The Issue Whether Respondent, an insurance agent licensed in Florida, violated specified Florida Statutes and agency rules in the sale of an annuity to two senior citizens, as charged in the Administrative Complaint, and, if so, the penalty that should be imposed against Respondent's license.
Findings Of Fact The Parties At all times relevant, Respondent was licensed by Petitioner as an annuity, health, and life insurance agent in Florida. Petitioner is the state agency charged with licensing and regulating insurance agents and taking disciplinary action for violations of the laws and rules it administers. Background Annuities This case arises from Respondent's sale of an Aviva equity index annuity ("Aviva annuity") to Robert and Frances Wexler on or about May 22, 2008. An annuity is a contract under which an insurance company, in exchange for a premium, agrees to pay the owner a specified income for a period of time. Annuities generally are classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. Under a variable annuity, the premium is invested on the owner's behalf, and the amount of the benefit, when paid, reflects the performance of that investment. The annuities at issue in this case are fixed annuities. Fixed annuities can be either "immediate" or "deferred." Under an immediate fixed annuity, the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, the premium is allowed to grow over time until the contract matures or is annuitized and the insurer begins paying the benefit. The annuities at issue in this case are deferred annuities. Annuities may be "equity index" annuities. This means that the insurer pays a benefit to the insured based on a premium that earns interest at a rate determined by the performance of a designated market index. The premium is not invested in the market for the owner's account; rather, the interest rate rises or falls in relation to the index's performance, within predetermined limits. Equity index annuities typically are long-term investments. Owners of equity index annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities permit yearly penalty-free withdrawals at specified percentages. The accrued interest generally is not taxed until the funds are withdrawn or the benefit is paid under annuity. The purchaser may incur surrender charges for withdrawing funds or canceling the contract before a specified date. The annuities at issue in this case are equity index annuities. Generally, equity index annuities identify a maturity date, often many years in the future, on which the insurer will "annuitize" the contract if the purchaser has not already opted to do so. The benefit paid under the annuity is determined based on the account's value as of the maturity date, and the payments to the owner of the annuity begin at that time according to a payment plan. The Wexlers Robert Wexler was born on November 12, 1930. His wife, Frances Wexler, was born on March 5, 1932. Both Wexlers finished high school and took some college courses. They married after Mr. Wexler joined the Air Force. While in the Air Force, Mr. Wexler studied electronics, which ultimately led to his career in that field in the private sector. He worked for IBM, Univac, and General Electric before retiring in 1994. Mrs. Wexler worked for a small family-owned printing firm for over 26 years, and retired in 1997. The Wexlers raised three children, and they lived in the same home in Pennsylvania for 40 years. While living in Pennsylvania, the Wexlers saved money by using Mrs. Wexler's salary to pay their living expenses and saving most of Mr. Wexler's earnings in a retirement account. They never bought annuities, but did trade stocks, which resulted in financial loss. For many years, the Wexlers visited Florida as "snowbirds" and eventually purchased a condominium in a gated community in Deerfield Beach, Florida. In 1998, the Wexlers sold their home in Pennsylvania, liquidated the stocks they owned, and bought a larger condominium in the same gated community. They moved permanently to Florida in 1998, with approximately $500,000 in liquid assets. The Wexlers consider themselves conservative investors. Their financial objectives included safe investing of their money, ensuring that they had readily accessible money if they needed it at some point, and having money to pass on to their family. For these reasons, they specifically chose to invest in annuities. Prior Annuity Purchases Before purchasing the Aviva annuity at issue in this case, the Wexlers had purchased many other annuities——perhaps as many as 16——from different insurance agents, including Stephen Wolfe, Brian Plonsky, Fredric Armold, and Mark Breiman between 2002 and 2008. In May 2008, the Wexlers purchased the Aviva annuity at issue in this case from Respondent. The Wexlers purchased the annuity using the money they received from surrender of an EquiTrust annuity (EquiTrust 708F) that Mark Breiman sold them in 2006. Subsequently, the Wexlers became confused about their numerous annuities. In October 2008, Mr. Wexler sent a letter to Petitioner's Consumer Services Department, requesting assistance in determining what products the Wexlers had purchased and whether the purchased annuities were necessary or beneficial to them. As a result, Petitioner initiated an investigation that culminated in administrative complaints being filed against some of the agents, including Respondent, who sold annuities to the Wexlers. The Administrative Complaint The Administrative Complaint alleges, in pertinent part, that Respondent committed the following acts, which violate specified provisions of the Florida Insurance Code: 17. In the process of inducing the purchase of the Aviva annuity, [Respondent] willfully misrepresented and/or omitted material information regarding the sale of that annuity. The misrepresentations, both by omission of material information and commission of false statement, include, but are not limited to the following: [Respondent] verbally asserted to the Wexlers that the nearly $16,000 in surrender charges Robert Wexler incurred in surrendering Equitrust 708F, would be offset by a bonus gained from the purchase of the Aviva annuity. [Respondent], when completing the Aviva annuity application, listed the percentage of charges and penalties incurred by sale of the EquiTrust annuity as 20%, "not less any applicable bonus percentage received on the new [Aviva] annuity," so as to falsely assert in writing that the Wexlers would receive a positive market adjustment of $10,910.83 on the Aviva annuity that would offset the nearly $16,000 surrender penalty on the EquiTrust 708F. [Respondent], when completing the Aviva annuity application, listed the amount of the Wexlers liquid assets as being $320,000, when [he] either knew or should have known that most of the Wexlers' assets were tied up in non-liquid investments (primarily annuities)and they had very limited access to readily available funds totally less than a third of that amount. [Respondent] failed to advise Robert Wexler that the guaranteed cash surrender value of the Aviva annuity would not equal the May 2008 accumulated value of EquiTrust 708F until at least May 2018, assuming the Wexlers did not need to make any withdrawals from the Aviva annuity during that ten year period. [Respondent] failed to advise the Wexlers that surrender penalties would apply for 10 years following the purchase of the Aviva annuity, including the company's recapture of the bonus, when Robert Wexler would be 87 years old. [Respondent] falsely assured the Wexlers that the Aviva annuity was suitable to their needs. The Administrative Complaint further alleges that Respondent's willful misrepresentations were false and material misstatements of fact and Respondent was fully aware of the falsehoods; that given Respondent's position as a licensed life insurance agent, the Wexlers justifiably relied on Respondent's representations and information in purchasing the Aviva annuity and they would not have purchased that annuity but for Respondent's misrepresentations; that the sale of the Aviva annuity was not in the Wexlers' best interests, was neither necessary nor beneficial for persons of their age and financial condition, was without demonstrable benefit to them, and was done by Respondent for the sole purpose of earning a fee, commission, money, or other benefit; and that the Wexlers have suffered financial harm by not being able to access their retirement assets for housing, health care costs, or general living expenses without incurring substantial surrender charges. The Annuities at Issue The 2006 EquiTrust Annuity The Wexlers purchased the EquiTrust 708F annuity2/ from Mark Breiman on May 8, 2006. At the time, Mr. Wexler was 75 years old and Mrs. Wexler was 74 years old. The Wexlers paid a premium of $32,565.68 for the EquiTrust annuity. Over the two years that the Wexlers owned the annuity, they added three separate cash payments totaling $40,844.42, for a total premium of $73,410.10 paid for the annuity. The EquiTrust annuity was a fixed index annuity having a maturity period of 30 years. Interest on the premium was earned according to performance of the market indices in which the premium was invested. After the annuity's first year anniversary date, invested funds could be transferred on the contract's anniversary date between indexed market accounts and fixed rate accounts to reduce exposure to market volatility. The annuity featured a ten percent bonus paid on the amount of the premium paid on the initial contract date.3/ The Wexlers paid a premium of $32,565.68 for the annuity, so the premium bonus was $3,256.58. Pursuant to the contract terms, the premium bonus was allocated proportionately across the investment strategies in the same manner as the premium; it was not paid to the Wexlers as cash. Because the bonus was invested back into the annuity, it, like other sources of funds invested in the annuity, became accessible upon maturity or if the policy was annuitized. The annuity had a 14-year surrender charge period. During this period, if the Wexlers withdrew their money from the annuity in an amount greater than the free withdrawal amount allowed under the contract, ten percent of the contract's current accumulation value,4/ a surrender charge would be imposed. The surrender charges started at 20 percent and gradually declined over the 14-year period. The annuity did not contain terms waiving withdrawal charges in case of diagnosis of terminal illness or confinement in a hospital, hospice, or convalescent facility. Sale of the Aviva Annuity to the Wexlers in 2008 In 2008, Respondent's firm, Cherry and Cherry, Inc., invited the Wexlers to a luncheon at which a program on investment in annuities was presented. The Wexlers attended and made contact with Ronald Cherry, Respondent's father. Subsequently, Respondent arranged to meet with the Wexlers in their home to discuss annuities investments. As a result of that meeting, Respondent sold the Wexlers an Aviva annuity.5/ The Wexlers applied for the Aviva annuity in late April 2008, and the sale became effective on May 22, 2008. Mr. Wexler was 77 years old and Mrs. Wexler was 76 years old when they purchased the Aviva annuity. The Wexlers purchased the Aviva annuity using the money they received from surrender of the EquiTrust annuity that Mark Breiman sold them in 2006. They surrendered the EquiTrust annuity on May 21, 2008, just over two years after purchasing it. At surrender, the EquiTrust annuity's accumulated value was $84,179.97. The Wexlers were assessed a surrender charge of $15,994.19, which constituted 20 percent6/ of the annuity's accumulation value as of May 21, 2008. However, a positive market value adjustment ("MVA")7/ of $7,658.56 was provided upon surrender, so the Wexlers received a total of $75,844.42 for surrender of the EquiTrust annuity. When the Wexlers applied to purchase the Aviva annuity, they completed a "Notice to Applicant Regarding Replacement of Life Insurance" form.8/ The form advised prospective purchasers that the "decision to buy a new policy and discontinue or change an existing policy may be a wise choice or a mistake. Get all the facts." The form further informed prospective purchasers that under Florida law, they could elect to receive a written Comparative Information Form summarizing policy values, which would enable comparison of the existing annuity and the annuity being considered for purchase. The Wexlers elected not to receive the Comparative Information Form. At hearing, Mr. Wexler credibly testified that in selling him the annuity, Respondent discussed the Wexlers' financial objectives to safely invest their money, have ready access to funds if needed, and to leave some money for their family. Mr. Wexler initially testified that when Respondent sold the Wexlers the Aviva annuity, Respondent failed to cover several items, including reviewing the Wexlers' other annuities, and did not provide a comparison of the Aviva and EquiTrust annuities. However, Mr. Wexler subsequently acknowledged that he could not remember whether Respondent covered these matters with him. Respondent credibly testified that he covered these matters with the Wexlers. Mr. Wexler testified that Respondent told the Wexlers that they would incur a substantial surrender charge on surrender of the EquiTrust annuity, but that they would make it up through and the positive MVA that would be realized upon surrender of the annuity and the Aviva ten percent premium bonus. He initially testified that Respondent did not tell the Wexlers that they would not obtain the Aviva policy's premium bonus as an immediate cash payment, but that