The Issue This case involves a dispute as to whether the Petitioner underpaid the premiums due on his health insurance coverage and, if so, what action should be taken by the Department of Administration as a result of any premium underpayments. By notice dated March 18, 1988, the Department of Administration notified the Petitioner that the Department records "show a total underpayment of $1,117.81 for the coverage periods 9/86 through 9/87." At the formal hearing, over the objection of the Petitioner, the Department was permitted to offer evidence regarding the Petitioner's premium history (both the amounts due and the amounts actually paid) for the entire period of the Petitioner's employment with the State of Florida, a period which runs from May 1978 until October 1988. At the formal hearing the Department of Administration presented the testimony of one witness and offered several exhibits, all of which were received. The Petitioner did not present any evidence, but did present oral argument on his own behalf. The parties were allowed 10 days from November 3, 1988, within which to file their post-hearing submissions with the Hearing Officer. The Department of Administration timely filed Proposed Findings Of Fact. Those findings are specifically addressed in the appendix to this recommended order. The Petitioner did not file any post-hearing submission.
Findings Of Fact Based on the evidence received at the formal hearing, I make the following findings of fact. From May 1, 1978, until August 1, 1978, the Petitioner requested and received family coverage under the State Group Health Self-insurance Plan. From November 1, 1978, until November 1, 1985, the Petitioner requested and received individual coverage under the State Group Health Self-Insurance Plan. From November 1, 1985, until the date of the hearing, the Petitioner requested and received family coverage under the State Group Health Self-Insurance Plan. From May 1, 198, until July 1, 1984, the Petitioner was a part-time employee of the State of Florida, working .25 of a full-time equivalent position. Accordingly, his premiums for health insurance coverage under the State Group Health Self-Insurance Plan during this period should have been paid on the basis of employment in a .25 full-time equivalent position. From July 1, 1984, until at least the date of the hearing, the Petitioner has been a part-time employee of the State of Florida, working .20 of a full-time equivalent position. Accordingly, his premiums for health insurance coverage under the State Group Self-Insurance Plan during this period should have been paid on the basis of employment in a .20 full-time equivalent position. During the period beginning May 1, 1988, and continuing through October of 1988, the amount by which the Petitioner underpaid his health insurance coverage premiums totals S1,116.36. 1/ During the period beginning March 1, 1986, and continuing through October of 1988, the amount by which the Petitioner underpaid his health insurance coverage premiums totals $861.74. During the thirteen-month period beginning with September 1986 and ending with (but including) September 1987, the amount by which the Petitioner underpaid his health insurance coverage premiums totals $258.36.
Recommendation Based on all of the foregoing, I recommend the entry of a Final Order to the following effect: Finding the Petitioner to be in debt to the State of Florida in the amount of $258.36 by reason of underpayment of premiums during the period of September 1986 through September 1987. Providing that the Petitioner's health insurance coverage under the State Group Health Self-Insurance Plan will be cancelled unless within thirty (30) days following the entry of the final order the Petitioner either pays the full amount of $258.36 or enters into an installment payment program consistent with Rule 22K-1.049(1)(a)2., Florida Administrative Code. DONE AND ENTERED this 23rd day of November, 1988, at Tallahassee, Florida. MICHAEL M. PARRISH, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of November, 1988.
The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
The Issue The issue is whether Respondent is entitled to recovery of overpayments of disability benefits resulting from the alleged failure to reduce such payments by offsetting social security benefits.
Findings Of Fact From March 1, 2007, until February 26, 2010, Petitioner was employed by the Department of Health as a Dental Consultant for the Prosecution Services Unit. During the period of his employment, Petitioner was a Select Exempt Service employee. Respondent is responsible for the administration of the state group insurance program. As authorized by law, Respondent has contracted with NorthGate Arinso to provide human resources management services, including the administration of employee health insurance benefits. The electronic portal for state employees to access personnel information is the “People First” system. During his employment with the Department of Health, Petitioner participated in the Florida state group insurance program, and was enrolled as a member of the State Employees PPO Plan. At the time of his enrollment in the state group insurance program, Respondent was provided with the Senior Management and Select Exempt Service Employees' State Group Disability Insurance Program benefits booklet. The booklet provides, under the heading "Benefit Reduction Provisions," that: Benefits payable under this insurance will be reduced by the amount of: Any disability or retirement Social Security Benefits for which the employee is eligible, and benefits for which the employee's spouse or children are eligible as a result of the employee's eligibility for Social Security benefits. DSGI reserves the right to estimate the amounts of any Social Security benefits until the employee has applied for such benefits and the Social Security Administration has made a final determination, and to reduce the plan benefits as if these Social Security benefits were paid. Benefit payments made by DSGI will be adjusted when a determination is made by the Social Security Administration. If such a determination reveals an overpayment by the Plan, DSGI has the right to recover any such overpayment. Petitioner has a supplemental disability life insurance policy with the Cigna insurance company. The supplemental policy is not administered by Respondent, and did not affect the state disability insurance benefits. While employed at the Department of Health, Petitioner began to experience debilitating health problems. By October, 2009, his condition had advanced to the degree that he could no longer work. Petitioner began to contemplate going on disability. He was uncertain as to whether he would be allowed to resign from state employment and still qualify for disability benefits. Petitioner?s daughter, Karen Halperin Cyphers, researched the issue and discovered that it had been resolved by judicial decision in a manner that would allow Petitioner to retire from state