Findings Of Fact The Respondent was licensed as a General Lines Insurance Agent at all times material hereto. He generally wrote insurance for the various insurance companies he represented through General Agents such as Frank MacNeill and Son, Inc. and Amalex, Inc. The Respondent operated his insurance agency under the corporate name Pennington Insurance Agency, Inc. The Respondent was owner and President of Pennington Insurance Agency, Inc. and exercised supervision and control over its employees, and in particular the employee Earnest L. Middleton. All funds collected from insured pertinent to this proceeding were premium payments and represented trust funds held by the Respondent in a fiduciary capacity on behalf of his General Agent or the insurance companies whose policy contracts generated the premiums. From August through December, 1981, the Respondent engaged in negotiations with representatives of Amalex, Inc. and specifically, Mr. Walter Gibson, President of Amalex, Inc. and Mr. Larry Durham of Durham and Company Insurance Agency. These negotiations ultimately led, in November of 1981, to the Respondent becoming an employee-agent of Amalex, Inc. The Respondent was to be paid a salary which was to be an advance upon commissions earned at the rate of 75% on new policies and 60% on "renewals." This commission-salary arrangement was entered into pursuant to an oral agreement between the Respondent and Walter Gibson of Amalex. There was never any written contract between the Respondent and Amalex, Inc. delineating the employment arrangement or the compensation which Respondent was to be provided by Amalex, Inc. in return for his "brokering" business for Amalex, Inc. There was never any written contract concerning the method of forwarding of premium payments to Amalex, Inc. This oral agreement was modified at the behest of Amalex, Inc. on or about March 19, 1982, so as to reduce the compensation of the Respondent. The Respondent's new compensation under the modified arrangement provided for a 60% draw against commissions for new business and a 50% draw against commissions on renewal business. The Respondent received payments from Amalex, Inc., totaling $5,980 as advances on commissions for times pertinent to the allegations in the Complaints. The regular course of business practice established by Amalex, Inc. with the Respondent, required the Respondent to forward premium collections within 45 days of receiving a statement or bill from Amalex, Inc. During the period August, 1981, until December, 1981, numerous discussions and negotiations were had between the Respondent and Mr. Gibson in an effort to work out the details of the employment terms between Respondent and Amalex, Inc. Additionally, these negotiations hinged somewhat upon a proposed merger of Durham and Company and Amalex, Inc., which never occurred. In any event, the Respondent held the good faith belief that during the period of time from August, 1981, through December, 1981, until their business relationship got successfully started, that he had been authorized by Mr. Gibson to retain all premiums on commercial lines policies written by his office. In his testimony, Mr. Gibson disagreed with the Respondent's version of their arrangement concerning business insurance premiums. There was clearly a disagreement between Gibson and Respondent as to what the terms of the Respondent's compensation were to be. In fact, the Respondent received notice no later than March 19, 1982, in a letter from Gibson to the Respondent, that indeed there was a dispute as to his compensation arrangement and the manner in which he was to remit premium payments to Amalex, Inc. In a letter to Mr. Gibson of May 27, 1982, the Respondent reveals his recollection of the oral agreement and states it to be his belief that he was authorized to retain commercial account premiums only from September 1, 1981, through December, 1981. The letter reveals, by its content, that he was aware that Amalex, Inc. opposed his retention of commercial policy premiums, at least after December, 1981 (Respondent's Exhibit 5, in evidence). The Respondent was clearly not permitted by Amalex to retain all premiums collected on commercial policies sold by him during the entire period of their business relationship. Indeed, many of the commercial accounts were, in fact, paid when collected, in whole or in part, by the Respondent during the business relationship with Amalex which extended through most of 1982. One account, the American Legion Policy Account, eventually was paid in full by Respondent to Amalex. The Respondent's testimony and that of his former employee, Ernest Middleton, is at odds with that of Mr. Gibson, the president of Amalex and the Respondent's own testimony, in different portions of the record, is to some extent, inconsistent. At one point the Respondent indicated that he was authorized to retain all commercial premiums for coverage of his office operating expenses. At another point, both he and Middleton testified there was an allowance of $1,200 a week from Amalex for expenses to run the office. At still another point, by way of an exhibit (Petitioner's Exhibit No. 13 in evidence), the Respondent appeared to be of the belief that the expense allowance from Amalex was to be $400 per week for operating his office. In any event, by his letter of May 27, 1982, to Amalex and Mr. Gibson, the Respondent clearly reveals it to be his belief that the authorization to retain all commercial account premiums did not extend beyond December, 1981, which arrangement is more logical since it was, in the Respondent's own words, an arrangement to cover expenses until the business "got rolling." Thus the Respondent knew no later than May 27, 1982, by his own admission, that he was expected, after December, 1981, to forward all premium payments, both on personal lines and commercial lines policies to Amalex or the policies would be cancelled. This letter, the letter of March 19, 1982, from Mr. Gibson to the Respondent, portions of the Respondent's testimony, as well as the testimony of Mr. Gibson and his employee Mary Stratton, taken together, belies the Respondent's assertion that he could retain the commercial premiums to cover his own office expenses without accounting for them and forwarding them to Amalex. Such was clearly not the case after December 31, 1981, at the very latest. The Respondent additionally had agency contracts with Frank MacNeill and Son, Inc., a General Agent, for which concern the Respondent wrote insurance policies. These contracts required him to forward premium collections within 30 days of receipt of them from the insured. On or about March 20, 1984, the Respondent sold to Ollie Rodgers an automobile insurance policy and collected $211 from Mr. Rodgers as a down payment and also received $428 from National Premium Budget Plan for financing the balance of the premium payment over time. Count 1 of the Administrative Complaint involves solely the Ollie Rodgers policy. That policy was brokered through Frank MacNeill and Son, Inc. This only count concerning the MacNeill business arrangement with the Respondent does not charge a general failure to remit premiums to MacNeill in violation of the agency agreements and Chapter 626, Florida Statutes. Thus, although evidence is of record concerning the Ollie Rodgers incident and several thousand dollars in disputed other premium amounts MacNeill maintains the Respondent owes it, the charge in the Administrative Complaint concerning MacNeilles and the Respondent's business arrangement, and the question concerning the withholding of premiums due MacNeill, only concerns the Ollie Rodgers' policy and account. The alleged failure of the Respondent to remit several thousand dollars in premiums owed to Frank MacNeill contained in the testimony of Petitioner's witnesses at hearing, specifically Joe McCurdy, the secretary- treasurer of Frank MacNeill and Son, Inc., is not the subject matter of any charge or allegation in the Administrative Complaint. Mr. McCurdy testified that the Respondent had ultimately paid all monies due Frank MacNeill except for $734.23 in court costs and attorneys fees. He was the only witness testifying concerning the Frank MacNeill business arrangement and none of his testimony linked the premiums paid by Ollie Rodgers to the Respondent with any delinquent premium amount actually owed Frank MacNeill and Son, Inc. There was no testimony tying the account balance which Pennington ultimately paid MacNeill, after litigation ensued, with the Ollie Rodgers account and premium amount paid to the Respondent by Rodgers. There is no specific proof that the Ollie Rodgers account itself was unpaid by the Respondent. From March 4, 1982, to November 9, 1982, the Respondent received premium payments from one Irving Herman in the amount of $7,161 on a commercial insurance premium account. The Respondent forwarded some of these funds to Amalex, Inc., but an outstanding balance of $2,353 remains which has not been paid by the Respondent to Amalex. The Respondent has asserted that he could lawfully retain this balance because it was a commercial account and he was authorized to keep all premiums for commercial insurance to pay his office expenses. For the reasons found above, the Respondent was not authorized to retain any commercial premium funds in his own account and in his own business after December, 1981, as he admits himself in his letter of May 27, 1982, to Gibson of Amalex, Inc. The Respondent was required to forward all the premium payments attributable to the Herman policy, and in this instance, he forwarded only some of them, without accounting to Amalex as to why he retained the balance of the Herman premiums. The Respondent also collected $799 in premium payments from Irving Herman on an individual insurance policy. The Respondent forwarded most of this premium to Amalex, Inc. but retained $95 of it. The business practice of Amalex was to send a monthly statement to the Respondent detailing amounts payable on new business. When a policy was sent to the Respondent for coverage he had written, an invoice was included. Additionally, Amalex and its president, Mr. Gibson, sent numerous letters to the Respondent requesting payment of the large amount of past due accounts. The premium amounts paid by Mr. Herman for his individual policy and his commercial policy to Respondent was received on behalf of his General Agent, Amalex, a substantial amount of which he failed to remit. Since the above amounts were not remitted to Amalex, Inc. by the Respondent, it can only be inferred that he used the unremitted funds for his own purposes. On September 23, 1982, or thereafter, the Respondent collected premium payments from Joseph S. Middleton on behalf of his company, Florida Lamps, Inc., in the amount of $1,467. The Respondent remitted a portion of this to Amalex, but retained $917.55. This premium, for insurance for that business, was collected for insurance written well after the Respondent was on notice from Amalex that he was not authorized to retain premiums collected on commercial lines or business insurance, as