instead it would be invested in the annuity so would be available only at maturity of the policy; ultimately, however, Mr. Wexler conceded that he could not recall whether Respondent had explained this matter. Respondent credibly testified that he covered this matter with the Wexlers. As an essential part of purchasing the Aviva annuity, on April 24, 2008, Respondent filled out, and the Wexlers executed, a Customer Identification and Suitability Confirmation Worksheet. On the portion of the form requesting a statement of the applicant's liquid assets, Respondent wrote "$320,000." Respondent credibly testified that the Wexlers provided him this figure. His testimony is consistent with, and bolstered by, the Wexlers' written confirmation, by signing the form, that the information filled in on the form regarding their financial status and investment objectives was complete and accurate to the best of their knowledge. Further, by signing the form, the Wexlers each confirmed that they understood that the Aviva annuity was a long-term investment with substantial penalties for early withdrawal, and they believed the Aviva annuity was suitable for them. The Wexlers reconfirmed these statements in their hearing testimony. Terms of the 2008 Aviva Annuity The Aviva annuity was a fixed index deferred annuity, with the premiums allocated to selected investment strategies. The Aviva annuity had a 20-year maturity period and a ten-year surrender charge period. During the surrender charge period, the Wexlers would be assessed a penalty, termed a "withdrawal charge," if they withdrew funds in an amount greater than ten percent of the annuity's accumulated value as of the contract anniversary date for that year. The withdrawal charges were determined based on a withdrawal charge rate schedule and a premium bonus recapture schedule.9/ The annuity allowed the transfer of unused free partial withdrawals to subsequent years, so if the Wexlers did not use the free partial withdrawal in one year, they could transfer it to the following year, enabling them to withdraw up to 20% of the contract's accumulated value for that year without incurring a surrender charge. The annuity also provided for waiver of withdrawal charges, subject to specified conditions, if the insured parties were diagnosed with a terminal illness or if the insured parties were confined to a hospital, hospice, or convalescent care facility. The Aviva annuity featured a ten percent bonus payable on the initial premium and on subsequent premiums paid within the first two years of the contract. The bonus on the initial premium was allocated to the selected index investment strategies, and the bonus on additional premiums was credited to the fixed strategy and then transferred to the selected index investment strategies on the next contract anniversary date. The bonus under the annuity was not paid as cash, so became accessible only upon maturity of the policy or if the policy was annuitized. Respondent informed the Wexlers that there would be a charge for surrendering the EquiTrust annuity, and represented that the surrender charge would be offset by the positive MVA derived from surrender of the EquiTrust annuity and the ten percent premium bonus they would receive by purchasing the Aviva annuity. As of its date of issuance, the Aviva policy had an accumulated value of $83,429.00. This value was derived from payment of the $75,844.42 premium consisting of the funds obtained from surrender of the EquiTrust annuity, plus the ten percent bonus of $7,584.44. Respondent credibly testified that a key reason he recommended that the Wexlers surrender the EquiTrust policy and purchase the Aviva policy was that he believed that they had too much money invested in one company, and that this was not in their best interest given the ominous financial climate in May 2008. He also testified, credibly, that another reason he suggested they surrender the EquiTrust policy was that information had been disseminated within the life insurance industry that the EquiTrust Life Insurance Company's financial strength rating was going to be downgraded. This information ultimately proved to be correct; on September 28, 2008, the company, its affiliate, and its parent company all were downgraded by A.M. Best Company. The press release announcing the downgrade specifically identified concern over EquiTrust's capital position and its difficulty in accessing liquidity as the reasons for the downgrade. Comparison of the EquiTrust and Aviva Annuities The EquiTrust and Aviva annuities both are fixed deferred equity index annuities. They offered similar investment strategies, and both provided 100 percent participation in the selected investment strategies, with substantially similar caps on earnings under those strategies. Both annuities had long-term maturity periods; however, the EquiTrust annuity had a 30-year maturity period, compared to the Aviva annuity's substantially shorter 20-year maturity period. Thus, assuming the Wexlers held the Aviva annuity to maturity, it would begin providing payments eight years sooner10/ than the EquiTrust annuity. The Aviva annuity's surrender charge provisions were substantially more favorable for the Wexlers than those in the EquiTrust annuity. Specifically, the EquiTrust annuity had a 14-year surrender period, compared to the Aviva annuity's ten- year surrender period. The EquiTrust annuity's surrender charges also were substantially higher than those under the Aviva annuity, starting at 20 percent for the first two contract years and thereafter decreasing by one or two percent for the remaining 12 years of the surrender period; by contrast, the Aviva annuity's surrender charge rate started at 12 percent for the first two contract years and then decreased by one or two percent per year for the remaining eight years of the surrender period. The Aviva annuity allowed any unused free partial withdrawal to be carried over to the following policy year and accumulated with that year's free partial withdrawal; the EquiTrust annuity did not allow such carryover. The Aviva annuity also provided for waiver of withdrawal fee, subject to conditions, for diagnosis with a terminal illness or confinement in a hospital, hospice, or convalescent facility, while the EquiTrust annuity did not. The annuities' minimum guaranteed contract values11/ were calculated in a similar manner. However, the EquiTrust annuity had a more favorable guaranteed rate of return of three percent, while the Aviva annuity guaranteed a one percent rate of return. Given the difference in financial conditions between 2006, when the Wexlers purchased the EquiTrust annuity, and 2008, when they purchased the Aviva annuity, relative policy performance is not particularly useful in determining which was policy was better for the Wexlers. In 2006, financial conditions were favorable. The Wexlers paid an initial premium of $32,565.68 for the EquiTrust annuity and received a ten percent bonus of $3,256.58 on that premium, for an initial accumulation policy value of $35,822.26. Over the two years the Wexlers owned the EquiTrust annuity, they added $40,844.42 in premiums, for a total of $73,410.10 paid into the annuity. By the time they surrendered the EquiTrust annuity in May 2008, its accumulation value was $84,179.97; thus, the policy earned approximately $10,769.87 in accumulation value for the Wexlers during the two years they owned it. By the time the Wexlers purchased the Aviva annuity in May 2008, financial conditions had significantly deteriorated. This is reflected in the Aviva annuity's annual statement of annuity showing no earnings for the 2008-2009 year. However, given the similarity of the policies' indexed investment strategies, it is reasonable to infer that the Wexlers would not have earned much, if any, more under the EquiTrust annuity than they did under the Aviva annuity for the 2008-2009 year. The Aviva annuity had greater relative financial strength than the EquiTrust policy. When Respondent sold the Wexlers the Aviva annuity, the EquiTrust Life Insurance Company's financial strength rating was in the process of being downgraded. Petitioner argues that the company still enjoyed an excellent rating in spite of the downgrade.12/ Notwithstanding, the evidence shows that at the time Respondent sold the Wexlers the Aviva annuity, he reasonably believed that the EquiTrust annuity's financial soundness was questionable, and, in fact, the Aviva annuity ultimately was the more financially sound policy.13/ When the Wexlers surrendered the EquiTrust annuity on May 21, 2008, its accumulated value was $84,179.97 and its cash surrender value was $75,844.42. When the Aviva annuity was issued on May 22, 2012, its accumulated value was $83,429.00 and its cash surrender value was $67,027.00——$8,817.34 lower than the EquiTrust policy's cash surrender value. The Wexlers immediately lost $8,817.34 on this transaction; however, the persuasive evidence shows that if they hold the Aviva policy to maturity, they not only will make up this loss, but will earn substantially more. In any event, the persuasive evidence establishes that Respondent told the Wexlers were about this issue and they chose to purchase the Aviva policy. On balance, the Aviva annuity appears more suitable for the Wexlers than the EquiTrust annuity. The EquiTrust annuity had a surrender charge period of 14 years, with extremely high surrender charge rates. The Wexlers would have had to keep the EquiTrust policy seven more years for its surrender charge rate to decline to the rate immediately applicable to withdrawals under the Aviva policy. Had the Wexlers held onto the EquiTrust policy and withdrawn funds in an amount greater than the free withdrawal limit even once during this seven-year period, they likely would have incurred surrender charges in an amount greater than the $8,817.34 they lost by surrendering the EquiTrust policy on May 21, 2008.14/ Ultimate Findings of Fact Regarding Alleged Violations As more specifically addressed below, the undersigned determines, as a matter of ultimate fact, that Petitioner did not demonstrate, by clear and convincing evidence, that Respondent violated sections 626.611 (5), (7), (9), or (13); 626.621(6); 626.9541(1)(e)1, or (1)(l); 627.4554(4)(a) or (c)2.; or rules 69B-215.210 or 69B-215.230.15/ Alleged Violations of Section 627.611 Section 626.611 sets forth violations for which suspension or revocation of an insurance agent's license is mandatory. Petitioner has charged Respondent with violating section 626.611(5), (7), (9), and (13). Petitioner did not prove, by clear and convincing evidence, that Respondent violated any of these provisions. Section 626.611(5) makes the willful misrepresentation of any insurance policy or annuity contract or the willful deception with regard to any such policy or contract a ground for suspending or revoking an agent's license. Petitioner did not prove that Respondent willfully misrepresented any aspect of the Aviva annuity or willfully deceived the Wexlers regarding the Aviva annuity. As discussed above, the persuasive evidence establishes that with respect to the key issue in this proceeding——the large surrender charge——Respondent accurately represented to the Wexlers that the surrender charge would be offset by the positive MVA and the Aviva premium bonus, and that the bonus would have to be earned over the life of the Aviva annuity.16/ Section 626.611(7) makes the demonstrated lack of fitness or trustworthiness to engage in the business of insurance a ground for suspending or revoking an agent's license. The persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers; accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this provision. Section 626.611(9) makes fraudulent or dishonest practices in conducting business under an insurance agent license grounds for suspension or revocation of the license. Again, since the persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this subsection. Section 626.611(13) provides that willful failure to comply with, or willful violation of, Petitioner's orders or rules, or any willful violation of any provision of the Florida Insurance Code constitutes a basis for suspending or revoking an insurance agent license. Again, Petitioner failed to prove, by clear and convincing evidence, that Respondent willfully violated its rules or orders, or willfully violated the Florida Insurance Code, in connection with the sale of the Aviva annuity to the Wexlers. Thus, Petitioner failed to prove, by clear and convincing evidence, that Respondent violated section 626.611(13). Alleged Violations of Section 626.9541 Section 626.9541 is entitled "unfair methods of competition and unfair or deceptive acts or practices defined." This statute defines the types of acts that constitute unfair methods of competition and unfair or deceptive acts or practices in the insurance industry, but it does not independently authorize disciplinary action. Werner v. Dep't of Ins., 689 So. 2nd 1211, 1214 (Fla. 1st DCA 1997). Petitioner has charged Respondent with engaging in acts set forth in section 626.9541(1)(a)1.——specifically, that Respondent knowingly made, issued, circulated, or caused to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which misrepresents provides that making any estimate, statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy. As discussed above, the evidence does not clearly and convincingly establish that Respondent knowingly engaged in any of these acts. Accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as prohibited in section 626.9541(1)(a)1. Petitioner also charged Respondent with engaging in acts delineated in section 626.9541(1)(e)1. This section requires, as a predicate for the imposition of discipline, a finding that the licensee knowingly made false material statements through a variety of acts set forth in that provision. Again, the evidence does not establish that Respondent knowingly engaged in any of these acts. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as provided in section 626.9541(1)(e)1. Petitioner has charged Respondent with twisting, which is defined in section 626.9541(1)(l) as knowingly making any misleading representation or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies for the purposes of inducing, or tending to induce, any person to surrender, terminate, or convert any insurance policy or to take out a policy of insurance in another insurer. Again, there is no persuasive evidence that Respondent knowingly committed any of the acts described in this statute. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in twisting under section 626.9541(1)(1), Florida Statutes. Alleged Violation of Section 626.621 Section 626.621 sets forth violations for which suspension or revocation of an insurance agent's license is discretionary.17/ Petitioner has charged Respondent with violating section 626.621(6) by engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited by part IX of chapter 626, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent engaged in any actions that could be considered unfair methods of competition or deceptive acts or practices under chapter 626, part IX. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent engaged in acts under section 626.621(6) that justify the suspension or revocation of his insurance agent's license. Alleged Violation of Section 627.9521 Petitioner has charged Respondent with violating section 626.9521. This statute prohibits persons from engaging in trade practices that are determined to be an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance, and imposes fines for violations of the Unfair Insurance Trade Practices Act, part IX of chapter 626, Florida Statutes. As discussed above, Petitioner did not prove that Respondent violated section 626.9541 or any other provision in chapter 626 charged under the Administrative Complaint. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent violated section 626.9521 and thus should be fined under that statute. Alleged Violation of Section 627.4554 Petitioner has charged Respondent with violating section 627.4554(4)(a) and (c)2. Section 627.4554(4)(a) requires that an insurance agent, in recommending a senior consumer purchase or exchange an annuity, have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of facts disclosed by the senior consumer regarding the consumer's other investments, other insurance products, and financial circumstances. Section 627.4554(4)(c)2. further requires that the insurance agent's recommendation be reasonable under all circumstances actually known to the agent at the time of the recommendation. As discussed above, Respondent recommended that the Wexlers surrender the EquiTrust annuity and purchase the Aviva annuity on the basis of the information they provided him regarding their liquid assets, other annuities, and financial goals. The evidence further shows that Respondent's recommendation was reasonable, based on the financial information the Wexlers provided and on his determination that the Aviva policy's terms and conditions were comparatively more favorable for the Wexlers than were the EquiTrust policy's terms and conditions. Accordingly, Petitioner has failed to demonstrate that Respondent violated section 627.4554(4)(a) or (c)2. Alleged Violations of Agency Rules Petitioner charged Respondent with violating rules 69B-215.210 and 69B-215.230. Rule 69B-215.210 declares that the business of life insurance is a public trust in which all agents have a common obligation to work together to serve the best interests of the insuring public, to understand and observe laws governing the life insurance business by accurately and completely presenting every fact essential to a client's decision, and to be fair in all relations with colleagues and competitors, always placing the policyholder's interest first. Rule 99B-215.230 declares misrepresentation to be unethical, and prohibits a range of acts regarding the making and disseminating of statements that misrepresent the terms of insurance policies or that misrepresent the insurance business or with respect to any person in the conduct of his insurance business. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent committed any acts that constitute violations of these rules.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Financial Services enter a Final Order dismissing the Administrative Complaint against Respondent. DONE AND ENTERED this 27th day of September, 2012, in Tallahassee, Leon County, Florida. S CATHY M. SELLERS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of September, 2012.
Findings Of Fact At all times pertinent to the issues herein, the Department of Insurance was the government agency in Florida responsible for the licensing of insurance agents and the regulation of the practice of the insurance profession in this state. Respondent, Alan Chappuis, was licensed in Florida as a life insurance agent, health insurance agent, general lines agent, and a life, health and variable annuity contracts salesman. Erna Swan, an 84 year old twice widowed lady, and the individual to whom Respondent sold the annuity policies in question, was unable, at the time of the hearing, to recall the names of either of her former husbands or when they passed away. She recalls that both husbands worked in insurance and that she has lived in the Pinellas County area for a long time, but cannot recall for how long. Mrs. Swan lives alone and can cook for herself and bathe and dress herself, but does not know how much her current income is or the source of that income. She was able to recognize Respondent as her insurance agent of several years standing, but cannot recall whether she ever purchased anything from him, and she does not know what Guarantee Trust Life Insurance Company is. She does not know what an annuity is or whether she ever wanted to buy one from the Respondent. By the same token, she cannot recall if he ever tried to sell her an annuity. Mrs. Swan has known Nadine Hopkins, a close friend, for about 10 years. She also recognizes Mr. Wells and Mr. Tipton, her attorney and stock broker respectively, but does not know what they do. Mrs. Swan maintains a room in her condominium apartment which she uses for an office where, before she was placed under the guardianship of Ms. Hopkins, she paid her bills and kept her business records, such as they were. She recalls that she had a brokerage account with Merrill Lynch but cannot remember what it was for or what type of securities were in it. She is familiar with Bayridge Baptist Church, of which she is a member, and she recognizes that she has given money to the church over the years. Mrs. Swan's driver's license was cancelled several years ago because, according to Ms. Hopkins, she felt she could not take the test required to renew it. Mrs. Swan does not recall this though she remembers she used to own a car. She cannot remember what kind it was. Mrs. Swan's apartment is paid for. There are no mortgage payments. She claims she still writes checks for her monthly bills by herself, but also notes that Ms. Hopkins does it. More likely it is the latter. She still answers her phone, answers her mail, and reads the newspaper. She is, however, obviously incompetent to testify to the nature of an annuity, and it is quite clear that at this time she would be unable to understand the provisions of an annuity contract and the difference between an annuity contract and an investment portfolio in another product. Mr. Tipton, formerly a stock broker with Merrill Lynch, first met Mrs. Swan in the early 1960's through a family member who worked at the family insurance agency. At that time Mrs. Swan and her husband had purchased the agency from his family, and in the years following the Swans stayed as friends of Mr. Tipton. Mr. Tipton became an investment advisor in 1981 to Mr. Swan who passed away sometime in either 1985 or 1986. He started buying U.S. Government bonds and thereafter moved to tax free investments. When Mr. Swan passed away, Mrs. Swan became the owner of the account. During 1992 and 1993, Mr. Tipton would see Mrs. Swan once or twice a month. At that time, toward the end of 1993, it was clear to him that her memory appeared to be slipping. She would not remember things they had talked about and was unable to participate fully in the decisions made on her investments. At the end of 1993, Mrs. Swan's portfolio with Merrill Lynch was valued at approximately $360,000, plus a money market balance of $18,000. The account statement for October, 1993 reflected she had 5 municipal bonds valued at $80,000, tax free bond funds valued at $273,620, and approximately $18,000 in money market funds. Her estimated annual income from the bonds was approximately $6,631, or approximately $520.00 per month. Her tax free bond funds income returned approximately $1,200 per month, and her Nuveen Fund, approximately $50.00 per month, giving her a grand total of approximately $1,800 per month investment income in addition to her Social Security monthly payment of somewhat in excess of $650. On December 20, 1993, Mr. Tipton, as a representative of Merrill Lynch, received a letter moving Mrs. Swan's account to another brokerage firm, located in Texas, but with a local representative. At that time, Mr. Tipton tried to stop the transfer by contacting his main office, but was advised that by the time he had received the letter, the transfer had been completed. Mr. Tipton wanted to stop the transfer because when he called Mrs. Swan to inquire about it, she indicated to him that she did not want her account moved. Several weeks later, Mrs. Swan called Mr. Tipton to find out where her Merrill Lynch monthly account statement was. She did not recall at that time that her Merrill Lynch account had been closed and the securities therein transferred to the Texas brokerage concern. Because of this call, sometime in early January, 1994, Mr. Tipton called Mr. Wells, Mrs. Swan's attorney, and set up a meeting for the three of them. There were approximately three meetings of the three of them between January and March, 1994. The substance of their discussions was the fact that the broker to whom the Merrill Lynch account had been transferred had liquidated her entire account and used the proceeds thereof to pay for the annuities sold to Mrs. Swan by Mr. Chappuis and his associate, Mr. Mednick. According to Mr. Tipton, up until this time, Mrs. Swan had never indicated any dissatisfaction with the interest and income she was earning on her Merrill Lynch brokerage account. Mr. Tipton absolutely denies there was any churning of her account to garner more commissions. The only transfer was a sale at a premium in February, 1993 of bonds of the Jacksonville Electric Authority to create more capital for investment to provide greater income. The brokerage account owned by Mrs. Swan was not insured against loss of principal though many of the particular funds in which much of the money was invested were, however, individually insured. In 1990, Mrs. Swan's account, which had been in her name individually, was transferred to a trust account of which she was the beneficiary for life, with the provision that at her death, the funds therein would be distributed to various religious organizations and a few friends. Mrs. Swan had no family heirs. No commission was earned by Mr. Tipton on the transfer, though he did receive a commission on both the above-mentioned sale of the Jacksonville Electric bonds and the purchase of a tax free bond fund with the proceeds. Her brokerage account permitted her to write checks on the funds in the money fund. Mr. Tipton claims he never engaged in a transaction regarding Mrs. Swan's account without first talking to her about it. In his opinion, whenever he did make a change she appeared alert and aware enough to participate effectively. The last major transaction was the 1990 bond sale, however. Mrs. Hopkins and Mrs. Swan attend the same church. In late 1993 or early 1994, Respondent's business card was always on Mrs. Swan's refrigerator. At no time did she ever speak disparagingly of him to Mrs. Hopkins, or complain about any insurance product he sold her. Mrs. Hopkins was not Mrs. Swan's guardian at that time and Mrs. Swan was paying her own bills, however not effectively. She was late getting them out and complained it was becoming difficult for her to type out the checks. According to Mrs. Hopking, Mrs. Swan was not extravagant in her spending. She did not take cruises, go to expensive restaurants or buy a lot of clothes. Mrs. Swan, in Ms. Hopkins' opinion, lived comfortably. She was generous in the terms of her charitable contributions. Since being appointed Mrs. Swan's guardian, Mrs. Hopkins had seen her financial records and she knows that Mrs. Swan donated a lot of money to various churches and religious organizations. Mrs. Swan received many requests for donations and indicated that as long as she had the money to give she would do so. In later years, however, as Mrs. Hopkins recalls, it became a physical and mental burden for Mrs. Swan to write the checks, and she frequently commented on this. Mr. Wells is Mrs. Swan's attorney, specializing in estate and trust planning. He met Mrs. Swan through a friend in 1990 and began