employment, but maintain his disability benefits for the full term allowed by law. Ms. Cyphers sought confirmation from Respondent that Petitioner would qualify for disability benefits if he resigned his position. On January 29, 2010, Respondent e-mailed a letter to Ms. Cyphers confirming that “benefits will not terminate solely because an insured terminates employment with the state. To be eligible for these benefits, all other requirements must be satisfied.” On February 17, 2010, Petitioner filed his claim for benefits under the state disability plan, and the required Attending Physician?s Statement. The Attending Physician?s Statement confirmed that Petitioner was not able to work. Petitioner thereafter went on leave-without-pay status on February 18, 2010. His last day of employment with the Department of Health was February 27, 2010. Petitioner was eligible for state disability benefits for 364 days, or into February, 2011. At all times pertinent to this proceeding, Petitioner?s wife, Dr. Gail Halperin,1/ was responsible for handling the family?s finances. Petitioner consulted with Mrs. Halperin when he was able. However, the severity of Petitioner?s medical condition, which necessitated a stay of almost five weeks at the Mayo Clinic, often made communications regarding finances impractical. Mrs. Halperin used electronic banking services, and frequently checked the family account to ensure that the bi- weekly state disability benefit payments had been deposited. On March 12, 2010, Mrs. Halperin wrote to Respondent to object to an underpayment in one of the first disability benefit payments to Petitioner. The underpayment amount resulted from an issue regarding four days of available leave, which would have made Petitioner ineligible for benefits for the period of March 1 through March 4, 2010. In her e-mail, Mrs. Halperin acknowledged having read the "Benefit Reduction Provisions" of the benefits booklet regarding reduction of state benefits by Social Security benefits, but as to any such reductions of Petitioner?s state benefits, noted that Petitioner “did apply of [sic] social security, but he does not expect to hear from them for quite some time.” The underpayment issue was resolved, and Petitioner was ultimately paid for the disputed four days. By a Notice of Award from the Social Security Administration dated September 3, 2010, Petitioner was notified that he had been determined to be entitled to Social Security Disability benefits in the amount of $1,818.00 per month. He received his regular monthly payment for September, 2010, and a lump-sum payment of $5,454.00, for the months of June-August, 2010. As was her practice regarding state disability payments, Mrs. Halperin regularly checked her bank accounts to ensure that the payments were deposited, and knew that Social Security Disability Income benefits were being paid to Petitioner. Petitioner did not inform Respondent when he became eligible for Social Security Disability Income benefits, or when he began receiving those payments. During his period of disability, Petitioner had a dispute with Cigna regarding its denial of a waiver of his supplemental disability policy premium. On November 14, 2010, Mrs. Halperin sent an appeal of the denial to Rhonda Whethers, an employee of Cigna. The appeal, sent by e-mail, consisted of roughly nine pages of printed text and eight exhibits. Mrs. Halperin described Petitioner's medical condition in detail, and requested that Cigna waive the premium to keep the policy in effect. Mrs. Halperin sent copies of the appeal to Cigna's manager of Specialty Lines Administration, to the Director of Cabinet Affairs for the Florida Attorney General, to the Insurance Consumer Advocate for the Department of Financial Services, and to Michele Robletto, the DSGI Division Director. In the description of Petitioner's medical condition, Mrs. Halperin stated that "[i]ndeed, Minnesota Life, the State of Florida through the State Group Health Plan, and the U.S. Social Security Disability Insurance (SSDI) program have fully approved [Petitioner's] claim of total disability from ANY and ALL work." That statement is the only time in which mention of Petitioner's Social Security benefits was made to Respondent. The reference, which was not directed to Respondent, is too indirect to constitute notice to Respondent of Petitioner's Social Security benefits. On February 1, 2011, Respondent sent Petitioner a notice that his Attending Physician?s Statement had not been updated. On February 6, 2011, in response to the previous notice, Mrs. Halperin sent a copy of the September 3, 2010, Notice of Award from the Social Security Administration to Respondent. That letter was the first disclosure to Respondent of Petitioner's eligibility for, and receipt of, payments of Social Security disability benefits. Based on the September 3, 2010 letter, Respondent determined that Petitioner had been receiving state disability benefits without the reduction of Social Security benefits as provided for by rule. Thereafter, Respondent calculated that Petitioner was overpaid in the amount of $13,925.82. On February 21, 2011, Respondent notified Petitioner that it had overpaid him $13,925.82, in State Group Disability Income benefits. That figure is found to accurately reflect the amount of state benefits that were not reduced by corresponding payments of Social Security benefits. Petitioner argues that neither rule 60P-9.005 nor the the Senior Management and Select Exempt Service Employees' State Group Disability Insurance Program benefits booklet contains a requirement that a recipient of state disability benefits notify Respondent of eligibility for or receipt of Social Security disability benefits, and that as a result, Respondent should be estopped from recovering any overpayments. Rule 60P-9.005 and the Senior Management and Select Exempt Service Employees' State Group Disability Insurance Program benefits booklet are both clear and unequivocal that state disability benefits are to be reduced by Social Security disability benefits. Respondent receives no information directly from the federal government regarding disability benefits. Thus, it is the responsibility of recipients of state disability income to understand and comply with the law. Petitioner testified that neither he nor his family had any intent to mislead the state. The undersigned accepts that as true. Nonetheless, Petitioner received state disability benefits after he became eligible for and began receiving Social Security benefits, without the reduction required by law. Thus, Respondent is entitled to recovery of the overpayments.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Management Services enter a final order finding that Respondent is entitled to recovery of overpayments of disability benefits in the amount of $13,925.82. DONE AND ENTERED this 19th day of April, 2012, in Tallahassee, Leon County, Florida. S E. GARY EARLY 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 19th day of April, 2012.