found above. A monthly statement, invoice, as well as numerous letters were directed from Amalex to the Respondent requesting payment of this past due amount, to no avail. Thus, the above- referenced balance of the premiums related to the Florida Lamps, Inc. insurance policy and account were retained by the Respondent for his and his agency's own benefit and use rather than remitted to Amalex, the entity entitled to them. The Respondent failed to properly account to Amalex regarding the use of or the whereabouts of these funds. On or about October 20, 1982, the Respondent received from Eric Gunderson, on behalf of Eric's Garage, $182, which represented the premium down payment on a garage liability policy, a type of commercial-lines insurance. About the same time, the Respondent also received $438 as the remaining balance., on the premium on this policy from the Capitol Premium Plan, Inc., a premium financing company. This premium payment was received by the Respondent well after notice by Amalex, his General Agent, that it was not acceptable for the Respondent to retain commercial account premiums on policies written for companies for whom Amalex was General Agent. None of this premium payment was ever forwarded to Amalex, even after repeated demands for it. Rather, the premium funds were retained by the Respondent and used for other purposes. On March 3, 1982, the Respondent sold to Citiweld Welding Supply, a package business policy including workers' compensation coverage issued by the Insurance Company of North America through Amalex, Inc., as its General Agent. The Respondent collected a total of $2,162.62 in premium payments from Citiweld. He collected those payments in six monthly installments following a down payment of $500. The Respondent made monthly payments of $163 to Amalex, Inc., and then later monthly payments of $153. The Respondent collected a total of $2,162.62 which was $80.62 in excess of the actual premium due on the policy. This policy was not financed by a financing agreement, which might be characterized by an additional financing fee, thus the Respondent collected $80.62 in excess of the amount of premium due on the policy. The Respondent ultimately remitted to Amalex a total of $1,275. Thus, $807 is still due and owing to Amalex by the Respondent. The Respondent, according to his own former employee, Earnest Middleton, was collecting an additional $20 a month service charge on the Citiweld account. There is no evidence that he was authorized to collect the additional $20 per month service charge, and no portion of that service charge was ever forwarded to Amalex. It was retained by the Respondent. The fact that the Respondent was making periodic monthly payments to Amalex during this period, without the existence of a financing agreement with the insured, corroborates the position of Amalex, established by Mr. Gibson and Ms. Stratton, that there was no authority to withhold commercial account premium payments at this time, and that premiums due Amalex from the Respondent were to be paid pursuant to monthly statements or billings sent to the Respondent. Ms. Stratton's and Mr. Gibson's testimony in this regard is corroborated by the letter of March 19, 1982, to the Respondent from Gibson (in evidence), wherein he was informed that such commercial insurance business and related premiums should be billed and paid for on a monthly basis. On or about August 31, 1981, Respondent sold a package workman's compensation policy to B & L Groceries, Inc. to be issued through Amalex, Inc., who represented the insurance company for whom the policy was written. The Respondent received approximately $3,350 from B & L Groceries, which represented the premium on the above policies. The premium payments were not forwarded in the regular course of business to Amalex, the General Agent. On or about December 17, 1981, the Respondent sold to B & L Seafood Restaurant, Inc., a package commercial insurance policy and endorsement also issued through Amalex. The Respondent collected $2,112 premium on that policy. That premium was not forwarded in the regular course of business to Amalex. On September 1, 1981, the Respondent sold to Parker's Septic Tank Company, a general liability and business automobile insurance policy, also issued through the General Agent, Amalex, Inc. He collected from that business approximately $2,542 as premium payment on the insurance policies. The automobile policy was cancelled thereafter, such that a total net premium of $1,056 remained due and owing to Amalex, which the Respondent failed to forward in the regular course of business. These policies sold to B & L Groceries, B & L Seafood Restaurant and Parker's Septic Tank Company, were sold during the time when the Respondent believed that he was authorized by Amalex, Inc., and its president, Mr. Gibson, to retain premiums on all such commercial or business insurance policies to cover his office expenses, and thus it cannot be found that he willfully retained and misappropriated those premiums, although Amalex's entitlement to those premiums was later the subject of a civil action between the Respondent and Amalex, Inc., such that Amalex did demand payment of those premiums, which the Respondent failed to do. On or about March 4, 1982, the Respondent sold to The Cypress Gallery a package business insurance policy and endorsement issued through Amalex, Inc. The Respondent collected at least $883 from The Cypress Gallery, representing the earned premium on that policy which was cancelled on July 22, 1982. He failed to forward the earned premium in the regular course of business to Amalex, the General Agent. On March 16, 1982, Respondent sold to Eurohouse Custom Builders, Inc., fire, general liability, automobile and builder's risk policies together with several endorsements issued through Amalex, Inc. He collected premium payments on those policies in the earned amount of $1,197, although the policies were later cancelled after that amount of premium was earned by the insurance company and Amalex. He failed to forward the $1,197 earned premium to Amalex in the regular course of business. On July 9, 1982, the Respondent sold to Byron Hood, a package commercial insurance policy and automobile policies issued through Amalex, Inc., on which the Respondent collected a total premium amount of $1,430 from IMAC, a premium finance company. The Respondent failed to forward this premium amount in the regular course of business to Amalex, Inc. On May 14, 1982, the Respondent sold to Jeanes Swap Shop, a package commercial insurance policy with an endorsement which was issued through Amalex, Inc., and upon which the Respondent collected and received a $314 premium. The Respondent forwarded most of the premium to Amalex, but failed to forward $39 of it. On or about March 31, 1982, the Respondent sold to Lawns Unlimited a commercial policy issued through Amalex, Inc. The Respondent collected and received from Lawns Unlimited $816, which represented the premium payment for that policy. This premium payment was never forwarded to Amalex in its entirety and an earned premium of $242 is still due Amalex as General Agent. On or about July 2, 1982, the Respondent sold to Robert Lewis a package commercial insurance policy issued through Amalex. The Respondent received $500 from Lewis as a premium payment for that policy. The Respondent failed to forward $150 of that premium to Amalex. On or about April 1, 1982, the Respondent sold to Joe Strickland a homeowners and boat insurance policy issued through Amalex, Inc. He collected a premium from Mr. Strickland in the amount of $353 which he failed to forward in the regular course of business to Amalex, the General Agent. This was a personal homeowners and marine insurance policy issued to Mr. Strickland, and the $353 premium could not possibly have been the subject of any misunderstanding concerning Respondent's retention of it for coverage of office expenses. On April 30, 1982, the Respondent sold to "Pop-a Top Lounge" a general liability and fire insurance policy issued through Amalex, Inc. The Respondent collected a premium of $647 on that policy and failed to forward it in the regular course of business to Amalex, the party entitled to it as General Agent. Near the end of 1982, the Respondent sold to Arnold Construction Company various endorsements on its existing business insurance coverage so as to add coverage for additional motor vehicles. That policy and the endorsements were issued through Amalex, Inc. The Respondent collected from Arnold Construction Company a premium payment in the amount of $1,302 and failed to forward it in the regular course of business to Amalex, the General Agent. Numerous requests were made of the Respondent by Amalex, Inc. for the payment of the delinquent premiums the Respondent owed it on all outstanding accounts beginning in March, 1982. In October, 1982, Amalex began requiring cash remissions with applications for insurance written by the Respondent. The Respondent has failed to pay the outstanding account balances representing premium trust fund payments due to Amalex, Inc., such that in excess of $18,000 in outstanding premium payments have not been remitted to that firm. It is true that two of the amounts billed and depicted on Exhibit No. 12 as constituting that approximate $18,000 outstanding premium payment amount, represent $1,368 and $174 for business written in November and December of 1981, during which time the Respondent was under the genuine belief that he had an agreement with Amalex, Inc., to retain in his office all business insurance premium payments. Even though that is the case, and the B & L Groceries, B & L Seafood and Parker Septic Tank Co. premiums are attributable to this time period, the fact remains that the greater portion of the disputed approximate $18,000 amount remains outstanding and has never been paid by the Respondent to Amalex, Inc., the entity entitled to the funds. The amounts collected and not remitted by the Respondent on the insurance accounts delineated above constitute trust funds held in a fiduciary capacity by the Respondent on behalf of the General Agent, Amalex, Inc., who is General Agent for the insurance companies for whom the Respondent wrote the policies.1 The Respondent thus misappropriated these trust funds by failing to remit them in a timely fashion to the General Agent, Amalex, Inc., in the regular course of business. Although the Respondent clearly failed to properly account for and deliver the subject funds, there is no evidence to show that the Respondent was guilty of faulty record keeping in his own agency. In fact, Petitioner did not adduce any competent, substantial evidence to indicate what manner of record keeping the Respondent engaged in, good, bad or indifferent.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the Respondent, John Wayne Pennington's General Lines Insurance Agent's license be suspended for a period of two years, in accordance with Section 626.641, Florida Statutes. DONE and RECOMMENDED this 3rd day of March, 1986 in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1986.