to serve as her estate planner. In the spring of 1994 Mr. Wells met with Mr. Tipton and Mrs. Swan regarding the Respondent's sale of her security portfolio and the purchase of the two annuities in issue here with the proceeds. At that time Mrs. Swan seemed to have no knowledge of the transaction. As a result, he called Guarantee Trust Life Insurance Company to get some information on what needed to be done in order to bring about a recision of the policies, but before any action was taken, the entire matter was turned over to Mr. Keirnan, another attorney, who does trial work. As a result of Keirnan's efforts, approximately two weeks before the hearing, Mr. Wells, on behalf of Mrs. Swan, received a check in the amount of approximately $372,000 from Guarantee Trust and Life Insurance Company as full reimbursement of the premiums paid for the two annuities in issue. From the time the annuities were issued in December, 1993 and January, 1994, Mrs. Swan had only her Social Security check to live on. She also received a check from Guarantee for $5,000, at her request, at the time the policies were issued as the balance in her brokerage account over the amount required as premiums for the annuities. She received nothing from her annuities which, as set up, did not call for the payment of any monthly income. As a result, Mr. Wells felt it necessary to borrow between $15,000 and $20,000 at 8 percent for Mrs. Swan from other trusts he managed to provide funds for Mrs. Swan to live on. From the documents which Mr. Tipton and Mrs. Swan brought to him in March, 1994, Wells could determine that the two annuities were purchased for her but she, at that time, did not seem to know anything about them. Though the annuities offered several options to permit period withdrawal of principal and interest, none had been selected by Mrs. Swan and as they then existed, she would draw no income from them until she was 100 years of age. When Mr. Tipton and Mrs. Swan came to Mr. Wells' office and brought the paperwork showing she had sold her securities to buy the annuities, Mr. Wells called Respondent to find out what had happened to Mrs. Swan's money. About the same time, he drafted a letter to Respondent at Mrs. Swan's request in which she requested Respondent not contact her any more. This letter was written because Mrs. Swan had said Respondent had "pestered" her at home and upset her on some occasions before the letter was written. Guarantee's manager of Government Relations and Compliance, Mr. Krevitzky, identified the two policies issued to Mrs. Swan. According to Mr. Krevitzky, an annuity is a savings vehicle which holds funds over a period at interest with provision for single or periodic pay out. Interest on both annuities in issue here was guaranteed at a rate of 4.5 percent per year or higher. The first year, the policies earned only the guaranteed 4.5 percent interest, and the income was credited to the policy from January, 1994 until the policies were surrendered as a part of the litigation settlement on March 25, 1995. At that point, since it was considered that the policies were rescinded and therefore void ab initio, the interest earned was forfeited and not paid. Only the premiums paid in were refunded in total. The commission paid to the Respondent and his associate, Mr. Mednick, was paid out of company funds and not Mrs. Swan's funds. The annuity contracts sold by the Respondent to Mrs. Swan had options for five different pay-outs, some of which would have returned income to her during the pendency of the contract. However, none of these was selected by Mrs. Swan and there was no evidence to indicate that Respondent ever explained any of them to her. As they existed as of the date they were cancelled, and at all time up until then, Mrs. Swan would receive no income until the annuity matured at her age 100. This is an unreasonable situation for an individual of Mrs. Swan's age and situation. Mr. Krevitzky contends that the potential pay out options could have provided Mrs. Swan with a substantial income equal to or exceeding the income she was received from her securities portfolio. Most of these options would have included a partial return of principal, however, whereas the income from the prior held portfolio was interest only with her principal remaining intact. One option provided an income for a guaranteed period which, in some circumstances, could have resulted in her receiving more than the amount paid in for the contract. The ultimate fact remains, however, that at the time of sale, and at all times thereafter, notwithstanding the fact that Mr. Chappuis was directed to stay away from Mrs. Swan, he had failed to assist her in the selection of any income option and she was receiving no current income at all from the annuities. In each of the two years prior to the purchase, for 1992 and 1993, she had regular tax free investment income of between $26,000 and $27,000, in addition to the capital gains of approximately $23,000 from the sale of the bonds in 1992. It matters not that she needed little to live on or donated a great portion of her income to charity. This decision was hers to make. By the same token, it matters not that no request for income was made, during the pendency of the annuities, by or on behalf of Mrs. Swan. Annuities have several benefits over other types of investments, according to Mr. Krevitzky. One is the tax deferment provision for interest earned on the annuity. Another is the fact that, subject to local law, the principal of the annuity is not subject to garnishment. A third is the guaranteed return of principal at the end of the annuity which permits older annuitants to provide for their heirs while maintaining income during their lifetimes. Many senior citizens look to the safety of their investment rather than the taxability of the interest. Therefore, in selling annuities to seniors, the agents stress these factors and the no-probate consideration. David W. Johnson has been an independent contractor with Respondent's broker, Professional Systems Associates, since 1989 and is the annuity manager for the firm. Mr. Johnson indicates that there has been an increase in the annuity business with seniors in 1993 - 1994. Funds for the purchase of the annuities usually comes from bank certificates of deposit, but sometimes, like in the instant case, the funds come from a brokerage account. In his experience, seniors choose annuities over certificates of deposit and brokerage accounts. According to Mr. Johnson, if Mrs. Swan had wanted to stop the transfer from her account she could have done so up until the transaction was completed, even after the securities had been liquidated and the funds sent to Guarantee. This is so, he claims even though Mrs. Swan gave authority to make the transfer in the documentation accompanying her application for the annuities. Mr. Johnson indicated it takes about two weeks after the receipt of the premium before Guarantee issues the annuity contract and at any time before issue, the transaction could be cancelled and the money returned. Even after issue, there is a "free look" period during which the contract may be cancelled without penalty. Though the contract may be cancelled and the premium returned, the former securities are still liquidated and the brokerage account closed. According to Mr. Johnson, there was nothing in the paperwork regarding these annuities which he saw which would raise any flag for consideration. He did not feel it necessary to call Mrs. Swan to see if she really wanted the policy and he never received a call from her or anybody else regarding it. Mr. Chappuis' partner in this sale was Scott Mednick who has been a licensed insurance agent since 1984 and who is an independent contractor with the same agency. Mr. Mednick was solicited to accompany Mr. Chappuis to Mrs. Swan's home in December, 1994 because of his expertise in the annuity field. Respondent had described Mrs. Swan to him as a long time customer. Respondent claimed that Mrs. Swan had indicated she was concerned about her brokerage account and he wanted to show her some product, annuities, she might be interested in. Mr. Mednick has known Respondent for eleven years and knows him to be a top producer. Respondent's reputation is that he is cheap and close with the dollar. Nonetheless, Mr. Mednick claims he was not surprised that Respondent was willing to share the commission on this sale in order to be sure the client got the proper product. Mrs. Swan let Mr. Mednick examine her monthly statement from Merrill Lynch. It appeared to Mr. Mednick that the account had not grown over the years. This is not surprising in that the portfolio was made up solely of tax free bond funds, tax free municipal bonds and tax free money marts, the volatility of and fluctuation in price of which is minimal. Mr. Mednick cannot now recall if Mrs. Swan indicated she knew about her stocks. However, he relates that he and the Respondent suggested she look into annuities as an alternative which Respondent explained to her. In addition, he claims they provided her with a lot of written material. Based on Mrs. Swan's action, words and attitudes expressed, Mr. Mednick believed she completely understood what was explained to her and wanted to make the change. It was his belief she seemed to understand she would pay no commission on the purchase; that she would have a guaranteed income that she could not outlive; that the annuity avoided the volatility of the stock market; and it was not attachable by creditors. As structured and sold to Mrs. Swan, however, she was to get no income at all from this product until she reached the age of 100/. Mr. Mednick asserts that at no time did he feel that Respondent had less than the best interests of Mrs. Swan at heart and he can recall no time when Respondent lied to Mrs. Swan. All representations made by either Respondent or Mednick allegedly came from the brochures left with her. Mednick indicates that during their conversation, Mrs. Swan did not seem concerned about getting her principal out of the investment. She was most concerned about her desire to leave the principal to the church. Mednick claims that at the time of the sale, the two agents asked Mrs. Swan if she wanted her interest paid quarterly but she said to let it accrue. This representation, in light of the other evidence, is not credible. Taken together, Mednick's testimony does nothing to detract from Respondent's sale of this product, inappropriate as it was for this client, to Mrs. Swan. Mr. Mednick's credentials are somewhat suspect, and his credibility poor, however. By his own admission, he has been administratively fined by the Department on two occasions based on allegations of misconduct. He denies any misconduct, however, claiming he accepted punishment only as an alternative to a prolonged contest of the allegations. The allegations herein were referred to an investigator of the Department to look into. As is the custom of the Department, he did not interview the Respondent but merely sought to gather facts concerning each allegation to be sent to the Department offices in Tallahassee where the analysis and determination of misconduct is made. By the same token, he did not call or speak with Mrs. Swan, Mr. Mednick, or anyone at Professional Systems. He spoke with Mr. Tipton, Mr. Wells, Mrs. Hopkins and with Mr. Keirnan a couple of times.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the insurance licenses and the eligibility for licensure of the Respondent herein, Alan Chappuis, be suspended for nine months. RECOMMENDED this 22nd day of August, 1995, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 22nd day of August, 1995. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. - 21. Accepted and incorporated herein. 22. & 23. Accepted and incorporated herein. 24. - 27 Accepted and incorporated herein. FOR THE RESPONDENT: Respondent's post hearing submittal was entitled "Respondent's Final Argument." However, because it makes specific Findings of Fact, the submittal will be treated as though it were Proposed Findings of Fact which will be ruled upon herein. First sentence accepted. Balance rejected as contra to the weight of the evidence. & 3. Accepted that Mr. Krevitzky testified and that there was nothing in the contract which would cause Respondent to misrepresent. The product may well be a worthy product for someone in a different financial position than Ms. Swan, and the issue is whether Respondent fully explained the implications and ramifications of the contracts to her. Rejected as a misconception of the nature of the witness' testimony. Rejected as contra to the weight of the evidence. First sentence accepted. Second sentence rejected. Irrelevant. Accepted as a summary of the witness' testimony. First and second sentences accepted. Balance rejected as an unwarranted conclusion drawn from the evidence. Accepted but irrelevant. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 612 Larson Building Tallahassee, Florida 32399-0300 Alan Chappuis, Pro se P. O. Box 86126 Madiera Beach, Florida 33738 The Honorable Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue Did Mr. Carter violate sections 627.4554(4)(a), 627.4554(4)(c)2., 626.611(5), 626.611(7), 626.611(9), 626.611(13), 626.621(2), 626.621(6), 626.9541(1)(a)1., and 626.9541(1)(e)1., Florida Statutes (2006, 2009, 2010); section 626.9521(2), Florida Statutes (2006, 2010); sections 626.9541(1)(k)2., 626.9541(1)(l), and 626.9521(2), Florida Statutes (2009, 2010); section 626.621(9), Florida Statutes (2010); and Florida Administrative Code Rule 69B-215.210? If so, what discipline should be imposed?