The Issue Whether Petitioner timely notified Respondent, Division of State Group Insurance of a "qualifying status change" (QSC) event, so as to allow Petitioner to cancel her participation in the State Group Health Insurance Program during the Plan Year- 2006. Petitioner seeks a refund of amounts deducted/paid because her insurance was continued.
Findings Of Fact Petitioner has been a covered participant in the Program, authorized by Section 110.123, Florida Statutes, at all times material. As provided in Section 110.123(3)(c), Florida Statutes, Respondent DMS, through its administrative entity, DSGI, is responsible for contract management and day-to-day administration of the Program. DMS has contracted with Convergys, Inc., to provide human resources management services including assisting in the administration of the Program. Convergys performs these tasks in part through an on-line system known as "People First." However, as provided in Section 110.123(5), Florida Statutes, final decisions concerning the existence of coverage or covered benefits under the Program are not delegated, or deemed to have been delegated, by DMS. Section 110.161, Florida Statutes, requires DSGI, as the responsible administrative entity, to administer the Program consistent with Section 125 of the Internal Revenue Code, so that participants will obtain the pre-tax advantages provided by Section 125. One of the federal requirements to maintain the pre-tax status is that the plan's sponsor (e.g., the State of Florida) administer the plans and apply each plan's rules in a manner that does not discriminate and that treats all participants equally. In this case, Petitioner was enrolled in the Health Program Plan Year 2006, i.e. from January 1, 2006, through December 31, 2006. Allowing a Plan member to retroactively cancel her participation during a Plan Year without having properly reported a QSC could put the entire pre-tax program in jeopardy. A QSC is a change in status as listed in the Plan which would allow an employee to cancel or otherwise change participation in the Plan during the Plan Year if requested by the employee within 31 days of the change in status. Converting from full-time to part-time state employment is a QSC event. On April 21, 2006, Petitioner converted from full-time employee status to part-time employee status. Therefore, the QSC event in this case occurred on April 21, 2006, when Petitioner went from being a full-time to a part-time employee. However, in order to effect a change in health insurance coverage, Petitioner was required to request a change in health insurance coverage no later than May 22, 2006. To request a change in health insurance coverage, Petitioner would have needed to contact Convergys in a timely manner, i.e. within 31 days of April 21, 2006. For People First, Convergys maintains a tracking system known as "Siebel," which tracks written correspondence to or from state employees and notes telephone calls between state employees and Convergys associates. Standard business procedure for Convergys is that the telephone logs are not verbatim notations of the conversations, but are a summary of those conversations, including a description of the reason for the call and the action taken by any Convergys associate that took the call. The Convergys policy is that all calls are to be notated. All service associates are trained to note all calls. Convergys employees are trained to make the call notes during the telephone conversation or soon thereafter. A notation is to be made by the Convergys employee in the Siebel system, and a case is opened when the service representative cannot assist the caller or when further action is required. The case notes are also to be recorded in the system. None of the People First, DGS/DGSI, or Convergys records reflect any contact by Petitioner within the 31 days following April 21, 2006, although they reflect several later contacts concerning her complaint that her coverage was not timely cancelled. Petitioner testified that she used her sister's cell phone to telephone People First "after two or three weeks" and that she discussed cancellation of her participation in the state insurance program and flirted with the Black male who answered the phone, but who seemed not to have much experience in the cancellation process. Petitioner was not able to provide the name or position of the person with whom she allegedly spoke or the date or time of her telephone call. The fact that Petitioner testified that she knew that she "had to around the middle or so" of the month to request her change of coverage, illustrates Petitioner's rather loose interpretation of when this alleged call occurred. Petitioner presented no witness or documentation to corroborate her testimony that she had received oral assurances during that phone call to the effect that the change she requested had been completed through People First. Petitioner's representation that the telephone company could not get the phone records of this telephone call due to the passage of time is not credible.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services enter a final order ratifying its October 13, 2006, denial of Petitioner's requested retroactive cancellation of enrollment in the State Group Health Insurance Plan. DONE AND ENTERED this 19th day of July, 2007, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of July, 2007. COPIES FURNISHED: Ericka L. Ledbetter 739 South Shelfer Stree Quincy, Florida 32351 Sonja P. Matthews, Esquire Department of Management Services 4050 Esplanade Way, Suite 160 Tallahassee, Florida 32399-0950 John Brenneis, General Counsel Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950 John J. Matthews, Director Department of Management Services Division of State Group Insurance 4050 Esplanade Way Tallahassee, Florida 32399-0949