The Issue Whether Respondent, Rosette Francesca Berban (Respondent), committed the violations alleged in the Administrative Complaint issued against her and, if so, what penalty should be imposed.
Findings Of Fact Petitioner is the state agency charged with the responsibility and authority to regulate insurance and insurance-related activities within the State of Florida. The licenses held by Respondent are included within the Petitioner’s authority. At all times material to the issues of this case, Respondent has been licensed as a life, health and variable annuity insurance agent, and as a life and health insurance agent (licensee). At all times material to the issues of this case, all of Respondent's acts or omission were in the course of her conducting insurance business as a licensee and agent for Penn Life-Senior Solutions, Lincoln Financial Group, or Aviva. Ezelle Smith is a female retiree, who resides in Sanford, Florida. At all times material to this case, Ms. Smith was a "senior consumer," as that term is used in the statutes. Ms. Smith was born in 1922 and makes her permanent residence in Florida. In November 2003, at age 80, Ms. Smith acquired a deferred annuity from Pennsylvania Life Insurance Company by paying a $50,000.00 premium. This annuity guaranteed Ms. Smith a certain monthly income for a certain period of time. Prior to January 25, 2008, Ms. Smith contacted Penn Life-Senior Solutions for the purpose of changing her beneficiary under the previously described annuity. On or about January 25, 2008, Respondent went to Ms. Smith's home purportedly to handle the change of beneficiary. At the time of Respondent's visit, Ms. Smith was 85 years of age. In discussions between Respondent and Ms. Smith, the latter opined that she would like more monthly income. Respondent sold Ms. Smith an equity indexed tax deferred annuity from Lincoln Financial Group (new annuity). The premium for the new annuity was funded, in part, by the Pennsylvania Life Insurance annuity. The total required to fund the new annuity was $56,497.97. In addition to the redeemed annuity, Ms. Smith was required to write a check in the amount of $10,000.00, for the difference in cost. Further, when the annuity was cashed in, Ms. Smith paid a surrender penalty of $3,607.43. It is found, Respondent did not fully explain the surrender penalty that would be incurred in the acquisition of the new annuity. Because Respondent did not make full disclosures regarding the new annuity, Ms. Smith did not understand the transaction and did not have a full accounting of the options available to her. Additionally, when Respondent explained the transaction to Respondent's daughters, she omitted pertinent information regarding the surrender penalty. Although the daughters knew their mother was seeking an increased monthly income, Respondent did not accurately explain the entire transaction. Ms. Smith's right to cancel the new annuity provided a 20-day window after the receipt of the policy within which it was possible to cancel the transaction. Respondent knew or should have known within the cancellation period that Ms. Smith was not agreeable to the transaction. Under the original annuity, Ms. Smith received a monthly income in the amount of $123.00. Under the new annuity, the monthly income was increased to $222.00. Mathematically, an 85-year-old woman would have to wait over three years to recover the amount surrendered when the original policy was cashed in. Although Respondent claimed the new annuity was superior to the original one, Ms. Smith lost the surrender amount, and $10,000.00 was then tied up in the new annuity. An annuity is not "more liquid" than cash. In summary, the new annuity did not afford sufficient benefits to overcome the loss of the surrender penalty and the loss of liquidity of the cash for the consumer. Respondent encouraged Ms. Smith to acquire an inappropriate investment, and thereby failed to protect the consumer's best financial interests. Mary Ann DeVita is a ?senior consumer,? who resides in DeBary, Florida, and is a citizen of the State of Florida. Ms. Devita was born in 1935. Prior to April of 2009, Ms. DeVita acquired two deferred variable annuities from John Hancock Life Insurance Company. The total invested in the annuities was well over $550,000.00. Ms. DeVita was unhappy with the performance of her investments and responded to an advertisement placed by Respondent's company. Ms. DeVita sought information as to how her retirement funds might be better invested to preserve the principle. Respondent visited Ms. DeVita in her home and explained options available regarding a new investment. Respondent proposed that Ms. DeVita invest in two equity indexed deferred annuities with Aviva that would be funded by the John Hancock annuities and Ms. DeVita's stock market account valued in the amount of $475,000.00. In furtherance of her proposal to Ms. DeVita, Respondent visited the home on several occasions. Each visit Respondent pitched the proposal. Respondent filled out the application for the proposed transaction and eventually Ms. DeVita signed the form. Ms. DeVita did not want the transaction to be completed until her children could review the paperwork and sign off on the deal. Respondent claimed she would consult with Ms. DeVita's family and that an additional signature would be needed to complete the transaction. In fact, no additional signatures were needed. Shortly after learning about the proposed transaction, Ms. DeVita's son was contacted by Bill Harrison (Ms. DeVita’s insurance agent). Mr. Harrison was concerned that by surrendering the John Hancock annuities, Ms. DeVita could potentially lose the death benefits that were valued at approximately $286,000.00. As a result of Mr. Harrison's intercession into the matter, Respondent was not able to complete her proposed transaction.
Recommendation It is recommended that the Department of Financial Services enter a final order finding Respondent guilty of the violations alleged in Counts I and II of the Administrative Complaint as set forth above, suspending her license for a period of 180 days, and imposing an administrative fine in the amount of $2,500.00. DONE AND ENTERED this 1st day of June, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH 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 1st day of June, 2011. COPIES FURNISHED: Regina M. Keenan, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0390 Walter A. Ketcham, Jr., Esquire Grower, Ketcham, Rutherford, Bronson, Eide & Telan, P.A. Post Office Box 538065 Orlando, Florida 32853-8065 Julie Jones, CP, FRP, Agency Clerk Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0390
Findings Of Fact The Respondent, Teresa Jean Watson, at all times material to this proceeding was licensed as an ordinary life agent, a disability insurance agent and a general lines insurance agent. She was the only general lines agent licensed to sell insurance at the T. J. Watson Insurance Agency, Inc. and all insurance sold by that firm at times pertinent hereto was sold and issued under authority of her license. During times material to this proceeding, Teresa Jean Watson sold insurance coverage under authority of her general lines license either as direct agent for various insurance companies for whom she was general agent or, on behalf of MacNeill and Son, Inc. (MacNeill), her managing agency, which represented various insurance companies for whom the Respondent wrote coverage. Between February 1st and February 15, 1982, a homeowner's insurance policy was sold to Tony and Martha Williams by the Respondent's agency under the authority of the Respondent's general lines insurance agent's license. That homeowner's policy required a premium of $211.00. The policyholder, Tony Williams, wrote two checks to the T. J. Watson Agency dated January 22, 1982 and February 12, 1982. Those two checks totalled $174.00. The checks were cashed by the Respondent's agency on January 26, 1982 and on February 6, 1982. The Independent Fire Insurance Company issued the policy to Tony and Martha Williams and on August 4, 1982 a representative of the Independent Fire Insurance Company wrote the Respondent to advise her that she owed that company a balance of $179.35, as of May 1982. Petitioner asserts that the $179.35 represents the amount of Tony Williams' premium owed to the insurer, less the Respondent's commission, which if added together would equal the $211.00 premium on the Williams' policy. Although it was established that $179.35 was owed by the Respondent to the Independent Fire Insurance Company, and never paid, it was not established that it represented the premium due specifically for the Williams' policy as was charged in count 1 of the Administrative Complaint. For instance, the checks paid by the Williamses to the Watson Agency total $174.00 and therefore there is a discrepancy between the total of those checks and the $179.35 amount Independent Fire Insurance company was owed by the Respondent. This fact coupled with the fact that the dates on the checks from the Williamses (January and February) substantially predate the May 1982 billing date to Respondent from Independent Fire, renders it unproven that the checks written to the Watson Agency which Respondent negotiated and retained the benefit of, related to the amount of unremitted premium owed by Respondent to the Independent Fire Insurance Company. In short, it was established that $174.00 was paid the Respondent and her agency by the