Findings Of Fact At all times material to this proceeding, the Legislature has vested the Department with the authority to administer the disciplinary provisions of Chapter 626, Florida Statutes. § 20.121(2)(g) and (h)1.d., Fla. Stat. (2011). At all times material to his proceeding, Mr. Carter was licensed by the Department as a Florida life (including variable annuity) agent (2-14), life including variable annuity and health agent (2-15), life insurance agent (2-16) and life and health agent (2-18). He has been appointed as an agent for several different life insurance companies, including Allianz, EquiTrust and Great American, but not RiverSource. Counts I through V--W.K. and J.K. 2006, J.K. and W.K., and the MasterDex 10 J.K. was born in 1937 in Madrid Spain, where she finished high school. Spanish is J.K.'s native tongue. She cannot write in English and does not speak or understand English well. When J.K. was 17, she met W.K., a member of the United States' armed services. They married in Spain. Six months after the marriage, the newlyweds moved to Brooklyn, New York, W.K.'s home. They later relocated to Florida. W. K. constructed a mall in New Port Richey containing 18 stores that included a restaurant and a frame shop. J.K. ran the frame shop. Wal-Mart eventually bought the mall. By 2006, J.K. and W.K. had accumulated approximately two million dollars in brokerage investments. Until the decline of his health and mental faculties in 2008, W.K. handled all financial matters for the couple. J.K. did not understand them or have any interest in them. In 2006, J.K. and W.K. met Mr. Carter, who began marketing annuities to them. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact, combined with the fact that W.K. had died several years before the hearing, limit the ability to determine what representations Mr. Carter made to J.K. and W.K. or what information or instructions they gave him. On July 25, 2006, W.K. applied for a MasterDex 10 annuity policy from Allianz Life Insurance Company of North America. He paid an initial premium of $603,470.34 for the policy. W.K. was 73 years old at the time. W.K. obtained the money to fund the policy from the couple's Merrill Lynch brokerage account. Mr. Carter knew this. As part of the annuity application process, Mr. Carter submitted an Allianz "Product Suitability Form" for W.K. Completion of the form is a prerequisite to processing the application and issuing the policy. The stated purpose of the form is "to confirm that your [the applicant's] annuity purchase suits your current financial situation and long-term goals." The form, signed by W.K. and Mr. Carter, stated that an annuity was the source of the funds for payment of the annuity's premium. This statement was not accurate. Mr. Carter knew that it was not accurate. Signing and submitting the application with the suitability form containing this known incorrect statement was a willful deception by Mr. Carter with regard to the policy. Signing and submitting the application with the suitability form containing this known incorrect statement was a dishonest practice in his conduct of the business of insurance. The suitability form also indicated that W.K. expected the annuity to provide him a steady stream of income in six to nine years. Allianz accepted the application and issued the policy. Mr. Carter received a commission of $66,381.73. The MasterDex 10 is a complex financial product with many difficult to understand restrictions, conditions, interest options, bonuses, penalties, and limitations. The MasterDex 10 that W.K. and J.K. purchased paid interest linked to the performance of the Standard and Poors 500 stock market index. It also guaranteed interest of at least one percent. A "Nursing Home Benefit" was one of the options the MasterDex 10 provided. The "benefit" permitted the policy holder to receive payments of the full "annuitization" value of the policy over a period of five years or more if the holder was confined to a nursing home for 30 out of 35 consecutive days. The "annuitization value" is the maximum value that the policy can reach. It is the total of all payments that would be made to the holder if he either (1) let the premium and interest earned accumulate for a minimum of five contract years and then took ten years of interest only payments, followed by a lump sum payment of the annuitization value or (2) equal payments of principal and interest over ten or more years. Policy holders could make additional premium payments to increase the policy value. The policy also permitted limited withdrawals without penalty. After holding the policy for 12 months after the most recent premium payment, a holder could, without penalty, withdraw up to ten percent of the premium paid once a year until a maximum of 50 percent of the premium had been withdrawn. This meant that after one year passed, W.K. could make five annual withdrawals of $60,347.03. The policy also provided for loans on the annuity. In the years following this transaction, Mr. Carter maintained contact with W.K. and J.K. by periodically asking them to join him at a restaurant for lunch. Decline of W.K.'s Health While visiting his mother in Greece in 2008, W.K. fell and hit his head. Afterwards his health declined. On June 3, 2008, W.K. was diagnosed with Alzheimer's disease and determined to be unable to make sound financial and medical decisions. From June 2008, forward, J.K. was very worried about W.K.'s health, caring for him, and making him as comfortable as possible. On November 5, 2008, W.K., at Mr. Carter's suggestion, executed a Durable Power of Attorney, prepared for her by a lawyer, giving J.K. broad authority to act on his behalf in financial matters. At some point, W.K. was admitted to the Bear Creek Skilled Nursing Center and resided there for a period of time. On April 4, 2010, he was discharged from Bear Creek. W.K. resided in Bear Creek for a period of time. Although there is some hearsay evidence about when W.K. entered Bear Creek, the evidence does not corroborate direct evidence or hearsay evidence that would be admissible over objection in circuit court, sufficient to prove when W.K. entered Bear Creek. Consequently, the evidence does not establish the length of time that W.K. spent in the facility and does not establish that W.K. would have been eligible for the "Nursing Home Benefit" described in paragraph 16. After W.K. returned home in April, J.K. engaged an enterprise called "Granny Nannies" to provide caretakers at home. The services cost approximately $12,000 per month. During this period J.K.'s health also declined markedly. Among other things, she had appendicitis and breast cancer. Treatment of the cancer required chemotherapy, which left her in pain and exhausted. During this time Mr. Carter obtained a copy of the power of attorney executed by W.K. in favor of J.K. On June 18, 2010, the court appointed Paula Rego as guardian for W.K and J.K. with authority to act on their behalf in all matters affecting property rights. On November 26, 2010, W.K. died in hospice care after a short hospital stay. The Events of 2010 In December 2009, J.K. met with insurance sales agents and sisters Kimberly Trotter and Chandra Valdez. J.K. had responded to a mail solicitation by them. During the meeting, J.K. and Mss. Trotter and Valdez realized that J.K. knew them because J.K. and W.K. had rented space to the sisters' parents. Capitalizing on the connection and J.K.'s concerns about paying the monthly costs of care for W.K., Ms. Trotter and Ms. Valdez began providing financial advice and marketing annuity products that they sold. They advocated liquidating W.K.'s and J.K.'s existing annuities, including the MasterDex 10. In December 2009, Ms. Trotter and Ms. Valdez sold W.K. and J.K. two annuities with Great American for approximately $661,098. On January 28, 2010, W.K. authorized J.K. and Ms. Trotter to access policy information. In January 2010, Ms. Trotter attempted to liquidate the MasterDex 10 policy and transfer the funds to Great American. Allianz notified Mr. Carter of this in February 2010. He intervened to stop the transfer. On March 3, 2010, Allianz received another request to liquidate the MasterDex 10 from J.K. Allianz sent her what it calls a "conservation letter." The purpose of the letter is to "conserve" the business with the company. The letter also identified needed information, including a copy of J.K.'s power of attorney for W.K. On March 4, 2010, Allianz notified Mr. Carter of the liquidation request. He contacted J.K. and began a successful effort to obtain a letter asking to reverse the liquidation. On March 17, 2010, Ms. Trotter or Ms. Valdez again convinced J.K. to liquidate the MasterDex 10 funds and transfer them to Great American. Again Mr. Carter acted to stop the liquidation. On March 23, 2010, J.K. signed a letter written by Mr. Carter asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to RiverSource, a company that issued another annuity policy of J.K's. J.K. did not know who Mr. Pearson was. She only signed the letter because Mr. Carter told her that it would help her save money. On March 26, 2010, J.K. submitted a liquidation request form for the MasterDex 10 signing it on behalf of herself and W.K. J.K. submitted the request at the urging of Ms. Trotter and/or Ms. Valdez. Allianz received the request on March 31, 2010. It began processing the full liquidation of the annuity policy. On April 1, 2010, Mr. Carter sent Allianz a letter saying that J.K. did not want to liquidate W.K.'s MasterDex 10 policy. The letter claimed that this was the second time that competing agents had tried to cancel the policy. Allianz reinstated the policy. On April 1, 2010, Mr. Carter sent a handwritten letter to Great American stating that J.K. did not want the MasterDex 10 policy canceled. The letter refers to having previously provided the power of attorney. Mr. Carter signed the letter. J.K. signed the letter on behalf of W.K. and herself. On April 7, 2010, Great American received a typewritten letter addressed to "To Whom It May Concern" stating that J.K. and W.K. wanted to transfer their funds to Great American since "December and January" and that J.K. did not see Mr. Carter on April 1 and did not sign a letter that he sent. On April 9, 2010, Mr. Carter wrote and sent a letter, signed by J.K. at his request, asking Great American to cancel the policies sold by Ms. Trotter and Ms. Valdez and waive all surrender charges. The letter states that J.K. is fighting cancer and that the agents forced her to sign the policy documents. Mr. Carter included with the letter a Withdrawal/Surrender Request Form completed by him and signed by J.K. On April 23, 2010, Mr. Carter wrote a letter to Allianz stating that J.K. needed more than ten percent of the value of the MasterDex 10 policy (the penalty-free withdrawal permitted) to provide the funds needed to take care of W.K. The letter states that W.K. and J.K. wished to change ownership of the policy to J.K. only and then to fully surrender the policy. Mr. Carter's letter is signed by J.K. on her behalf and on behalf of W.K. Mr. Carter enclosed forms with the same date, which he prepared for J.K.'s signature, requesting the change of ownership and liquidation. Allianz sent J.K. a letter, with a copy to Mr. Carter, on April 29, 2010, identifying alternatives to liquidating MasterDex 10 for getting the money needed to care for W.K. The Allianz letter also disclosed that liquidating the policy would result in a substantial loss of money. In part, the letter stated: We understand you wish to surrender your annuity policy. As we review your request, we want to be certain you are aware of all the alternatives that are available to you. This information can help you make an informed decision based on your best financial interests. It is possible for you to access a portion of your policy's value while your policy remains in deferral. This would allow its value to continue to grow tax-deferred, and still provide the cash you need. Your annuity may permit you to take a free withdrawal, policy loan, or partial surrender. Finally, it's important to realize exactly how much you will be giving up should you decide to fully surrender your policy. Your policy's current Accumulation Value is $751,566.07 and its Surrender Value is $585,014.49. By surrendering your policy now, you are giving up the difference between these two values [$166,551.58]. Any one of these options could provide you with needed cash while allowing you to receive your full accumulation value in cash after your policy's 10-year surrender charge period. The letter provided a ten-day period, called a conservation period, during which J.K. could withdraw her request to liquidate the policy. Mr. Carter called Allianz on April 30, 2010, and spoke to Amber Hendrickson. In the recording of the conversation, Mr. Carter sounds agitated and speaks forcefully. J.K. participated in the telephone call. She is quiet and deferential. In the call, J.K. waives the ten-day "conservation" period. Mr. Carter insists that Allianz process the surrender swiftly. Allianz processed the liquidation of the MasterDex 10 on April 30, 2010. It wired funds from the liquidated annuity to J.K.'s Regions Bank account the same day. On April 30, 2010, J.K. signed a check for $475,000 to EquiTrust Life Insurance Company to purchase an annuity. Mr. Carter wrote the check. Also on April 30, 2010, J.K. signed an EquiTrust annuity application completed by Mr. Carter. The form indicates that the policy is not replacing an existing annuity contract. This is not an accurate representation. On April 30, 2010, Mr. Carter also completed an Annuity Suitability Questionnaire for J.K. to sign and submit with the EquiTrust application. He indicated that J.K. had income from a pension. Mr. Carter knew that this was not accurate. Mr. Carter also indicated that J.K.'s income was adequate to cover all expenses, including medical. He knew this was not accurate because he was fully aware of the cost of W.K.'s caregivers and J.K.'s concern about them. The form, as completed by Mr. Carter, is misleading about the source of the funds for purchase of the annuity. He made the technically correct representation that the funds come from a checking