The Issue This case concerns the issue of whether Respondent's license as an Ordinary Life including Disability agent should be suspended, revoked, or otherwise disciplined for making certain misrepresentations to a Mr. Roger L. Robert in connection with the sale of a life insurance policy to Mr. Robert. A second issue relating to such disciplinary action is whether the Respondent improperly applied to become an insured under a group insurance policy. At the formal hearing, the Petitioner called as witnesses John E. Riley, Roger L. Robert, Angela Stackler, Marie Ellena Mullins, Frederick P. Quinn. The Respondent called as witnesses Baron Kramer, and the Respondent, Stanford J. Sabarsky. The Petitioner offered and had admitted into evidence Petitioner's Exhibits 1 through 7. Counsel for the Petitioner and counsel for the Respondent submitted proposed findings of fact and conclusions of law to the Hearing Officer for consideration. To the extent that the findings of fact herein are consistent with those proposed findings, the proposed findings were adopted by the Hearing Officer. To the extent that the findings herein are inconsistent with the proposed findings the proposed findings were considered by the Hearing Officer and rejected as having been unsupported by the evidence or as being unnecessary to the resolution of this cause.
Findings Of Fact COUNT I As to Count I of the Administrative Complaint, the parties stipulated to certain facts alleged in the Administrative Complaint, and those facts are found as facts in Paragraphs 1 through 9 below: Respondent, Stanford J. Sabarsky, at all times material herein, represented the All American Life Insurance Company as a licensed Ordinary Life, including Disability Agent. Stanford J. Sabarsky did on or about September 16, 1980, contact one Roger L. Robert, President of Freight Sales Centers, Inc. of Tampa, Florida for the purpose of soliciting an application for life insurance from Mr. Robert. At that time and place, Respondent represented to Mr. Robert that he could purchase a seven hundred fifty thousand dollar ($750,000.00) life insurance policy to be issued by the All American Life Insurance Company with an initial annual premium payment of fourteen thousand two hundred and eighty-five dollars ($14,285.00) As a result of said application, the All American Life Insurance Company subsequently issued to Mr. Robert policy number L1124920 effective November 11, 1980, in the face amount of seven hundred fifty thousand dollars ($750,000.00). Premium payments on policy number L1124920 were made by Mr. Robert on a monthly basis from October, 1980, to November, 1981. On or about November, 1981, Mr. Robert received notice from the All American Life Insurance Company that the second annual renewal premium on policy number L1124920 was due. On or about December 4, 1981, Mr. Robert requested that the renewal premium be paid from the cash value of his policy. As a result of the request, the second year annual renewal premium on policy number L1124920 was paid for by a policy loan against said policy, thereby reducing the net insurance protection of that policy. That Respondent, Stanford J. Sabarsky, earned a sales commission due to the issuance of policy L1124920. Prior to purchasing policy L1124920, Mr. Robert was given a sales presentation in his office by the Respondent. It was represented to Mr. Robert, by Mr. Sabarsky, that after the first year's premium was paid, the premium would thereafter be paid by the cash value and he would not have to make any more premium payments. Mr. Sabarsky also explained to him that the cash value could be borrowed out of the policy at approximately seven percent interest. It was Mr. Robert's understanding that after he paid the first year's premium, he would never have to pay out any more money for the life insurance coverage. He expressed this understanding to Angela Stackler, an employee, in the presence of Respondent, and Respondent did not inform him that his understanding was incorrect. In approximately November, 1981, Mr. Sabarsky returned to Mr. Robert's office. At that time, Mr. Sabarsky was questioned by Mr. Robert and his employee Ellena Mullins about the fact that they had received a bill for the next year's premium. In response to the inquiry, Mr. Sabarsky related that the first year's premium would carry the policy and that Mr. Robert wouldn't have to pay any more money. Mr. Sabarsky did not explain to Mr. Robert in November, 1980, or in November, 1981, the out-of-pocket expense which Mr. Robert would have to pay each year in order to borrow the cash value to pay the premium. In order to obtain those loans annually, Mr. Robert, within six years of the policy, would have out-of-pocket interest expense of $3,779.00, and in ten years, would pay interest of $10,163.00 in order to maintain the policy in effect. On April 1, 1982, Mr. Robert, after making inquiry to All American Life Insurance Company, received a letter setting forth the out-of-pocket expenses which would be required of him in order to maintain the life insurance policy in effect. COUNT II As to the allegations of Count II of the Administrative Complaint, the parties stipulated to those facts found in Paragraphs 14 through 16 below. That at all times pertinent to the dates and occurrences referred to in this Administrative Complaint, Respondent, Stanford J. Sabarsky, was qualified and licensed as an insurance agent in this state. On or about January 29, 1979, Stanford J. Sabarsky, while licensed as an insurance agent for Home Security Life Insurance Company, did solicit and sell to Roger L. Robert, President of Freight Sales Center, Inc. of Tampa, Florida, a group disability insurance plan for the employees of Freight Sales Center, Inc. That on or about February 12, 1981, Stanford J. Sabarsky, signed an application to Home Security Life Insurance Company to have his name added to said group disability insurance plan and indicated on said application that he was an employee of