Williamses. But, it was not established that the premium paid by the Williamses became misappropriated fiduciary funds converted by the Respondent to her own use and benefit. It was merely established that as of May 1982 the Respondent owed the Independent Fire Insurance Company $179.35 as a past-due account It was not established that the Williamses ever suffered a lapse of insurance coverage or were otherwise harmed by the Respondent's failure to pay Independent Fire the $179.35. Indeed, the $179.35 figure was not proven to be more than a mere debt owed by Respondent to Independent Fire Insurance Company. The figure was not shown to have been related to any particular policy. The Respondent and her insurance agency in the regular course of business wrote insurance coverage for companies represented by MacNeill and Son, Inc., the Respondent's managing agency. The regular business practice between the Respondent and MacNeill was for the Respondent to write coverage on behalf of insurers represented by MacNeill and to remit on a regular open account" basis insurance premiums due MacNeill on behalf of its insurance company principals on a monthly basis. The Respondent became delinquent in submitting premiums to MacNeill and Son in November 1981. After unsuccessful efforts to collect the delinquent premium funds from the Respondent, MacNeill and Son, Inc. suspended T. J. Watson Insurance Agency and the Respondent from writing further coverage for companies they represented in January 1982. The Respondent purportedly sold her agency to one Thomas Zinnbauer in December 1981, but had already fallen into a pattern of failing to remit insurance premiums over to MacNeill before that time. In any event, the purported sale to Thomas Zinnbauer was a subterfuge to avoid collection of delinquent premiums inasmuch as the Respondent held herself out, in correspondence with MacNeill, (See Petitioner's Exhibit 4) to be the president of the agency at least as late as April 1982 and, at that time and thereafter, the agency continued to sell insurance under the aegis of the Respondent's license. After the Respondent made up the delinquency in premium remissions to the MacNeill Agency that agency restored her underwriting authority in January 1982. Shortly thereafter however, the Respondent and the T. J. Watson Agency again became delinquent in remitting insurance premiums to the MacNeill Agency and followed a quite consistent pattern of failing to forward these fiduciary funds to MacNeill for some months. Ultimately the Respondent and her agency failed to forward more than $6500.00 in premium payment funds to MacNeill and Son, Inc. as was required in the regular course of business. MacNeill and Son, Inc. made repeated futile attempts to secure the misappropriated premium payments from the Respondent and her agency. MacNeill made several accountings of the amount of the acknowledged debt to the Respondent. The Respondent communicated with MacNeill concerning the delinquent premium payments and acknowledged the fact of the debt, but sought to reach an amicable arrangement for a repayment schedule. Re- payment was never made, however, and ultimately the Petitioner agency was informed of the deficiencies and prosecution resulted. The Respondent knew that the premiums had been collected by herself and her agency and had not been forwarded to those entitled to them. She knew of and actively participated in the improper withholding of the premium payments. This withholding and diversion of premium payments from the agency and companies entitled to them was a continuing pattern of conduct and Respondent failed to take action to halt the misappropriation of the premium payments. Further, it is established by the testimony of Matthew Brewer, who investigated the delinquent premium accounts for MacNeill, that Ms. Watson failed to advise MacNeill of the purported sale of her agency until November of 1982, almost a year after it is supposed to have occurred and then only in response to Brewer's investigation. When confronted by Mr. Brewer concerning the ownership of her agency Ms. Watson refused to tell him to whom she had sold the agency. When Mr. Brewer learned that Thomas Zinnbauer had apparently bought the agency from the Respondent Mr. Brewer conferred with him and he refused to release the agency records unless Ms. Watson gave her permission. This fact, together with the fact that Ms. Watson held herself out as president of the agency some four months after she had purportedly sold the agency to Zinnbauer, establishes that Respondent, by representing to Brewer and other personnel of MacNeill and Sons, Inc. that she had sold her agency, was attempting to evade liability for failure to forward the fiduciary premium funds obtained under the authority of her agent's license. As a result of the failure to forward the above- mentioned premium payments some of the insureds who had paid those premiums suffered lapses in coverage and cancellations of policies because MacNeill and Company and the insurers they represented believed that no premiums had ever been paid. Ultimately, MacNeill and Company learned that the premiums had been paid by the policyholders, but not remitted by the Respondent and her agency and undertook steps to reinstate coverage, but those policyholders in some instances had substantial periods of time when their coverage was lapsed due to the Respondent's failure to remit the premium funds to the managing agency and the insurance companies involved. MacNeill and Company ultimately reimbursed the appropriate insurers and insureds at its own expense, incurring substantial financial detriment as a result of the Respondent's failure to have premium payments obtained under her licensed authority properly forwarded. Had the insureds who had their policies cancelled suffered losses for which claims could have been filed during the period of the lapses of coverage, they could have encountered substantial financial difficulty.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is therefore recommended that the General Lines Insurance Agent's license of Respondent Teresa Jean Watson be revoked. DONE and ORDERED this 27th day of December, 1985, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 FILED with the Clerk of the Division of Administrative Hearings this 27th day of December, 1985. APPENDIX RULING OF PETITIONER'S PROPOSED FINDINGS OF FACT: Accepted. Accepted, although the amount represented by the two subject checks totalled $174.00 instead of $175.00. Accepted. Rejected as not comporting with the competent, substantial credible evidence adduced. Rejected inasmuch as it was not established that the amount of $179.35 owed the Independent Fire Insurance Company represented the premium on the Williamses' insurance policy. Accepted. Accepted. Accepted. Accepted, although the last sentence in that Proposed Finding constitutes, in reality, mere argument of counsel. Accepted. Rejected as not comporting with the competent, substantial credible testimony and evidence actually before the Hearing Officer. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. RULINGS ON RESPONDENT'S PROPOSED FINDINGS OF FACT: Respondent submitted a post-hearing document entitled "Proposed Findings of Fact." There are few actual Proposed Facts in that one-and-a-half page pleading which is interlaced throughout with argument of counsel. However, to the extent the six paragraphs of that document contain Proposed Findings of Fact they are ruled on as follows: This Proposed Finding is rejected, but for reasons delineated in the above Conclusions of Law, Count 1 has been recommended to be dismissed anyway. This Finding is accepted but is immaterial and irrelevant to, and not necessary to, the Findings of Fact reached herein and the Conclusions of Law based thereon. Paragraph Number 3 does not really constitute a Proposed Finding of Fact or even multiple Proposed Findings of Fact in the same paragraph. In reality, it constitutes argument of Respondent's counsel concerning admissibility of certain documents into evidence which have already been ruled to be admissible by the Hearing Officer during the course of the hearing. To the extent that the last two sentences in the third paragraph of the Respondent's Proposed Findings of Fact are proposed findings of fact, they are accepted, but are immaterial, irrelevant and unnecessary to the findings of fact made herein and the conclusions predicated thereon and recommendation made herein. Rejected as not being in accordance with the competent, substantial credible testimony and evidence adduced. Rejected as constituting mere argument of counsel and not being in accordance with the competent, substantial, credible evidence adduced. Rejected as not in accordance with the competent, substantial, credible evidence presented as to Count 2. In reality, counsel obviously intended to refer to the two checks referenced in Count 1 of the complaint which has been recommended to be dismissed anyway. COPIES FURNISHED: Dennis Silverman, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 Mark A. Steinberg, Esquire Post Office Box 2366 Ft. Myers, Florida 33902 Bill Gunter Insurance Commissioner and Treasurer The Capitol Tallahassee, Florida 32301
The Issue The issue in this case is whether Respondents have violated provisions of Section 627.837, Florida Statutes, through payment of alleged monetary inducements to insurance agents for the purpose of securing contracts which finance insurance premiums.
