness, although the proposed rule does not require such consideration. The Department's purpose in enacting the proposed compensation restriction was to protect insurers from insolvency and financial instability. The commission restriction was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The commission restriction was not intended to, and will not, ensure that the loss ratios deemed reasonable by the Department will be met. In adopting a 30% compensation restriction, the Department calculated that, assuming the 55% loss ratio was met, $.55 of each premium dollar would be paid in claims. The Department assumed that $.15 of each premium dollar would cover overhead expenses and profit. According to the Department, the remaining $.30 is the most an insurer could pay as compensation to the producers without affecting the solvency of the insurer. In calculating the commission restriction, the Department did not consider the effect of an insurer's investment income on the ability to pay commission. There is no evidence that payment of commissions in excess of 30% of net direct written premiums has adversely affected the solvency of any credit insurer doing business in Florida. There is, in fact, no history of credit insurer insolvency in Florida. Nationwide, there has been little problem of insolvency in the credit insurer business, with no more than four insurers having become insolvent. In each of those cases, the insolvency resulted from poor management of assets, and was not related to payment of excess commissions to producers. The Department asserts that, absent such restrictions, insurers will pay excessive compensation in order to compete for producers, and that such excess compensation, coupled with administrative expenses and a 55% loss ratio, will threaten the solvency of the companies. The assertion is not supported by the greater weight of credible evidence. The proposed rule also requires insurers, under some circumstances, to make experience-based refunds to credit insurance purchasers. In determining whether a refund is required, an insurer first calculates whether the insurer has met or exceeded the 55% loss ratio for the prior year. If the loss ratio is met or exceeded, no refunds are required. If an insurer determines that the 55% loss ratio was not met, the insurer calculates the difference between targeted 55% loss ratio and the actual percentage of premium dollars paid out in claims. The insurer then identifies each producer account which had a loss ratio of less than 55%, determines the identity and location of each certificate holder (insured) in each producer's account, and makes a refund to each identified certificate holder. Individual refunds of less than $10 to an individual consumer are not required. The proposed rule permits insurers to carry excess losses forward for a period of three year, to offset years when the targeted loss ratio is not met. However, such excess losses may not be carried forward beyond the three year period. Whether a consumer receives a refund is unrelated to the premium paid by the consumer. An individual consumer ("A") purchasing a car and credit insurance at Dealer "A" may receive a refund, while a Consumer "B" purchasing the same car and credit insurance from Dealer "B" may not receive a refund, if Dealer A's line of business with the insurer meets the target loss ratio and Dealer B's line of business with the same insurer fails to meet the loss ratio. The benefit of the credit insurance is the assurance that, under certain conditions, the insurer will pay off the balance of a loan or other debt obligation. If Consumer A receives a refund and Consumer B does not, Consumer A pays more than Consumer B for the same insurance protection. The Department's purpose in enacting the proposed experience refund was to ensure that the 55% loss ratio would be met. However, the experience refund provision, combined with the three year limit for charging off excess losses, will eventually result in loss ratios which will exceed the 55% ratio which the Department has determined to be reasonable. There is no need for experience refunds when the prima facie rates established by the Department are appropriately set. Such rates are designed to produce an acceptable loss ratio. It is reasonable to believe that the Department's revised prima facie rates will result in acceptable loss ratios. The refund proposal was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The proposed rule provides that an insurer charging a premium based on rates at least 10% below the prima facie rates are not required to calculate the experience refund. There is no credible rationale supporting the use of 10% as the threshold under which an insurer escapes the refund calculation, although the resulting loss ratio likely approaches the 60% loss ratio suggested by the National Association of Insurance Commissioners. Of the actuaries testifying at hearing, one opined that a rate 10% less than the prima facie rate was viable, the other opined that it was not. Because the Department's revised prima facie rates are reasonably calculated to result in a 55% loss ratio, an insurer charging less than the prima facie rate will likely exceed the 55% loss ratio. In connection with the final version of the proposed rule, the Department did not prepare an economic impact statement. The Department did not estimate the costs of insurer compliance with the refund provisions. The expense required of insurers in order to establish experience refund payment systems is significant. Information management systems will require extensive modification to permit such data to be maintained. Substantial amounts of data, which is not currently provided to insurers, must be collected and accurately maintained to permit refunds to be made. Such costs were not included in administrative expenses considered by the Department when the revised prima facie rates were established. Presently, credit insurers maintain limited data related to insureds purchasing credit insurance in connection with installment loans. Although such data may be initially collected by producers, insurers are typically provided only with the name of the debtor and loan number. Data is transmitted to insurers either electronically or through paper files. In either case, data must be converted to usable form by insurers. In approximately seventy percent of credit insurance business, addresses of insureds are not transmitted to insurers. There is no credible evidence that current addresses of insureds are continuously maintained by either insurer or producer in installment debt insurance, since there is little need to question original data as long as periodic payments are being timely made. In a form of credit insurance known as "monthly outstanding balance" insurance, bulk accounts are received by insurers, who generally does not receive either names or addresses of insureds. Consumers whose monthly outstanding balance indebtedness is insured are more likely to provide producer/creditors with current addresses, but such data is not provided to insurers. As to credit insurers, although most insurers currently process refund checks, the additional expense of establishing or modifying systems capable of compliance with the proposed refund requirement could amount to as much as five percent of each premium dollar. One bank official estimated that, as to his bank, the expense of complying with the refund provisions would include an initial cost of $1.1 million and an annual cost of $350,000 to $500,000. A credit insurance information systems and processing executive estimated that the 31 producers writing business for his company would incur costs of $1,860,000 to comply with the rule, and that his own company's costs would be in the range of $4-5 million. The Department suggested that, rather than modify existing mainframe computer systems, such data could be maintained by insurers on personal computers and microcomputer networks. The Department asserted that such systems would be less expensive and require less modification than the process outlined by industry representatives. However, there is credible testimony establishing that significant resources would be involved in determining whether such conversion to microcomputers would be feasible or warranted. In any event, there is no evidence that such conversion could be accomplished in a timely manner permitting the insurers to comply with the proposed rule requirements. The greater weight of the evidence establishes that the expenses estimated by the industry representatives are reasonable based upon the existing management information systems maintained by the industry.