Freight Sales Center, Inc. Prior to signing the application on February 12, 1981, the Respondent had asked Roger L. Robert to allow him to add his name to the group disability insurance plan of Freight Sales Center, Inc. As a result of the February 12, 1981, application, the Respondent was, in fact, added as an insured to the group disability insurance policy. He remained as an insured under the policy until approximately May, 1981. In March, 1981, the Respondent submitted a claim to Home Security Life Insurance Company. The claim was paid. The application signed by the Respondent (Petitioner's Exhibit 6) on February 12, 1981, reflected that he worked a minimum of 30 hours per week for Freight Sales Center, Inc, that his date of employment was 1/30/81, and that his base earnings was $600 per week. These facts were not true. At no time from January 30, 1981, to May, 1981, was the Respondent an employee of Freight Sales Center, Inc. The Respondent was aware at the time that he signed the application that he was not an employee of Freight Sales Center, Inc.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department enter a final order suspending Respondent's license as an Ordinary Life including Disability agent for a period of one (1) year. DONE and ENTERED this 12th day of August, 1983, in Tallahassee, Florida. MARVIN E. CHAVIS, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of August, 1983. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 George W. Greer, Esquire 302 South Garden Avenue Clearwater, Florida 33516 Honorable Bill Gunter Insurance Commissioner and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32301
The Issue The issue is whether the Petitioner, Amjad Shamim, is eligible for continuation coverage of health insurance and reimbursement, under the State of Florida Employees Group Insurance Plan, for medical care expenses he incurred after he left state employment.
Findings Of Fact Mr. Shamim became a full-time employee of the Department of Health and Rehabilitative Services (HRS) in September, 1986, and worked at the Palm Beach County Health Department. Effective August 1, 1987, Mr. Shamim was insured with family coverage under the State of Florida, Employee Group Health Insurance Program. His enrollment continued until his insurance termination effective date of January 1, 1989. On November 15, 1988, Mr. Shamim met with Martina L. Walker, Personnel Technician I for HRS at the Palm Beach County Health Department, in connection with his decision to leave the Department's employ on November 18, 1988. At that meeting he executed the documents required by HRS to discontinue his health insurance coverage. As part of that November 15, 1988, conference, Martina Walker informed Mr. Shamim of his rights to continued health insurance coverage after his termination of employment. Mr. Shamim advised Ms. Walker that he no longer needed the State coverage because his new employer offered a health insurance plan to its employees. Ms. Walker, nonetheless, cautioned Mr. Shamim that any pre-existing conditions are usually not covered by new employer policies. Ms. Walker's notification of Mr. Shamim's right to continued health insurance coverage for up to 18 months was not in writing. Mrs. Walker never told Mr. Shamim orally the specifics of continuation coverage, i.e., that he had 60 days to elect continuation coverage from the coverage effective date of January 1, 1989, that his application and premium were required to be postmarked by March 1, 1989; or that he could continue his family coverage for 18 months at monthly premium of $273.01 per month. In addition to disclosures when an employee leaves, all employees of the Palm Beach County Health Department are advised of their opportunity to elect continuation coverage under the State Plan at the time of their employment, by means of a notice furnished by HRS. Mr. Shamim received a general notice of benefits, including the availability of post employment continuation coverage, at the time of his employment. The termination form completed by Ms. Walker was processed routinely, and caused the Division of State Employee Insurance to mail Mr. Shamim written notification by first class mail of the availability of continuation coverage in a letter dated December 1, 1988. Due to the appearance of the handwritten address on the notice mailed to Mr. Shamim, it is more likely than not that this notice failed to arrive at Mr. Shamim's home address. The portion of the address for the apartment number could be read as D201 or 2201, which would account for misdirection of the notice in the mail. Mr. Shamim's claim that he did not receive the notification is accepted. Had the notice been properly addressed and had he received it, Mr. Shamim would have had the opportunity to decide whether to exercise his legal right to continue his health insurance. On January 27, 1989, Mr. Shamim had surgery to his hand. He had been treated for that condition while he was employed with the Palm Beach County Health Department. Because it was deemed to be a pre-existing condition, the expense he incurred of almost $4,000 was not covered under the health insurance policy of his new employer. There is no evidence of the length of time the pre- existing condition exclusion in the policy offered by Mr. Shamim's new employer lasts. Mr. Shamim first notified HRS of his desire for post termination health insurance coverage on September 19, 1989. A second request was made on November 7, 1989. Finding no success with HRS, Mr. Shamim contacted the Respondent on December 29, 1989.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered accepting the request of Mr. Shamim for continuation coverage, accepting his premiums and processing his claim. DONE and ENTERED this 11th day of November, 1990, at Tallahassee, Florida. WILLIAM R. DORSEY, JR. 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 11th day of November, 1990.