account. But the funds were from the liquidation of the MasterDex 10 and were placed in the checking account the same day the application was completed. The funds were actually from the liquidation of the MasterDex 10 annuity. The form also stated that the proposed annuity would not replace any product. Mr. Carter knew this was not accurate also. He knew that the EquiTrust annuity was replacing the MasterDex 10, albeit in a lower amount, because J.K. kept some cash and lost a good deal of money in surrender costs. A letter Mr. Carter sent to EquiTrust on August 16, 2010, when it was investigating complaints about J.K.'s purchase of the annuity, demonstrates that he knew the EquiTrust annuity was replacing the MasterDex 10. Mr. Carter's letter described the surrender and purchase this way: "An amount of $475,000 was placed into the EquiTrust Annuity (Market Power Bonus Index's Fixed account), the remaining balance of $110,038.75 was sent to her checking account, plus two other accounts valued at $50,000 that were closed, and a Jefferson National check that wasn't cashed for $3,500." Also, on April 23, 2010, J.K. signed, on behalf of herself and W.K., a Surrender/Withdrawal Request to RiverSource asking for the full withdrawal of the net accumulation value of their annuity contract with RiverSource. RiverSource sent J.K. a check for $26,430.07. It deducted $2,158.32 for a withdrawal charge and $295.98 for a "rider charge" from the full value of $28,884.37. On May 5, 2010, EquiTrust received J.K.'s policy application documents and check. EquiTrust required additional documents including a financial needs analysis form. Mr. Carter sought an exception to the requirement for a financial needs analysis form. He did not receive the exception. On May 6, 2010, Mr. Carter sent EquiTrust the required financial needs analysis form. He completed the form for J.K., who was 72 at the time. J.K. also signed this form. The form repeats some of the incorrect statements of the previous forms. It is also includes additional incorrect statements. The instructions for the section about "Replacements" states, "complete if an existing life insurance policy or annuity contract will be used to fund this product." Mr. Carter checked "no" as the response to the question: "Is the agent assisting you with this annuity purchase the same agent on the life insurance policy or annuity contract being replaced?" This indicates he is aware that the policy replaces the MasterDex 10. The response was also a representation that he knew to be false, because he was the agent on the policy being replaced. Mr. Carter also indicated on the needs analysis form that the source of funds for the EquiTrust annuity purchase was "Stocks/Bonds/Mutual Funds." Mr. Carter knew that this representation was not correct. It was also inconsistent with the statement on the suitability questionnaire that the funds came from a checking account. On May 18, 2010, J.K. signed a letter, written by Mr. Carter, asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to Genworth, a company holding another annuity policy of J.K's. J.K. did not know who Mr. Pearson was and only signed the letter because Mr. Carter told her that it would help her save money. J.K. signed a letter, dated May 20, 2010, instructing EquiTrust to cancel the annuity she had with it. On May 23, 2010, Mr. Pearson submitted a form, signed by J.K., using the power of attorney, asking Genworth to liquidate an annuity held for W.K. On May 26, 2010, EquiTrust received the request to cancel J.K.'s policy and advised Mr. Carter. On May 31, 2010, Mr. Carter sent EquiTrust a letter saying that J.K. did not want to cancel and enclosed a letter he prepared, dated May 26, 2010, and signed by J.K. asking EquiTrust to withdraw the cancelation request. The letter also stated that an agent who provided her untruthful information initiated the request. On June 2, 2010, at Mr. Carter's urging, J.K. sent EquiTrust a letter saying she wanted to keep the EquiTrust policy. On June 2, 2010, Mr. Carter sent, by facsimile, a letter written by him and signed by J.K. asking Great American to make Peter Gotsis her annuity agent. J.K. did not know Peter Gotsis and only signed the letter because Mr. Carter asked her to. On June 29, 2010, EquiTrust received a check for an additional $90,302.19 premium for J.K.'s policy. In July 2010, with the assistance of employees at her bank and others, J.K. contacted an attorney. The attorney, Joan Hook, contacted Mr. Carter and the various companies with annuities. Due to the efforts of Ms. Hook, J.K.'s guardian, Ms. Rego, Ms. Karen Ortega of the Department, and others, the series of transactions were undone and J.K. returned to her position before the liquidation of the MasterDex 10 annuity. From December 2010 forward, it was clear to Mr. Carter or anyone else having regular dealings with J.K. that she is confused, uninformed about financial matters, compliant, reasoning poorly, and not capable of making sound decisions. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact combined with the fact that W.K. died several years before the hearing, makes it impossible to determine what representations Mr. Carter made to W.K. and J.K. and to determine what information or instructions they gave him. Much of the evidence related to Counts I through V is hearsay evidence that would not be admissible over objection in a civil action. In addition, there is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of W.K. and J.K., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the various products promoted by Mr. Carter or of the liquidation of the MasterDex 10. Mr. Carter willfully misrepresented information with regard to the applications for the Allianz and the EquiTrust annuities. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz and EquiTrust. Count VI--G.D. and K.D. G.D. lives in New Port Richey, Florida, where she moved from New York about 40 years ago. She was born on January 17, 1935, and has a ninth-grade education. G.D. had worked as a courier. Her investment experience consists of funding certificates of deposit (CDs), placing money in a mutual fund, and purchasing a Transamerica annuity. She is frugal and a conservative investor. G.D. is married to K.D. who was born April 12, 1927. Both are retired. G.D. met Mr. Carter in January 2010, when she responded to a postcard that he sent suggesting that he could save her money on taxes on social security payments. At that time, G.D. was 75 years old and K.D. was 83. G.D. was and is in bad health due to having suffered four strokes. She had difficulty speaking to Mr. Carter during his sales presentations. G.D. and K.D. disclosed to Mr. Carter that their total monthly family income, including social security and K.D.'s pension income, was approximately $2,400.00. They also disclosed that their assets included approximately $325,000.00 in CDs held with Suncoast Schools Federal Credit Union. G.D. and K.D. each owned an annuity, one with Hartford and one with Transamerica, which they told Mr. Carter about. Together, the annuities had a value of approximately $85,000. G.D. and K.D. also had approximately $66,000 in a money market account. Mr. Carter convinced G.D. and K.D. to liquidate their CDs to purchase two Allianz annuities called a MasterDex 10 Plus. One required payment of a $38,219.39 premium. The other required payment of a $287,365.00 premium. The couple applied for the annuities for G.D., with K.D. as the beneficiary, because he was the older of the two. Mr. Carter completed the applications, which they signed. Part six of the applications is titled: "Replacement (this section must be completed)." It asks two questions. The first is: "Do you have existing life insurance or annuity contracts?" Mr. Carter checked "no" as an answer. This was not correct, and he knew it. The second question asks: "Will the annuity contract applied for replace or change existing contract or policies?" This Mr. Carter correctly answered "no." Section six also asks for the amount of coverage in force. Mr. Carter did not provide this information. Mr. Carter also completed the Florida Senior Consumer Suitability Form Questionnaire for G.D. and K.D., which they signed. The form accurately reflects the couple's net worth, liquid assets, and income. It reports correctly that they owned or had owned CDs, fixed annuities, and variable annuities. The completed form also accurately reflects the couple's desire for guaranteed income. The form discloses that the annuity must be owned a minimum of 15 years to receive its maximum value. The MasterDex 10 Plus annuity is a complicated financial product with a ten percent "bonus" that the buyer does not receive unless she holds the policy for 15 years. In fact, holding the policy for 15 years is the only way to get the full benefit of the policy. While money may be withdrawn earlier, that results in losses of the benefits and in some cases penalties. For instance, if a policy holder chooses to liquidate the policy, the value she receives is only 87.5 percent of the premium paid with one percent interest for the period held. These provisions have a substantial financial effect on the benefits of the annuity. For example, in the fifth year, the cash surrender value of the $38,219.49 premium policy is $36,027.00. About ten months after purchasing the annuities, G.D. and K.D. began having second thoughts about the purchase of the annuities. G.D. consulted with the financial advisor "Wayne" at her bank. G.D. later concluded that she had also misunderstood the interest rate. Mr. Carter had shown her sales material with the ten percent "bonus," which generated a high interest rate of 13.3 percent for one year. But G.D. did not understand that the interest rate only applied in one year, and the money was not immediately available. On November 17, 2010, G.D., with Wayne's help, composed a complaint letter to Allianz that summarized her complaints and requested that her premium payments be returned without fees. On November 28, 2010, Carter responded with a letter to Allianz defending his annuity sales. On December 17, 2010, Allianz's employee, Mary Lou Fleischacker, advised G.D. by letter that the "free look" period for cancelling the contracts had passed. But Fleischacker did request further information about the sales. By two letters dated January 10, 2011, Allianz advised G.D. that she would suffer over $80,000 in penalties if she canceled the contracts. G.D.'s efforts to terminate the annuities prompted Carter to come uninvited into G.D.'s home and insistently demand that G.D. telephone Allianz and cancel her attempt to rescind the contracts. He also asked her, without explanation, to wait one week before liquidating the policies. G.D. refused. Carter repeatedly telephoned G.D. and returned uninvited to the house several times making the same demand. G.D. refused to answer her door. Mr. Carter came to G.D.'s daughter's house uninvited one evening, told her that her mother was going to lose a lot of money, and revealed her mother's financial matters to her. Mr. Carter demanded that G.D.'s daughter deliver to her mother for signature a letter he wrote rescinding the liquidation requests. G.D.'s daughter agreed to get Carter to leave. G.D.'s daughter feared for her mother's safety because of Mr. Carter's harassing telephone calls to her and her mother. She urged her mother to call the police. G.D. called the police and a New Port Richey officer told Mr. Carter to cease the harassment, and then filed a report on January 13, 2011. Mr. Carter did not contact G.D. or her daughter after that. Eventually, with the assistance of Department Investigator Ortega, G.D. was able to obtain the return of her funds from Allianz. There is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of G.D. and K.D., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the liquidation of the CDs and purchase of the MasterDex 10 Plus annuities as promoted and sold by Mr. Carter. Mr. Carter willfully misrepresented information with regard to the applications for the MasterDex 10 Plus annuity. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz. Mr. Carter's repeated, persistent, and overbearing efforts to require G.D. to speak with him about the cancelation and withdraw it demonstrate a lack of fitness to engage in the business of insurance. Count VII--G.B. G.B. was born on January 14, 1930. She has a high school education. G.B. worked at and retired from Lucent Technology wiring telephone boards. She receives a small pension. Her husband, K.B., managed their financial affairs before he died ten years ago. Before K.B.'s death, the couple maintained investment accounts with Schwab. After K.B.'s death, Schwab employee, Barry Tallman, recommended that G.B. seek financial advice from Christopher Trombetta, CPA. She did so. Mr. Carter and a colleague, Christopher Drew, met with G.B. on June 29, 2010. She was 70 years old, timid, and easily confused. G.B. had responded to a promotional postcard she received from them purporting that the law governing taxes on social security income had changed and that they could lower her taxes. Mr. Carter was the person who presented G.B. information and persuaded her to purchase an annuity in the course of a meeting that lasted one to two hours. The evidence does not permit a determination of what representations and information Mr. Carter presented in his sales meeting with G.B. Her memory of the meeting was not distinct. She was confused about the meeting and did not remember facts precisely or explicitly. Mr. Carter completed applications for EquiTrust annuity products. G.B. signed the applications. Mr. Carter also completed financial needs analyses. G.B. signed them also. A box that asks if the applicant is aware that the annuity may be "a long-term contract with substantial penalties for early withdrawal" was checked "yes." The form also accurately represented that the source of funds for the annuity premium was stocks, bonds, or mutual funds. The other representations in the form were accurate. Mr. Carter persuaded G.B. to purchase two EquiTrust Market Power Plus annuities. G.B. signed two EquiTrust annuity contracts ending with 29F (E-29F) and 30F (E-30F). The initial premium for E-29F was $458,832.71. The