The Issue Whether or not Petitioner's application for examination as a general lines agent should be approved.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received, and the entire record compiled herein, I hereby make the following relevant factual findings: On or about September 2, 1989, Petitioner, Kimberly L. Strayer, formerly known as Kimberly Lindsay, filed an application for examination as a general lines agent with Respondent, Department of Insurance. Since January 1988, Petitioner has been the sole owner and president of Central Florida Insurance Agency (Central). On or about December 28, 1989, Respondent informed Petitioner, by letter, that her application for examination as a general lines agent was denied for the following reasons: Petitioner operated Central Florida Insurance Agency without a licensed general lines agent in the full-time active charge of that agency from January 1, 1988 through August 31, 1988. During January 1988 Petitioner accepted applications and down payments from the following insureds: Robert Smallwood, Annelle Jones, Mickey Lawson, Donald Johnson, Thomas Jones, Manning O'Callahan and Christopher Stevens. Petitioner issued a binder and an automobile identification card for each insured indicating that coverage was bound with State Farm Mutual Insurance Company, as servicing carrier for the Florida Joint Underwriting Association (FJUA). At the time Petitioner had no authority to accept either applications or premiums on behalf of State Farm. Petitioner failed to forward such applications and premiums to the insurer until April 12, 1988. During January 1988, Petitioner accepted an application and premium payment of $274.00 from Tammy Clay. Petitioner issued a binder indicating that coverage was bound with State Farm and Union American Insurance Companies. Petitioner failed to forward either the application or the premium payment to any insurer. Petitioner issued a fictitious policy number to Ms. Clay and after nearly four months, submitted a money order to State Farm payable to Tammy Clay, on or about May 1989. At the hearing, Petitioner admitted that she did not have a licensed general lines agent in full-time active charge of her agency; that she accepted applications and premium payments from the above-named insureds for auto insurance to be bound with State Farm Mutual Insurance Company and that she accepted an application for premium payment for automobile insurance from Tammy Clay in the amount of $274.00 for coverage to be bound by State Farm Mutual Insurance Company. Petitioner was first employed in the insurance sales industry during the summer of 1987. At the time, she was only seventeen years old and had completed the eleventh grade. Petitioner's first employment in the insurance industry was with Friendly Auto Insurance (Friendly) which had several offices throughout Polk County, Florida. Friendly was owned by Petitioner's now husband, Larry Lindsay when she was hired. Petitioner formed Central during late 1987 and began operating Central on or about January 1, 1988. Petitioner received her supervision and training while employed with Friendly, primarily through on the job experiences. During late 1987, Petitioner's husband encountered problems with one of his business partners which resulted in strained relations. The resultant strained relations prompted Petitioner to organize Central. Central purchased several of Friendly's agencies of which her now husband had an interest, with Petitioner paying a nominal amount for the "book of business" that Friendly had generated. When Central commenced operations during January of 1988, Bob Seese was the licensed insurance agent who was authorized under the rules of the FJUA to accept applications and bind coverage through one of the FJUA servicing carriers, State Farm. Friendly and its successor, Central, generated a substantial volume of so-called high risk auto insurance business for drivers who could not obtain insurance through the regular market. Bob Seese had been associated with and served as the licensed agent for the Friendly agency in Lakes Wales which Central purchased in January 1988. At the time Petitioner commenced operating Central, she hired Bob Seese as the licensed general lines agent. She considered that Central was authorized to accept applications and continue to bind FJUA insurance coverage through State Farm. Petitioner forwarded all of the FJUA insurance applications which were bound by Bob Seese to State Farm within a period ranging from one week to approximately one month. State Farm refused to accept the applications submitted by Petitioner based on its contention that initially, Bob Seese was not authorized to bind coverage through Central, as he had not transferred his license to Central and Seese could only operate out of the Friendly agency of Lake Wales. 1/ Bob Seese was formally authorized by State Farm to conduct business through Central during February 1988. As a result of that authorization, all of the above-named insureds obtained insurance and none of the insureds suffered any monetary loss as a result of Seese's belated authorization. All of the premium payments that Petitioner received were, in time, forwarded to the respective carriers. Petitioner properly gave new insureds binder numbers which were serially dispensed in the order that premium payments were received. During January 1988, Petitioner accepted an application and premium payment for auto insurance from Tammy Clay for coverage to be bound by State Farm. Petitioner submitted Clay's application and premium payment to State Farm and it was returned on one occasion based on the fact that a facsimile stamp was used by the purported licensed agent (Seese). Petitioner resubmitted it and State Farm again returned it based on State Farm's contention that Seese was not authorized to conduct business through Central. Petitioner has now completed the required formal educational courses to demonstrate her eligibility to sit for the general lines agent's examination. Petitioner is now knowledgeable about insurance matters and is aware of the proper procedures for operating as a general lines agent. When Petitioner formed Central, she had less than one year's experience in the insurance business and was ineligible to sit for the general lines agent exam as she was not of majority age.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Respondent enter a Final Order granting Petitioner's application for examination as a general lines insurance agent. DONE and ENTERED this 31st day of October, 1990, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL 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 31st day of October, 1990.