Findings Of Fact Petitioner became employed by the Department of Transportation, Bureau of Weights, on November 5, 1982. Upon being accepted for employment Petitioner completed and submitted to proper authorities the forms necessary to be covered by the State's group health insurance program and authorized the appropriate deductions from his salary to cover the premiums. On several occasions, he and his wife inquired through the Department of Transportation regarding their failure to receive an insurance card. Each time they were told the insurance card would be forthcoming and only administrative delays in processing the application were causing the delay. During this time no deductions were being taken from Petitioner's pay. In June, 1983 Petitioner incurred two doctor bills for his wife and son (Exhibit 1) in the total amount of $50, of which he paid $10 with the remainder forwarded to Blue Cross and Blue Shield who administers the state's health insurance plan. Blue Cross and Blue Shield had no record of Petitioner's insurance and the claim was denied. Petitioner paid the additional $40 charges. Although evidence was not submitted to show why Petitioner's application was not properly processed or what finally got this application back on track, the proper steps were finally taken and Petitioner was credited with having been covered with health insurance in accordance with his application from December 1982 and billed for premiums due from that date. This resulted in the assessment by the state of $436.14 for back premiums. Since he was not on the Blue Cross register in June 1983, Petitioner contests the assessment as a condition to remaining a participating member in the state health insurance program.
The Issue The issue for consideration in this case is whether the Respondent's license as a viatical settlement provider in Florida should be disciplined because of the matters alleged in the Administrative Complaint dated June 29, 2000.
Findings Of Fact At all times relevant to the issues herein, the Petitioner, Department of Insurance (Department), was the state agency in Florida responsible for the licensing of viatical settlement providers and the regulation of the viatical settlement industry in this state. The Respondent, Accelerated Benefits Corporation (ABC), was licensed as a viatical settlement provider in Florida. Pursuant to an investigative subpoena issued by the Department, in November and December 1999, investigators of the Department examined the records of the Respondent, as well as other viatical settlement providers operating within the state, looking into the viatical settlement industry's practices in Florida. As a part of the investigation, Janice S. Davis, an examiner/analyst with the Department, copied records of the Respondent relating to at least six individual viatical settlement transactions in which the Respondent was involved. These files relate to Counts 5 through 7 and 9 through 11 of the Administrative complaint. Ms. Davis also obtained from the Respondent the information regarding the location of several other cases, the files for which had been confiscated by the Statewide Prosecutor as a part of an ongoing investigation into the viatical settlement industry, and subsequently obtained copies of those files from the office of the Statewide Prosecutor. Those files relate to Counts 1 through 4 and 8 of the Administrative Complaint. As outlined in Count Five of the Administrative Complaint, in May 1998, D.K. applied to The United States Life Insurance Company (US Life) for a $250,000 life insurance policy. As a part of the policy application, D.K. stated that he had not consulted with any physician or other practitioner within the five years prior to the application. On July 29, 1998, Life Benefit Services (LBS), a viatical settlement broker used by ABC, obtained a "Confidential Application Form" completed by D.K. which revealed that sometime in 1982, D.K. had been diagnosed as HIV positive. LBS prepared a "Policy Summary Sheet" regarding D.K.'s application on which it noted that D.K. had been diagnosed with HIV/AIDS. LBS also had records from D.K.'s physician reflecting that D.K. had been under a doctor's care during the preceding five years. The policy was issued to D.K. on or about August 1, 1998. Notwithstanding the information it had on hand, LBS brokered the sale of the instant policy to ABC. On or about August 25, 1998, D.K. and the Respondent entered into a contract which called for the Respondent to purchase D.K.'s $250,000 life insurance policy for $25,000. At that point, the policy was still contestable. As a part of the transaction, the Respondent gave D.K. written instructions not to contact his insurance company until advised to do so by ABC. The Respondent also had D.K. sign an addendum to the purchase contract in which he agreed to not advise US Life that he had sold his policy and acknowledged his recognition that his life insurance policy was still contestable. D.K. was also asked and agreed to sign an undated change of ownership form for use by ABC at the expiration of the period of contestability. While the policy was still contestable, an employee of the Respondent, Jennifer Grinstead, paid the annual premium on the policy out of her personal checking account. This served to conceal the fact that D.K. had sold the policy to the Respondent. Ms. Grinstead was reimbursed for the premium payment by American Title Company of Orlando. American Title was the Respondent's trustee. The Respondent did not report any of the information it had regarding D.K.'s actual health history to US Life or the Department. A review of the documentation related to this transaction reflected that the Respondent purchased the policy rights from D.K. after it knew, or with the exercise of reasonable diligence should have known, that D.K. had made material misrepresentations regarding his health to US Life, and nonetheless attempted to conceal