initial premium for E-30F was $118,870.34. Both annuities were designed to provide G.B. with income in 2036. The funds for the premium came from the liquidation of her stock brokerage account. Both contracts had 20 percent surrender charges for the first two years of ownership. G.B. could not have surrendered the contract with its full financial benefits without a penalty until she was 95 years old. Mr. Carter delivered the annuity contracts to G.B. on August 6, 2010. The contracts provided G.B. the right to cancel the annuity by returning it within 15 days of the date she received it. Soon afterwards, Barry Tallman notified G.B. that her Schwab accounts had been liquidated. Transamerica Agent William Pearson had liquidated the accounts to transfer the money for purchase of the EquiTrust annuities. She was surprised. G.B. grew concerned about the annuities and consulted Mr. Trombetta and a financial advisor named Judith Gregory on September 20, 2010. With their assistance, G.B. wrote a complaint letter to EquiTrust asserting that Mr. Carter had assured her, among other things, that the annuities would protect her money should she enter a nursing home. G.B. wanted to cancel the annuities and have her full premium returned. G.B.'s letter to EquiTrust said, "I do not want any calls or visits from the agent or the agent's office." Mr. Carter learned of the effort to cancel the annuities. On November 15, 2010, at Mr. Carter's suggestion, he and Mr. Drew returned to G.B.'s home uninvited and unannounced. Mr. Carter insisted on entering and speaking to G.B. Mr. Carter began loudly and forcefully arguing with G.B. She telephoned Mr. Trombetta and asked that he speak to Mr. Carter. Mr. Carter yelled at Mr. Trombetta. Mr. Trombetta credibly describes part of the conversation as follows: And before I could barely get that out, Rick exploded on me. He snapped and he started cursing up and down. F'n me up one side and down the other. And "you don't F'n know what you are talking about. You don't care about this person. You don't f'n know what you are doing;" and this and that. When G.B. returned to the telephone to speak with Mr. Trombetta, he advised her to call the police if Mr. Carter did not leave her house within five minutes. Mr. Carter and Mr. Drew left. EquiTrust eventually returned over $600,000 to G.B. There is no expert testimony evaluating and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of G.B.'s life expectancy which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the two annuities Mr. Carter sold G.B. Mr. Carter's conduct, in his unannounced visit to G.B. to try to persuade her to change her plans to liquidate the annuities and his conversation with Mr. Trombetta, demonstrated a lack of fitness to engage in the business of insurance.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order revoking the licenses of Richard Edward Carter. DONE AND ENTERED this 28th day of November, 2012, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 2012.
The Issue Does Petitioner, Department of Financial Services (DFS), have authority to determine if Respondent, Alberto Luis Sotero (Mr. Sotero) and Respondent, FalconTrust Group, Inc. (FalconTrust), wrongfully took or witheld premium funds owed an insurance company while a civil action between the insurance company and Mr. Sotero and FalconTrust pends in Circuit Court presenting the same issues? Should the insurance agent license of Mr. Sotero be disciplined for alleged violations of Sections 626.561(1), 626.611(7), 626.611(10), 626.611(13), and 626.621(4), Florida Statutes (2007)?1. Should the insurance agency license of FalconTrust be disciplined for alleged violations of Section 626.561(1), 626.6215(5)(a), 626.6215(5)(d). 626.6215(5)(f), and 626.6215(5)(k), Florida Statutes?
Findings Of Fact Based on the testimony and other evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Mr. Sotero is licensed by DFS as an insurance agent in Florida and has been at all times material to this matter. He holds license number A249545. FalconTrust is licensed by DFS as an insurance agency in this state and has been at all times material to this matter. It holds license number L014424. Mr. Sotero is an officer and director of FalconTrust and held these positions at all times material to this proceeding. Mr. Sotero also controlled and directed all actions of FalconTrust described in these Findings of Fact. Zurich American Insurance Company is a commercial property and casualty insurance company. FalconTrust Commercial Risk Specialists, Inc., and Zurich-American Insurance Group entered into an "Agency-Company Agreement" (Agency Agreement) that was effective January 1, 1999. The Agency Agreement bound the following Zurich entities, referred to collectively as Zurich: Zurich Insurance Company, U.S. Branch; Zurich American Insurance Company of Illinois; American Guarantee and Liability Insurance Company; American Zurich Insurance Company; and Steadfast Insurance Company. The Agreement specified that FalconTrust was an "independent Agent and not an employee of the Company [Zurich.]". . .. The Agency Agreement also stated: All premiums collected by you [Falcontrust] are our [Zurich's] property and are held by you as trust funds. You have no interest in such premiums and shall make no deduction therefrom before paying same to us [Zurich] except for the commission if any authorized by us in writing to be deducted by you and you shall not under any circumstances make personal use of such funds either in paying expense or otherwise. If the laws or regulations of the above state listed in your address require you to handle premiums in a fiduciary capacity or as trust funds you agree that all premiums of any kind received by or paid to you shall be segregated held apart by you in a premium trust fund account opened by you with a bank insured at all times by the Federal Deposit Insurance Corporation and chargeable to you in a fiduciary capacity as trustee for our benefit and on our behalf and you shall pay such premiums as provided in this agreement. (emphasis supplied. The Agency Agreement commits Zurich to pay FalconTrust commissions "on terms to be negotiated . . . ." It requires FalconTrust to pay "any sub agent or sub producer fees or commissions required." The Agency Agreement also provides: Suspension or termination of this Agreement does not relieve you of the duty to account for and pay us all premiums for which you are responsible in accordance with Section 2 and return commissions for which you are responsible in accordance with Section 3 [the Commission section.] The Agency Agreement was for Mr. Sotero and Falcontrust to submit insurance applications for the Zurich companies to underwrite property and casualty insurance, primarily for long- haul trucking. The Agency Agreement and all the parties contemplated that Mr. Sotero and FalconTrust would deduct agreed-upon commissions from premiums and remit the remaining funds to Zurich. On September 14, 2000, Zurich and Mr. Sotero amended the Agency Agreement to change the due date for premium payments and to replace FalconTrust Group, Inc. (FalconTrust) for FalconTrust Commercial Risk Specialists, Inc., and to replace Zurich-American Insurance Group and Zurich Insurance Company, U.S. Branch, with Zurich U.S. Mr. Sotero and Zurich's authorized agent, Account Executive Sue Marcello, negotiated the terms of the commission agreement as contemplated in the Agency Agreement. Mr. Sotero confirmed the terms in a July 20, 1999, letter to Ms. Marcello. The parties agreed on a two-part commission. One part was to be paid from the premiums upon collection of the premiums. The second part, contingent upon the program continuing for five years, was to be paid by Zurich to Mr. Sotero and FalconTrust. The total commission was 20 percent. FalconTrust and Mr. Sotero were authorized to deduct 13 percent of the commission from premiums before forwarding them to Zurich. The remaining seven percent Zurich was to pay to Mr. Sotero and FalconTrust at the end of the program or after the fifth year anniversary date. The letter spelled out clearly that Zurich would hold the money constituting the seven percent and was entitled to all investment income earned on the money. The passage describing the arrangement reads as follows: Our total commission is 20 percent however Zurich will hold and retain the first 7 percent commission where they are entitle [sic] to earn investment income. I understand that FalconTrust will not benefit from this compounded investment income. However you mentioned you would increase our initial commission that is set at 13 percent currently from time to time depending on FalconTrust reaching their goals, but it will never exceed a total commission of 20 percent. It is to our understanding that the difference will be paid at the end of the program or after the fifth year anniversary date being 12/31/2005, but not earlier than five years. I do understand that if Zurich and/or FalconTrust cancels the program on or before the fourth year being 12/31/2004 that we are not entitle [sic] to our remaining commission that you will be holding. If the program is cancelled after 12/31/2004 by FalconTrust and/or Zurich it is understood that all commission being held will be considered earned. (emphasis added.) Until the program ended, the parties conducted themselves under the Agency Agreement as described in the letter. At some point the parties agreed to decrease the percentage retained by Zurich to five percent and increase the percentage initially paid to and kept by FalconTrust to 15 percent. During the course of the relationship FalconTrust produced approximately $146,000,000 in premiums for Zurich. At all times relevant to this matter, all premium payments, except for the portion deducted by sub-agents and producers before forwarding the payments to Mr. Sotero and FalconTrust were deposited into a trust account. The various sub-agents of FalconTrust collected premiums and forwarded them to FalconTrust, after deducting their commissions, which were a subpart of the FalconTrust 13 percent commission. FalconTrust in turn forwarded the remaining premium funds after deducting the portion of its 13 percent left after the sub-agent deduction. This was consistent with the Agency Agreement and accepted as proper by Zurich at all times. All parties realized that the held-back seven percent, later five percent, was money that Zurich would owe and pay if the conditions for payment were met. The parties conducted themselves in keeping with that understanding. Mr. Sotero and FalconTrust described the practice this way in their Third Amended Complaint in a court proceeding about this dispute: "In accordance with the Commission Agreement, Zurich held the contingency/holdback commission and received investment income thereon." (Emphasis supplied.) In 2006 Zurich decided to end the program. In a letter dated December 8, 2006, Tim Anders, Vice President of Zurich, notified Mr. Sotero that Zurich was terminating the Agency-Company Agreement of January 1, 1999. The letter was specific. It said Zurich was providing "notification of termination of that certain Agency-Company Agreement between Zurich American Insurance Company, Zurich American Insurance Co. of Illinois, American Guarantee and Liability Insurance Co., American Zurich Insurance Company, Steadfast Insurance Company . . . and FalconTrust Grup, Inc. . . ., dated January 1, 1999, . . .." Mr. Sotero wrote asking Zurich to reconsider or at least extend the termination date past the March 15, 2007, date provided in the letter. Zurich agreed to extend the termination date to April 30, 2007. At the time of termination FalconTrust had fulfilled all of the requirements under the Agency-Agreement for receipt of the held-back portion of the commissions. Mr. Sotero asked Zurich to pay the held-back commission amounts. He calculated the amount to exceed $7,000,000. Zurich did not pay the held- back commission amounts. As the program was winding down and the termination date approached, FalconTrust continued to receive premiums. As the Agency Agreement and negotiated commission structure provided, FalconTrust deducted its initial commission from the premium payments. But, reacting to Zurich's failure to begin paying the held back commission amounts, Mr. Sotero engaged in "self help." He deducted at least $6,000,000 from the premium payments from customers, received and deposited in the trust account. He took the money as payment from Zurich of earned and held back commissions.3 Nothing in the Agency Agreement or negotiated commission agreement authorized this action. In March of 2007, Mr. Sotero and FalconTrust also brought suit against Zurich in the Circuit Court for the Eleventh Judicial Circuit, Miami, Florida. The issues in that proceeding include whether Mr. Sotero and FalconTrust wrongfully took premiums and how much Zurich owes them for commissions. As of the final hearing, that cause (Case Number 07-6199-CA-01) remained pending before the court and set for jury trial in August 2010. There is no evidence of a final disposition. But the court has entered a partial Summary Judgment determining that FalconTrust wrongfully took premium funds for the commissions that it maintained Zurich owed. The court's Order concludes that the issue is not whether Zurich owed money to FalconTrust, but whether FalconTrust was entitled to take the funds when it did. Like the undersigned, the court determines that it was not. Between December 8, 2006, the date of the cancelation letter, and April 30, 2007, the program termination date, Mr. Sotero and FalconTrust did not remit to Zurich any of the approximately $6,000,000 in premium payments received. Despite not receiving premiums, Zurich did not cancel or refuse to issue the policies for which the premiums taken by Mr. Sotero and FalconTrust were payment. The policies remained in effect.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services suspend the license of Adalberto L. Sotero for nine months and suspend the license of FalconTrust Group, Inc. for nine months. DONE AND ENTERED this 15th day of October, 2010, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II 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 15th day of October, 2010.