Findings Of Fact Petitioner is the Department of Insurance and Treasurer (Department). Respondents are Puritan Budget Plan, Inc., and Gibraltar Budget Plan, Inc., (Respondents). Findings contained in paragraphs 3- 23, were stipulated to by the parties. Stipulated Facts Common shares in Respondents' corporations were sold to insurance agent/shareholders for between $500.00 and $2,500.00 per share, depending on date purchased. Presently, and for the purposes of this litigation, marketing and/or administrative fees paid by Respondents to agent/shareholders range from $1.00 to $13.00 per contract produced, depending on the number of payments made, and the amount of the down payment. Each per contract marketing and/or administrative fee paid by Respondents to agent/shareholders is completely unrelated to the number of contracts produced by that agent/shareholder, and is based upon the characteristics of each contract, pursuant to the terms of the shareholder purchase agreement. Perry & Co., pursuant to a written agreement, manages the day to day activities of Respondents, including solicitation of new shareholder/agents. Alex Campos is currently President of Perry & Co. Perry & Co., Dick Perry or Alex Campos have no equity ownership, either direct or indirect, in Respondents corporations. No shareholder of Perry & Co. is also a shareholder in either Respondent, and no shareholder of the Respondents is a shareholder in Perry & Co. No officer or director of Perry & Co. is an officer or director of either Respondent, and no officer or director of either Respondent is an officer or director of Perry & Co. The individual management agreements between Perry & Co. and Respondents are terminable with proper notice by either party. Respondent Puritan Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Puritans' principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Respondent Gibraltar Budget Plan, Inc., was originally licensed by the Department as a premium finance company in 1984, pursuant to the provisions of Chapter 627, Part XV, Florida Statutes. Gibraltar's principle office is located at 2635 Century Parkway, Suite 1000, Atlanta, Georgia 30345. Customers of Respondents are typically financing automobile insurance premiums. There is little if any variation among licensed premium finance companies in the State of Florida as to the interest rate charged to customers. In 1988, the Department inquired of Respondents' activities in relation to agent/shareholder compensation arrangements. After several meetings with representatives from Respondents, the Department closed the matter without taking any action. Also in 1988, the Department proposed the adoption of Rule 4-18.009, which in part would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes, but later withdrew the proposed rule. Again in 1994, the Department proposed a rule which would have explicitly made payment of processing fees or stock dividends a violation of Section 627.837, Florida Statutes. After a hearing and adverse ruling by the hearing officer, the Department withdrew proposed Rule 4-196.030(8). Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in the unnecessary financing of contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. Financial consideration paid to insurance agents in exchange for the production of premium finance contracts may result in insurance agents adding or sliding unnecessary products to make the total cost of insurance more expensive and induce the financing of additional contracts, and the Department believes Section 627.837, Florida Statutes, was intended to make such conduct illegal. An "inducement" is presently defined as "an incentive which motivates an insurance purchaser to finance the premium payment or which motivates any person to lead or influence an insured into financing the insurance coverage being purchased; or any compensation or consideration presented to a person based upon specific business performance whether under written agreement or otherwise." Rule 4-196.030(4), Florida Administrative Code (July 27, 1995). This rule is currently effective but presently on appeal. There is no evidence that Respondents unnecessarily financed any premium finance contracts or engaged in any "sliding" of unnecessary products to induce the unnecessary financing of contracts. Section 627.837, Florida Statutes, does not prohibit the payment of corporate dividends based on stock ownership to shareholders who are also insurance agents. According to the Final Bill Analysis for H.B. 2471, in 1995 the Legislature amended Section 627.837, Florida Statutes, relating to rebates and inducements. This section was amended to clarify that this statute does not prohibit an insurance agent or agents from owning a premium finance company. The statute, as amended, is silent on the issue of how owner-agents may be compensated. Other Facts Approximately 80 percent of Respondents' insureds will turn to the shareholder/agent to handle premium mailing and collection. When a shareholder/agent provides these valuable services and labor to Respondents through the servicing of the premium finance contract with an insured, payment for those services and/or recoupment of the expenses involved with their provision is made, at least in part, in the form of the marketing and administrative fees paid by Respondents to the shareholder/agent. The marketing and administrative fee payment by Respondents to shareholder/agents is made from the net profit of the corporation and represents payment of ownership interest (dividends) to shareholder/agents in addition to payment for shareholder/agent services or expenses. Respondents generally finance "non-standard" private passenger automobile insurance. Such insurance generally covers younger drivers and drivers with infraction points against their license. The average non-standard premium is $500 per year. Thirty percent of non-standard insureds will cancel their insurance prior to the renewal date. Cancellation of policies and financing arrangements by non-standard insurers require the agent to return unearned commissions, about $30 generally. In contrast, payment of an insurance premium in cash guarantees an agent his/her entire commission, an average of $90 per non-standard policy. Consequently, the financial interest of most agents is best served by cash sale of auto insurance as opposed to financing the insurance. The average amount generated by 95 percent of all premium finance contracts executed in Florida would yield an agent/shareholder approximately six dollars per contract.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered dismissing the Administrative Complaints. DONE and ENTERED in Tallahassee, Florida, this 28th day of November, 1995. DON W. DAVIS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1995. APPENDIX In accordance with provisions of Section 120.59, Florida Statutes, the following rulings are made on the proposed findings of fact submitted on behalf of the parties. Petitioner's Proposed Findings 1.-11. Accepted to extent included within stipulated facts, otherwise rejected for lack of citation to the record. 12. First sentence is rejected as not substantially dispositive of the issues presented. Remainder rejected for lack of record citation if not included within stipulated facts. 13.-15. Rejected to extent not included within stipulation, no citation to record. Incorporated by reference. Rejected, no record citation, legal conclusion. 18.-19. Rejected, not materially dispositive. 20. Rejected, no record citation. 21.-23. Rejected, not materially dispositive. Rejected, record citation and relevancy. Rejected, weight of the evidence. Incorporated by reference. Respondent's Proposed Findings 1. Rejected, unnecessary to result. 2.-3. Accepted, not verbatim. 4. Rejected, unnecessary. 5.-7. Accepted, not verbatim. 8.-9. Rejected, unnecessary. 10. Accepted per stipulation. 11.-12. Rejected, unnecessary. 13. Accepted per stipulation. 14.-16. Accepted, not verbatim. Rejected, hearsay. Rejected, relevance. Rejected, unnecessary. 20.-22. Accepted per stipulation. 23. Rejected, unnecessary. 24.-57. Incorporated by reference. 58.-60. Rejected, unnecessary. 61.-62. Rejected, subordinate and not materially dispositive. 63.-67. Rejected as unnecessary to extent not included in stipulated facts. Accepted per stipulation. Rejected, unnecessary. Accepted per stipulation. 72.-76. Rejected, unnecessary. 77. Accepted per stipulation. 78.-79. Incorporated by reference. 80.-87. Accepted per stipulation. 88. Incorporated by reference. 89.-90. Accepted per stipulation. 91.-95. Rejected, subordinate. 96. Accepted. 97.-101. Rejected, unnecessary. 102. Incorporated by reference. COPIES FURNISHED: Alan Liefer, Esquire Division of Legal Services 612 Larson Building Tallahassee, FL 32399-0333 Steven M. Malono, Esquire Cobb, Cole & Bell 131 N. Gadsden St. Tallahassee, FL 32301 Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300
The Issue The issue presented is whether the Department's audit assessment against Petitioner for additional insurance premium tax for the tax years 1989 and 1990 is proper.
Findings Of Fact Prior to the Final Hearing, the parties agreed to numerous facts and entered into a Joint Prehearing Statement. The Hearing Officer entitles the Findings of Fact section of the Recommended Order "Agreed Facts"; however, instead of reciting the actual stipulation facts submitted by the parties, the Hearing Officer paraphrases and adds facts that were not agreed to by the parties. The "Agreed Facts" section should only recite the facts that were actually agreed to by the parties. Accordingly, the Department substitutes the Joint Prehearing Statement for the Hearing Officer's "Agreed Facts" numbers 1 through 6 as follows: Central Dade is, and at all material times was, a Medical Malpractice Self Insurance Fund as defined in Sec. 627.357, Fla. Stat. Central Dade is a trust, not a corporation. It has been in existence and operation since 1979. Its sole purpose is to provide medical malpractice insurance for its members, i.e., approximately 100 doctors in Dade County. Central Dade has no capital and is not operated for profit. It does not and cannot, absent permission from the Department of Insurance, legally pay dividends to its members; rather it is required by law to hold one hundred percent of its premium and investment income to fund medical malpractice claims and pay its operating expenses (including taxes). Central Dade's members are individually liable or assessable for any shortfall in its trust funds. Central Dade has standing to challenge Fla. Admin. Code Rule 12B- 8.001(5) because it is substantially affected by the Rule. The Department, as an agency within the Executive Branch of the government of the State of Florida, is authorized by Chapters 213 and 624, Fla. Stat., to conduct audits and make assessments of tax pursuant to Chapter 624, Fla. Stat., (Insurance Premium Tax). The Department conducted an audit of Central Dade for the audit period of 12/31/89 through 12/31/90 for Insurance Premium Tax. After the conclusion of the audit and after administrative protest of the proposed assessment by Central Dade, an assessment was issued on July 20, 1994. The assessment became a Final Assessment on July 20, 1994. Central Dade was assessed $8,996.31 tax; $899.63 penalty; and $2,346.58 interest through March 10, 1993. Central Dade paid the entire assessment and is seeking a refund of the payment through this action. Central Dade timely filed a Petition seeking to have the tax assessment declared invalid. Additionally, Central Dade filed a Petition pursuant to Sec. 120.56, Fla. Stat. challenging Fla. Admin. Code Rule 12B-8.001(5) as invalid. Upon Motion by the Parties, the cases were consolidated for Final Hearing. Medical Malpractice Self-insurance Funds became subject to the Insurance Premium Tax beginning July 1, 1989. Ch. 88-206, ss. 6, Laws of Fla. Fla. Admin. Code Rule 12B-8.001(5) became effective March 25, 1990. The parties agree the Rule was correctly promulgated and the Petitioner is only challenging the applicability of the Rule to Petitioner and the substance of the Rule. The dispute between the parties concerns whether Petitioner is entitled to the credits contained in Sec. 624.509.