those misrepresentation from US Life. With regard to Count Six, the evidence of record indicates that on May 4, 1997, W.E. applied for a $45,000 life insurance policy from Life USA Insurance Company (Life USA). On the application form he signed and submitted, W.E. specifically stated he had not received any medical or surgical advice or treatment within the preceding five years, had not been advised by a medical doctor that he had AIDS or ARC, and was not, at the time, taking any medication. Based on the representations made by W.E., the policy was issued on November 12, 1997. Notwithstanding the representations made by W.E. to Life USA, W.E. also advised United Viatical Settlements (UVS), the settlement broker used by the Respondent, on December 17, 1997, through a corollary application form, that he had been diagnosed with HIV "a few years ago," and several different other forms utilized by the Respondent reflect that the Respondent knew W.E. had AIDS or HIV, and was under a doctor's treatment for the condition during the preceding five years. Nonetheless, UVS brokered the sale of this policy to the Respondent. In late December 1997, at which time the policy was still contestable, the Respondent entered into a contract with W.E. for the purchase of the $45,000 policy for $4,914.25. As a part of the sales procedure, the Respondent issued to W.E. instructions not to contact his insurance company until instructed to do so by the Respondent's representative, and it also had W.E. sign an addendum to the purchase agreement in which W.E. acknowledged that the policy in issue was still contestable. W.E. was also asked to agree not to inform Life USA of the sale of the policy to the Respondent and to sign an undated change of ownership form for use by the Respondent to transfer ownership when the contestability period had expired. The arrangement between the Respondent and W.E. called for Jennifer Grinstead to pay the annual premium on the policy for W.E. from her personal account and to receive reimbursement for those payments from American Title Company, the Respondent's trustee. This arrangement served to conceal from Life USA the fact that W.E. had sold the policy to the Respondent. The Respondent did not report the fact that it had knowledge of W.E.'s medical condition to the Department. The evidence of record reflects that at the time of the purchase of W.E.'s policy, the Respondent knew or should have known that W.E. had made material misrepresentations regarding his medical state to Life USA on his application for life insurance from that company, and it thereafter took actions which served to conceal those material misrepresentations from the company. In the Case of Count Seven, on April 26, 1997, A.T. applied for a life insurance policy from Lincoln Benefit Life (Lincoln) in the amount of $48,000. On the application form, A.T. specifically stated that he had not been under medical observation or treatment within the preceding five years, and that he had not been diagnosed as having AIDS or ARC, or tested positively for HIV. The policy was issued by the company on or about June 2, 1997. Notwithstanding those representations, on January 14, 1998, Medical Escrow Society, a viatical broker used by the Respondent in its dealing with Lincoln, received an application form from A.T. on which A.T. indicated he had tested positive for HIV on August 8, 1989, had been diagnosed with AIDS ON August 10, 1994, and was under the care of a physician. Medical Escrow Society nonetheless brokered the sale of the policy to the Respondent. Shortly after the contestability period on this policy expired. On June 25, 1999, the owner of the policy, Ralph Cahall, entered into a contract with the Respondent whereby the Respondent bought Cahall's interest in the proceeds for $29,238.72. At the Respondent's request, ownership of the policy was changed from Cahall to American Title Company of Orlando, the Respondent's trustee without either Lincoln or the Department being informed of the transfer. The file relating to this policy indicates that the Respondent brought about the transfer from Cahall after it knew or, in the exercise of reasonable diligence should have known, that A.T. had made material misrepresentations regarding his health on the application to Lincoln, and that the Respondent, though it did not report what it knew to the Department, also thereafter undertook a course of action which was designed to conceal that information from Lincoln. With regard to Count Nine, the evidence indicates that on or about September 30, 1996, R.M. submitted an application for a $100,000 life insurance policy to Interstate Assurance Company (Interstate). On the application, R.M. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, and the policy was issued on October 9, 1996. Notwithstanding that representation, on July 18, 1997, R.M. completed an application form for Benefits America, a broker used by the Respondent with regard to this policy, in which he stated he had been tested positive for HIV on February 11, 1994. A "Policy Acquisition Worksheet" utilized by the Respondent on or about July 22, 1997, when R.M. was dealing with Benefits America regarding the viatication of his life insurance policy, reflects that the company was aware at that time that R.M. had been diagnosed with HIV in 1994. Even with that knowledge, the Respondent went through with the viatication, and on July 31, 1997, while the policy was still within the contestability period, bought the policy for $15,430. On August 4, 1997, R.M. executed an addendum to the purchase agreement at the behest of the Respondent, wherein he recognized the policy was still contestable and agreed, among other things, not to contact his insurance company or tell them he had sold the policy to a viatical settlement provider. He also was asked to sign, and signed, an undated change of ownership agreement for use by the Respondent at the end of