The Issue Whether or not the Respondent, Maxey Roger Watson, is guilty of violations of Sections 626.561, 626.611(3), 626.621(2), 626.611(9), 626.611(10), 626.621(6) and 626.611(7), Florida Statutes, through his business transactions with James B. Galloway. Whether or not the Respondent, Maxey Roger Watson, is guilty of violations of Sections 626.561, 626.611(3), 626.621(2), 626.611(9), 626.61L(10), 626.621(6) and 626.611(7), Florida Statutes, through his business transactions with Nancy E. Galloway.
Findings Of Fact THIS CAUSE comes on for consideration based upon the Administrative Complaint filed by the State of Florida, Office of Treasurer and Insurance Commissioner, against Maxey Roger Watson. The case number before the State of Florida, Office of Treasurer and Insurance Commissioner is Case No. 78-L-42K. The Petitioner, State of Florida, Office of Treasurer and Insurance Commissioner, is an agency of the State of Florida having among other functions the regulation of the insurance industry operating in the State of Florida. The authority for such regulation is found in Chapter 626, Florida Statutes. The Respondent, Maxey Roger Watson, is licensed by the Petitioner in the various categories of licenses set forth in the Petitioner's Composite Exhibit No. 2 admitted into evidence. The facts in this case reveal that between January of 1974 and April of 1977, inclusive, one James B. Galloway of Lake Butler, Florida, had been issued policy number VA 33672 through the Hartford Variable Annuity Life Insurance Company. During that same period, Nancy E. Galloway of Lake Butler, Florida, had been issued policy number VA 33671 with the Hartford Variable Annuity Life Insurance Company. Those two policies were part of an annuity program which the Respondent's company, First Jacksonville Corporation, had negotiated for the benefit of the Galloways and other employees of the Union County, Florida, School Board. During the time periods pertinent to this administrative complaint, the Respondent, Maxey R. Watson, was the majority stockholder of First Jacksonville Corporation, and did business as First Jacksonville Corporation. In addition, he was knowledgeable of the negotiations concerning the aforementioned Galloway policies. The specific terms and conditions of the arrangement which First Jacksonville Corporation had with the Union County School Board were to the effect that the payment of the premiums on the annuity plan would be handled by a payroll deduction from the warrants of the employees in the category of the Galloways. In turn, this money for the premium payments would be transmitted to First Jacksonville Corporation. First Jacksonville Corporation would then be responsible for the transmittal of the premium payments to the Hartford Variable Annuity Life Insurance Company and commissions would be forwarded to the First Jacksonville Corporation upon receipt of the premium payments. Another aspect of the arrangement, in theory, was to have the Hartford Variable Annuity Life Insurance Company submit billings for the premium payments directly to the First Jacksonville Corporation to aid the First Jacksonville Corporation in determining the amounts to be submitted to the insurer. However, even without those billing statements the premiums belonged to the insurer and were to be transmitted to it by First Jacksonville Corporation. Between January of 1974 and April of 1977, inclusive, the Union County School Board paid the premium payments on the policies of the Galloways to Maxey Roger Watson d/b/a First Jacksonville Corporation. The amount of the premium payments in this time sequence was a total of $2,164.00 for James B. Galloway and $2,164.00 for Nancy E. Galloway. These amounts, set forth as premium payments due and owing to the Hartford Variable Annuity Life Insurance Company on the accounts of the Galloways, were never remitted by First Jacksonville Corporation to the Hartford Variable Annuity Life Insurance Company, notwithstanding the obligation of the Respondent through his company to do so. The money received as premium payments on the Galloway accounts was placed in a bank account of the First Jacksonville Corporation and it was kept there together with other monies than the Galloway premiums. The Respondent had access to this bank account and used the proceeds of the premiums for personal and business reasons. The Respondent's explanation of why he used the premium payments for purposes of his own is tied in with his contention that the Hartford Insurance Group was acting unreasonably when it forwarded the billing statements on the accounts such as the Galloways directly to the Union County School Board, as opposed to the First Jacksonville Corporation, which had been agreed to. Respondent found out about this problem in 1973. He then began to take steps to have the arrangement changed to send premium notices directly to the various school boards he dealt with and have them remit the premiums directly to the insurance company and remove his organization from the responsibility. Nonetheless, the problem with the non-payment of premiums from First Jacksonville Corporation to the Hartford Variable Annuity Life Insurance Company continued to exist from 1973 through April of 1977 related to the accounts of the Galloways. During the pendency of that time period the Respondent used the Galloways' premiums for personal and business purposes, knowing that he was obligated to remit the premiums to the Hartford Variable Annuity Life Insurance Company. The Respondent was responsible for the bookkeeping of the First Jacksonville Corporation during the period of January of 1974 through and including April of 1977 and had the further expertise of being a licensed C.P.A. in the State of Florida. The Respondent had what he characterized as being an open-ended invoicing system for dealing with the premium payments. Under this system, according to the Respondent, it was difficult to ascertain what premium payments were due and owing to the various insurance companies, unless First Jacksonville Corporation received current billing statements on the amounts due and owing to the insurer. However, under the circumstances, the action of the Respondent in not remitting the Galloway premium payments to the Hartford Insurance Group constituted a willful violation of the provisions of the Insurance Code under Chapter 626, Florida Statutes. In view of these facts, the Petitioner has charged the Respondent with various violations of Chapter 626, Florida Statutes, in his transactions with James B. Galloway and Nancy E. Galloway. The first allegation pertains to Section 626.561, Florida Statutes. The Respondent has violated the conditions of that section in that he took the trust funds constituted of the premium payments in behalf of the Galloways and failed to account for and pay those premium payments to the insurer in the regular course of business and, not being lawfully entitled to those premiums, diverted and appropriated the funds to his own use. The complaint next alleges that the Respondent violated Section 626.611(13), Florida Statutes. That provision has been violated because the Respondent has willfully failed to comply with the requirements of Section 626.561, Florida Statutes, for the reasons stated above. The Administrative Complaint makes an allegation that the Respondent has violated the provisions of Section 626.611(9), Florida Statutes. This allegation has been established because the evidential facts show the Respondent is guilty of fraud and dishonest practices in the conduct of the business transactions involving the Galloways. A further allegation of the Administrative Complaint concerns an alleged violation of Section 626.611(10), Florida Statutes. The Respondent is guilty of a violation of that provision in that he misappropriated, converted and unlawfully withheld monies belonging to the Hartford Variable Annuity Life Insurance Company in the matter of the premium payments of the Galloways. There is an allegation that the Respondent has violated the provision of Section 626.621(6), Florida Statutes. Likewise, the Respondent has been shown to be guilty of that provision in that he has shown himself to be a source of injury or loss to the public or a detriment to the public's interest in his willful conversion and misappropriation of the Galloway premium payments to his own use, when those payments were properly to be remitted to the Hartford Variable Annuity Life Insurance Company. Finally, the Respondent has been charged with the violation of Section 626.611(7), Florida Statutes. That substantive allegation is one that the Respondent has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance. Taking into account all of the facts of this case, this contention of the Administrative Complaint has been shown.
Recommendation It is recommended that the various licenses held by the Respondent, Maxey Roger Watson a/k/a Maxey Roger Watson, stated in the Petitioner's Composite Exhibit No. 2, be revoked. This recommendation takes into account the facts reported herein and the additional consideration of the Respondent's failure to comply with an agreement to repay the Hartford Insurance Group the premiums due on the Galloway accounts after entering into such agreement to make whole the Hartford Insurance Group. DONE and ENTERED this 30th day of January, 1979, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Edward L. Kutter, Esquire Office of the Treasurer and Insurance Commissioner 428-A Larson Building Tallahassee, Florida 32304 Frederick B. Tygart, Esquire Suite 400, Fletcher Building 100 Riverside Avenue Jacksonville, Florida 32204