(4), Fla. Stat. The parties additionally stipulated to the following: If the Department prevails in this action, the Petitioner will not be entitled to any refund for the tax years 1989 and 1990. [Joint Exhibit Two] Any overpayment made by the Petitioner will be applied to subsequent tax years. 1/ If the Petitioner prevails in this action, it will be entitled to a refund of $23,774.76 for the tax years 1989 and 1990. [Joint Exhibit Two] The Department rejects the Hearing Officer's "Agreed Fact" number 7 because it is a conclusion of law and not a finding of fact. The Department rejects the Hearing Officer's "Agreed Fact" number 8 as irrelevant to this proceeding. The Department makes the following additional findings of fact based on competent and substantial testimony and evidence presented at the Final Hearing: A premium tax on "medical malpractice self-insurance [funds]" was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide: 627.357 Medical malpractice self-insurance -- (9) Premiums, contributions, and assessments received by a fund are subject to s. 624.509 (1), (2), and (3), except that the tax rate shall be 1.6 percent of the gross amount of such premiums, contributions and assessments. E.S. The premium tax imposed on medical malpractice self-insurers was, pursuant to the above-quoted statute, 1.6 percent of the gross amount of the premiums, contributions and assessments. A premium tax on "dental service plan corporations" self-insurance funds was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide: 637.406 Tax on premiums, contributions, and assessments. Premiums, contributions, and assessments received by a dental service plan corporation are subject to the tax imposed by s. 624.509. The premium tax imposed on dental service plan corporations in 1988 was 2 percent of the gross amount of the premiums, contributions, and assessments pursuant to Sec. 624.509(1)(a), Fla. Stat. (1989). The Legislature in the same Bill that added the amendments to Sec. 627.357 Fla. Stat., which subjected medical malpractice self-insurers to subsections (1), (2) and (3) 2/ of Sec. 624.509, Fla. Stat., 3/ and made dental service plan self-insurers subject to "s. 624.509" in its entirety also made multiple employer welfare arrangements, 4/ Commercial self-insurance funds, 5/ professional liability self-insurance, 6/ and group self-insurer funds subject to subsections (1), (2), and (3) of Sec. 624.509, Fla. Stat.; but made other insurers, such as the continuing care contracts, 7/ subject to Sec. 624.509, Fla. Stat., in its entirety. Further, all those entities which the Legislature specifically made subject to noncredit paragraphs (1), (2) and (3) of Sec. 624.509, Fla. Stat. (Supp. 1988) were given a lower 1.6 percent tax rate by the Legislature. In contrast, those entities made subject to Sec. 624.509, Fla. Stat., in its entirety, such as the dental service plan self-insurers, without a listing of the specific paragraphs, and which are clearly entitled to the credits therein, were made subject to the higher 2 percent tax rate provided in Sec. 624.509(1), Fla. Stat. (Supp. 1988). 18. Sec. 624.509(1), (2), (3), (4), and (9), Fla. Stat. (Supp. 1988), states in pertinent part: 624.509 Premium tax; rate and computation. In addition to the license taxes provided for in this chapter, each insurer shall also annually, and on or before March 1 in each year, except as to wet marine and transportation insurance taxed under s. 624.510, pay to the Department of Revenue a tax on insurance premiums, risk premiums for title insurance, or assessments, including membership fees and policy fees and gross deposits received from subscribers to reciprocal or interinsurance agreements, and on annuity premiums or considerations, received during the preceding calendar year, the amounts thereof to be determined as set forth in this section, to wit: An amount equal to 2 percent of the gross amount of such receipts on account of life and health insurance policies covering persons resident in this state and on account of all other types of policies and contracts (except annuity policies or contracts taxable under paragraph (b)) covering property, subjects, or risks located, resident, or to be performed in this state, omitting premiums on reinsurance accepted, and less return premiums or assessments, but without deductions: For reinsurance ceded to other insurers; For moneys paid upon surrender of policies or certificates for cash surrender value; For discounts or refunds for direct or prompt payment of premiums or assessments; and On account of dividends of any nature or amount paid and credited or allowed to holders of insurance policies; certificates; or surety, indemnity, reciprocal, or interinsurance contracts or agreements; and An amount equal to 1 percent of the gross receipts on annuity policies or contracts paid by holders thereof in this state. Payment by the insurer of the license taxes and premium receipts taxes provided for in this part of this chapter is a condition precedent to doing business within this state. Notwithstanding other provisions of law, the distribution of the premium tax and any penalties or interest collected thereunder shall be made to the General Revenue Fund in accordance with rules adopted by the Department of Revenue and approved by the Administration Commission. The intangible tax imposed under chapter 199, the income tax imposed under chapter 220, and the emergency excise tax imposed under chapter 221 which are paid by any insurer shall be credited against, and to the extent thereof shall discharge, the liability for tax imposed by this section for the annual period in which such tax payments are made. As to any insurer issuing policies insuring against loss or damage from the risks of fire, tornado, and certain casualty lines, the tax imposed by this section, as intended and contemplated by this subsection, shall be construed to mean the net amount of such tax remaining after there has been credited thereon such gross premium receipts tax as may be payable by such insurer in pursuance of the imposition of such tax by any incorporated cities or towns in the state for firemen's relief and pension funds and policemen's retirement funds maintained in such cities or towns, as provided in and by relevant provisions of the Florida Statutes. For purposes of this subsection, payments of estimated income tax under chapter 220 and of estimated emergency excise tax under chapter 221 shall be deemed paid either at the time the insurer actually files its annual returns under chapter 220 or at the time such returns are required to be filed, whichever first occurs, and not at such earlier time as such payments of estimated tax are actually made. (9) As used in this section "insurer" includes any entity subject to the tax imposed by this section.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding that the Department's assessment issued July 20, 1994, was improper and finding Petitioner entitled to a refund in the amount of $23,774.76. DONE and ORDERED this 19th day of May, 1995, at Tallahassee, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 1995. APPENDIX TO RECOMMENDED ORDER Petitioner's proposed findings of fact numbered 4, 5 and 7 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 1, 3, 6, and 8 have been rejected as not constituting findings of fact. Petitioner's proposed findings of fact numbered 2, and 9-11 have been rejected as being subordinate to the issues involved herein. Respondent's proposed findings of fact numbered 1, 4, 5 and 12 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 3, 6-10, 13, and 15-19 have been rejected as not constituting findings of fact. Respondent's proposed finding of fact numbered 2 has been rejected as being subordinate to the issues herein. Respondent's proposed findings of fact numbered 14, 20, and 21 have been rejected as being irrelevant to the issues in this cause. Respondent's proposed findings of fact numbered 11 and 22 have been rejected as not being supported by the weight of the competent evidence in this cause. COPIES FURNISHED: Curtis H. Sitterson, Esquire Stearns, Weaver, Miller, et al. Museum Tower 150 West Flagler Street Miami, Florida 33130 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Lisa M. Raleigh, Esquire Office of the Attorney General Tax Section, The Capitol Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed in Florida as a life and variable annuity contracts salesman and as a life and health insurance agent. In 1994 twin sisters Edith Ellis and Gertrude Franklin attended a luncheon at which Respondent made a presentation. The sisters were then 79 years old, and both were the owners of single-premium insurance policies issued by Merrill Lynch. They decided to cash in their existing policies and purchase new policies through Respondent. Both Ellis and Franklin executed 1035 exchange forms whereby the monies obtained from cashing in their Merrill Lynch policies were transferred to the insurance companies issuing their new policies. Both were charged a substantial penalty by Merrill Lynch. On August 11, 1994, Security Connecticut Insurance Company issued to Edith Ellis a flexible premium adjustable life insurance policy with a face value of $150,000. The cover page of the policy recites in bold print that it is a flexible premium adjustable life insurance policy, directs the insured to read the policy, and provides a 20-day period for canceling the policy with a full refund. It also contains a statement that provides: This Policy provides flexible premium, adjustable life insurance to the Maturity Date. Coverage will end prior to the Maturity Date if premiums paid and interest credited are insufficient to continue coverage to that date. Dividends are not payable. Flexible premiums are payable to the end of the period shown, if any, or until the Insured's death, whichever comes first. The cover page also recites that the first premium is $75,000 and that the monthly premium is $805.75. After deductions, Merrill Lynch only transferred $44,928.81, and Ellis never paid any additional premiums. Therefore, the policy was not funded to maturity since the company only received a partial payment. The insurance company did not set up this policy to receive periodic premium payments because it was originally anticipated that the company would receive $75,000 which would carry the expense, based upon the then interest rate. The policy was dependent upon interest rates. The company sent annual statements, however, to both Ellis and to the agency where Respondent worked. These statements clearly showed a declining accumulated value for the policy and specified how much it had declined from the previous year. When Ellis