the contestability period. Jennifer Grinstead, an employee of the Respondent, paid R.M.'s annual premium on the policy during the contestibility period out of her personal checking account. This action, when done in conjunction with R.M.'s failure to advise the insurance company of the sale, served to conceal the transfer of ownership from R.M. to the Respondent. Ms. Grinstead was reimbursed for the premium payments by the Respondent's trustee. The Respondent did not report to Interstate or to the Department that R.M. had made material misrepresentations regarding his health in procuring the issuance of the policy even though it knew or, in the exercise of due diligence, should have known that the material misrepresentations had been made. As to Count Ten, on May 12, 1997, J.R. submitted an application to Interstate for a life insurance policy on his life in the amount of $980,000. On his application, J.R. indicated he had not been diagnosed with an immune system disorder within the preceding ten years, had not been treated by a member of the medical profession in the preceding five years, and was not, at the time, on medication or undergoing treatment or therapy. The policy was issued on May 19, 1997. Notwithstanding those representations, on July 9, 1997, J.R. filled out an application form for the Respondent's broker for this transaction, Life Benefit Services, on which he indicated he had been diagnosed as HIV positive in May 1996. A "Mortality Profile" provided to the Respondent by AVS indicated that J.R. was first diagnosed as being HIV positive in August 1995, nine months or so earlier than he admitted, and that he had been undergoing treatment by a doctor and receiving medications well within the five years preceding the application. On August 20, 1997, J.R. entered into a contract with the Respondent calling for the sale of this insurance policy to ABC for a net sum of $107,800. At this point, the policy was still contestable. At that time, the Respondent instructed J.R. in writing not to contact his insurance company until told to do so by the Respondent's representative. The Respondent also had J.R. sign an addendum to the purchase agreement in which he acknowledged the policy was still contestable, that he would not inform Interstate of the sale, and that he would sign an undated change of ownership form for use by ABC when the contestability period expired. Notwithstanding that the Respondent knew of the material misrepresentations made by J.R. as to his health when he procured the policy, it did not report what it knew to the Department, and took steps to insure Interstate was not informed of what was going on. With regard to Count Eleven, on May 16, 1996, the same J.R. applied to Massachusetts General Life Insurance Company, later, Conseco Life Insurance Company (Conseco), for a $99,900 life insurance policy. On his application, J.R. stated he had never had any medical tests or any known indication of diseases, conditions, or physical disorders which were not mentioned on the form. AIDS, ARC, and HIV positive were not mentioned on the form, and if known to have been present, should have been noted. About a year and three months later, on July 9, 1997, J.R. submitted an application form to Life Benefit Services, the broker used by ABC on this policy, on which he stated he had tested positive for HIV in May of 1996. By letter dated July 28, 1997, Life Benefit Services advised ABC that J.R. was terminally ill and had been on medication and undergoing treatment by a physician within the preceding five years. In addition to this information, the Respondent had available to it the information regarding J.R.'s condition discovered as a result of the purchase of the Interstate policy. Notwithstanding this knowledge, on September 17, 1997, while the policy was still contestable, ABC purchased the Conseco policy from J.R. for the net sum of $13,986. By letter dated September 17, 1997, the Respondent advised J.R. not to contact his insurance company until instructed to do so by Ms. Holman, the Respondent's Director of Contracts, and requested he execute an addendum acknowledging those instructions and that the Conseco policy was still contestable. He was also asked to agree to sign an undated change of ownership assignment for use by ABC after the contestability period had expired. While the policy remained contestable, the annual premiums due from J.R. were paid from her personal checking account by Ms. Grinstead, an ABC employee, who was reimbursed therefor by American Title, ABC's trustee. None of the above information was reported by the Respondent to Conseco or the Department even though it knew or, with the exercise of reasonable diligence should have known that J.R. had made material misrepresentations regarding his physical health in his application for life insurance to Massachusetts General Life Insurance company, and it appears the Respondent attempted to conceal those misrepresentations from Conseco.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance enter a Final Order dismissing Counts One through Four and Eight of the Administrative Complaint, but finding the Respondent guilty of Counts Five though Seven and Nine through Eleven of the Complaint, and both revoking its license and its eligibility for licensure as a viatical settlement provider in Florida. DONE AND ENTERED this 28th day of December, 2000, in Tallahassee, Leon County, Florida. ___________________________________ ARNOLD H. POLLOCK 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) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2000. COPIES FURNISHED: Michael H. Davidson, Esquire Department of Insurance 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Mark K. Logan, Esquire Smith, Ballard & Logan, P.A. 403 East Park Avenue Tallahassee, Florida 32301 The Honorable Bill Nelson State Treasurer/Insurance Commissioner The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