surrendered the policy on July 3, 2002, its value was $4,849. First Colony Life Insurance issued a flexible premium adjustable life insurance policy to Gertrude Franklin on October 18, 1994, with a face value of $600,000. The cover page provides for a 20-day cancellation period with a full refund of premiums paid. In bold type, the cover page further advises as follows: "Flexible Premium Adjustable Life Insurance Policy", "Adjustable Death Benefit Payable at Death", "Flexible Premiums Payable During Insured's Lifetime", and "Benefits Vary with Current Cost of Insurance Rates and Current Interest Rates." It also advises that the initial premium is $56,796. The insurance company received an initial premium payment of $203,993.75 on December 19, 1994, and an additional premium payment in February 1996, for a total of premiums paid of approximately $266,000. The total premiums received, however, were insufficient to fund the policy to maturity since that would have required in excess of $400,000 in premiums. Annual statements sent by the insurance company reflected that the policy value was declining. On August 26, 1996, the insurance company received a letter over the name of Nancy Franklin, the trustee of the trust which owned the policy, advising the company to send billing and annual statements to the address of the agency where Respondent was employed. Respondent sent that letter as a courtesy because Gertrude Franklin asked him to keep her papers for her because she had no place to keep them. Gertrude Franklin, not her daughter, signed that letter. Respondent left that agency in October 1997 and was not permitted to take any records with him. In 2002 Edith Ellis showed her policy to someone at a senior center. Based upon that person's statements she called her sister and told her that their policies were no good. They contacted Respondent who came to their homes and reviewed their policies. He advised Gertrude Franklin that her only options at that point were to pay an additional premium or to reduce the face value of the policy to $400,000 in order to keep it in effect longer. She chose the latter course. Respondent gave Franklin a letter for Nancy Franklin's signature directing the insurance company to reduce the face value of the policy. Franklin, not her daughter, signed the letter and forwarded it to the company. The company reduced the face value based upon that letter which it received on April 1, 2002. That directive allowed the policy to stay in force another two months.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Administrative Complaint filed against Respondent in this cause. DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT 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 28th day of December, 2004. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Nancy Wright, Esquire 7274 Michigan Isle Road Lake Worth, Florida 33467 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
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
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record filed herein, I hereby make the following relevant factual findings: During times material, Respondent was licensed and/or qualified for licensure as a General lines (2-20), Ordinary Life, and Health Insurance (2-18) Agent in Florida (Petitioner's Exhibit 1). During times material to the allegations herein, 1/ Respondent was an officer and director of White Insurance Agency, Inc. (White Insurance). (Petitioner's Exhibit 2). On June 20, representatives of Great Wall Chinese Restaurant (Great Wall) entered into a premium finance agreement with Crown Premium Finance, Inc., (Crown), through White Insurance, which indicated the insurance coverage for Great Wall would be provided and issued through Service Insurance Company and Corporate Group Services. (Petitioner's Exhibit 3, sub. "a"). On June 20, Respondent signed the premium finance agreement as broker- agent. (Petitioner's Exhibit 3, sub "a"). On June 22, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of eight hundred ninety-four dollars ($894.00) which was subsequently deposited into Respondent's bank account. (Petitioner's 3, sub B). On July 13, a representative of Service Insurance Company notified Crown that they had not received the full annual premium for Great Wall and a binder charge of $81.00 was sent to White Insurance. (Petitioner's Exhibit 3 sub C). On July 13, representatives of Service Insurance Company notified Respondent that coverage was bound for Great Wall's risk for only 33 days and a charge of $81.00 was sent to White Insurance. (Petitioner's Exhibit 3, sub D). On July 13, representatives of Service Insurance Company mailed a cancellation notice to Great Wall and Crown indicating an $81.00 charge as due and owing. (Petitioner's Exhibit 3, sub) On September 14, Crown sent a standard cancellation notice to both Corporate Group Services and Service Insurance Company. (Petitioner's Exhibit 3, sub H & I). On November 8, representatives of Corporate Group Services notified Crown that an application for insurance was received but was rejected and returned to the agent's (Respondent) office. (Petitioner's Exhibit 3, sub F). Neither Service Insurance Company nor Corporate Group Services issued a policy for the consumer, Great Wall. Respondent refuses to return the premium monies received for the Great Wall coverage to Crown. Respondent owes Crown for the premium monies submitted by Crown. COUNT II On July 8, representatives of Chateau Madrid, Inc., a restaurant, entered into a premium finance agreement with Crown, through Respondent, which indicated the insurance coverage would be issued through Casualty Indemnity Exchange. (Petitioner's Exhibit 4, sub A). On July 8, Respondent signed the premium finance agreement as broker/agent. On July 25, pursuant to the premium finance agreement, Crown issued a check made payable to Respondent in the amount of three thousand five hundred eight dollars (3,508.00). The check was deposited into White Insurance's bank account. (Petitioner's Exhibit 4, sub b). On August 30, Crown sent a standard cancellation notice to both Chateau Madrid and Casualty Indemnity Exchange and their managing general agents, Program Underwriters. (Petitioner's Exhibit 4, sub D). As a result of the standard cancellation notice, the policy was reduced to a short-term policy which was effective July 15 and expired September 13, 1983. On March 13, 1984, Program Underwriters notified Crown that they had not received a premium payment concerning this particular policy and that neither Respondent nor White Insurance was an authorized agent for Casualty Indemnity Exchange. (Petitioner's Exhibit 4, sub e). Respondent never returned the premium monies he received to Crown. Respondent owes Crown for the premium monies he received from Crown. COUNT III On September 16, a representative of Tennis Trainer, Inc. requested that Respondent secure a multi-peril insurance policy for Tennis Trainer. Respondent secured a binder for Tennis Trainer indicating the insurance would be issued through Service Insurance Company. On September 16, Respondent signed the binder as an authorized representative. (Petitioner's Exhibit 13, sub b). On September 16, Respondent was not authorized to represent Service Insurance Company. (Petitioner's Exhibits 12 and 13, sub a and b). On September 15, Jeffrey Rider, Vice President of Tennis Trainer issued a check in the amount of three hundred five dollars ($305.00) to White Insurance representing the downpayment necessary to secure the agreed business insurance coverage. Thereafter, Respondent, took no measures to secure insurance for Tennis Trainer other than issuing the binder. Respondent has failed to submit the premium to secure the agreed upon insurance coverage on behalf of Tennis Trainer. Additionally, Respondent refused to return the premium payments to Tennis Trainer despite its demand (from Respondent) to do so. Tennis Trainer has directly forwarded the remainder of the premium to Service Insurance to secure the multi-peril coverage. Service Insurance Company is owed a balance due of approximately $305.00 from Respondent. COUNT VI On May 5, Donald Powers entered into a premium finance agreement with Crown, through White Insurance. Pursuant to the agreement, the insurance coverage would be provided through Progressive American Insurance (Progressive). On May 9, Crown issued a check made payable to White Insurance in the amount of two hundred ninety-nine dollars ($299.00) which was subsequently deposited into Respondent's bank account. On October 1, the consumer, Donald Powers, requested that the policy be cancelled. On October 25, Crown sent a standard cancellation notice to both the consumer and Progressive. On October 19, Progressive notified both Crown and White Insurance that the gross unearned premium of two hundred twenty-six dollars ($226.00) was applied to the Agent's (White Insurance) monthly statement and Crown must therefore collect this amount from the Agent. Progressive American never received any premium payments from Respondent concerning the subject policy. On November 25, 1986, Progressive notified Petitioner that the policy was originally accepted on May 7, 1983 at an annual premium of four hundred sixty dollars ($460.00) and was cancelled on October 1, 1983, with Two Hundred twenty-six Dollars ($226.00) credited to Respondent's statement. Progressive never received any premium payment for this policy. Respondent has failed to return to Crown the returned premium credit received on behalf of the Donald Powers' policy. COUNT VII On November 28, Russell Lung entered into a premium finance agreement with Crown through White Insurance. The insurance coverage for Lung was to be provided and issued through Interstate Underwriters. On November 29, pursuant to the premium finance agreement with Russell Lung, Crown issued a check made payable to White Insurance in the amount of one hundred sixty-seven dollars (167.00) which was subsequently deposited into a bank account controlled by Respondent. On February 14, 1984, Crown sent a standard cancellation notice to both the consumer and Interstate Underwriters. The policy for Russell Lung was cancelled before its normal expiration date and the unearned premium was credited to Respondent's account. Respondent has not returned to Crown the unearned premium credit received for Lung's policy. COUNT VIII On December 6, representatives of Thomson's Lawn Care (Thomson) entered a premium finance agreement with Crown, through White Insurance, which indicated the insurance coverage would be provided through Northeast Insurance and Southern Underwriters as managing general agents. On December 8, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of one hundred fifty-one dollars ($151.00) which was subsequently deposited into a bank account controlled by Respondent. On January 25, 1984, Crown sent a standard cancellation notice to both the consumer and Northeast Insurance Company/Southern Underwriters. On February 8, 1984, Southern Underwriters notified Crown that they were never paid by White Insurance for Thomson's insurance. On October 16, 1984, Crown was notified by representatives of Thomson's that immediately after making the down payment to White Insurance, Thomson notified White Insurance that the policy should be cancelled immediately since Thomson never operated as a business. (Petitioner's Exhibit 7, sub e). Crown received the returned premium payment from Southern Underwriters even though the original payment to White Insurance by Crown was never forwarded to Southern Underwriters. Respondent refuses to return the unearned premium payment to Crown. COUNT IX On October 15, representatives of Comfort Inn entered a premium finance agreement with Crown, through White Insurance, which indicated the insurance coverage would be provided through Protective National Insurance Company and Interstate Fire and Casualty Company. On November 4, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of one thousand six hundred sixty dollars ($1,660.00) which was subsequently deposited into a bank account controlled by Respondent. On March 1, 1984, Crown sent a standard cancellation notice to both Comfort Inn and the Insurance Companies involved. On February 6, 1984, Comfort Inn's counsel, James W. Martin, forwarded a letter to the insurance companies involved and simultaneously notified Crown that White failed to remit funds to the insurance companies involved and as a result, the policy was cancelled and subsequently reinstated only after his client, Comfort Inn paid the premium directly to the respective insurers. (Petitioner's Exhibit 8, sub e). On February 23, 1984, Irwin Lonschien of Crown responded to attorney Martin's letter and advised that the one thousand six hundred sixty dollars premium payment was forwarded to White Insurance pursuant to the premium finance agreement on November 4, 1983. On July 23, 1984, William Edwards, a representative of Comfort Inn, wrote a letter to Dan Martinez of Eagle Underwriters advising that Comfort Inn had paid a premium to White Insurance and Comfort Inn no longer desired White Insurance to represent them in insurance matters. Respondent, has not returned premiums received from Crown and is therefore indebted to Crown in the amount of one thousand six hundred sixty dollars. COUNT X On April 14, representatives of Royal Palm Motel entered into a premium finance agreement with Crown, through White Insurance which indicated insurance coverage would be provided through Casualty Indemnity- Exchange. On April 18, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of nine hundred seventy- seven dollars ($977.00) which was subsequently deposited into a bank account controlled by Respondent. COUNT XI On March 16, 1982, representatives of Flip's of West Broward entered a premium finance agreement with Crown, through White Insurance which indicated the insurance coverage would be provided through Service Insurance Company. On March 19, 1982, pursuant to the premium finance agreement, Crown issued a check made payable to White in the amount of six hundred forty-eight dollars ($648.00) which was subsequently deposited in a bank account controlled by Respondent. Sometime between March 1982 and June 20, 1982, White Insurance forwarded a premium payment for this coverage to Service Insurance Company. On June 20, 1982, Crown sent a standard cancellation to the consumer and Service Insurance indicating the policy was to be cancelled. By letter dated January 7, Service Insurance notified White Insurance that the policy had been cancelled and the returned premium for the policy was credited to the account of White Insurance. Respondent, as agent/director of White Insurance has failed and refused to return to Crown the returned premiums received for Flip's of West Broward. COUNT XII On November 7, Paula Wilcoxon entered a premium finance agreement with Crown, through White Insurance, indicating the insurance coverage would be issued through Universal Casualty. On November 8, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of two hundred ninety-five dollars ($295.00) which was subsequently deposited into a bank account controlled by Respondent. On December 15, Crown notified the consumer and Universal Casualty, by standard cancellation notice, that the policy was being cancelled. Respondent has refused and continues to refuse to return the unearned premium to Crown.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Petitioner, Department of Insurance and Treasurer, enter a Final Order revoking all licenses and qualifications for licensure of Respondent, Kenneth Everett White, as an insurance agent in the State of Florida. RECOMMENDED this 20th day of March, 1987, in Tallahassee, Florida. JAMES E. BRADWELL 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 20th day of March, 1987.
The Issue The issue is whether Respondent complied with Sections and 440.38, Florida Statutes, with regard to workers' compensation insurance for his subcontractors, and if not, the appropriate amount of penalty that should be assessed.
Findings Of Fact Hernandez, Inc., is a contractor based in the Jacksonville, Florida area, and is in the business of installing dry wall, among other construction related activities. The Department of Financial Services is the state agency responsible for enforcing the Workers' Compensation Law. This duty is delegated to the Division of Workers' Compensation. On February 5, 2004, Hernandez, Inc., was engaged in installing drywall in the Bennett Federal Building in Jacksonville, Florida. Hernandez, Inc., was a subcontractor for Skanska, Inc., who was the general contractor for the building. Hernandez, Inc., was accomplishing the installation of drywall by using two subcontractors, GIO & Sons (GIO), of Norfolk, Virginia, and U&M Contractors, Inc., (U&M), of Charlotte, North Carolina. Hernandez, Inc., was also using its own personnel, who were leased from Matrix, Inc., an employee leasing company. Prior to contracting with GIO and U&M, Hernandez, Inc., asked for and received ACORD certificates of insurance, which on their face indicated that the subcontractors had both liability coverage and workers' compensation coverage. It is the practice of Hernandez, Inc., to ensure that certificates of insurance are provided by subcontractors and the office staff of Hernandez, Inc., tracks the certificates so that they are kept current. Since the beginning of 2001, Hernandez, Inc., has received approximately 310 certificates of insurance from subcontractors. These certificates listed Hernandez, Inc., as the certificate holder. Though most of the producers and insureds on these certificates are from Florida, a substantial number are from other states. Hernandez, Inc., relied on the certificates as evidence that the subcontractor's workers were covered by workers' compensation insurance. Hernandez, Inc., has relied on certificates of insurance for more than twenty years and, with the exception of this case, has never known an instance where the underlying policy was invalid. On February 5, 2004, Katina Johnson, an investigator with the Division, made a routine visit to the Bennett Federal Building with another investigator. She observed personnel from Hernandez, Inc., and its subcontractors, installing dry wall. On February 5, 2004, Ms. Johnson determined that Hernandez, Inc., also had a contract to install dry wall as a subcontractor participating in the construction of the Mayport BEQ. L. C. Gaskins Company was the general contractor engaged in the construction of the Mayport BEQ. U&M worked at both the Bennett Federal Building site and the Mayport BEQ site as a subcontractor of Hernandez, Inc. Ms. Johnson issued a Stop Work Order on February 26, 2004, to Hernandez, Inc., GIO, and U&M. By the Stop Work Order, Hernandez, Inc., was charged with failure to ensure that workers' compensation meeting the requirements of Chapter 440, Florida Statutes, and the Florida Insurance Code, was in place for GIO and U&M. The Stop Work Order indicated that the penalty amount assessed against Respondent would be subject to amendment based on further information provided by Hernandez, Inc., including the provision of business records. An Amended Order of Penalty Assessment dated March 19, 2004, was served on Hernandez, Inc., which referenced the Stop Work Order of February 26, 2004. The Amended Order of Penalty Assessment was in the amount of $157,794.49. The Amended Order of Penalty Assessment reached back to September 29, 2003. An Amended Order of Penalty Assessment dated March 22, 2004, was served on GIO. This Amended Order of Penalty Assessment was in the amount of $107,885.71. An Amended Order of Penalty Assessment with a March 2004 date (the day is obscured on the document by a "filed" stamp), was served on U&M. This Amended Order of Penalty Assessment was in the amount of $51,779.50. The sum of these numbers is $159,665.21. However, the parties agreed at the hearing that the amount being sought by the Division was $157,794.49, which represented the total for GIO and U&M. Hernandez, Inc.'s, employees leased from Matrix were covered by workers' compensation insurance through a policy held by Matrix. The Matrix policy did not cover the employees of GIO and U&M. Although Skanska, Inc., and L. C. Gaskins Company had workers' compensation insurance in force, their policies did not cover the workers used by Hernandez, Inc., or the employees of GIO or U&M. GIO and U&M employees were considered by the Division to be "statutory employees" of Hernandez, Inc., for purposes of the Workers' Compensation Law. This meant, according to the Division, that Hernandez, Inc., was required to ensure that the employees of GIO and U&M would receive benefits under the Workers' Compensation Law if a qualifying event occurred, unless the subcontractors had workers' compensation insurance policies in force that satisfied the Division. GIO had a policy of workers' compensation insurance evidenced by an ACORD certificate of liability insurance for the period December 3, 2002, until December 3, 2003. The policy was produced by Salzberg Insurance Agency in Norfolk, Virginia. It listed Hernandez as the certificate holder. The policy was issued by Maryland Casualty Company, a subsidiary of the Zurich American Insurance Company. These companies are admitted carriers in Florida. The Classification of Operations page of this policy indicated class code 5022, masonry work. GIO employers were installing drywall during times pertinent. Rates for drywall installation are substantially higher than for masonry work. In the policy section titled "Other States Insurance," Florida is not mentioned. William D. Hager, an expert witness, reviewed the certificate of insurance and the policy supporting the certificate. Mr. Hager is a highly qualified expert in insurance and workers' compensation coverage. Among other qualifications, he is an attorney and a former member of the National Association of Insurance Commissioners by virtue of his position as Insurance Commissioner for the State of Iowa. He concluded that this policy did not conform to the requirements of Chapter 440 because the policy was Virginia based and did not apply Florida rates, rules, and class codes. Mr. Sapourn, testified as an expert witness. Mr. Sapourn has a degree from the University of Virginia in economics with high distinction and a juris doctorate from Georgetown. He is a certified insurance counselor and owned an insurance agency in the District of Columbia area. As an insurance agent he has issued tens of thousands certificates of insurance and written hundreds of workers' compensation policies. Mr. Sapourn, opined that this certificate represented workers' compensation coverage that complied with Chapter 440, Florida Statutes. Upon consideration of the testimony of the experts, and upon an examination of the documents, it is concluded that the policy represented by the certificate of insurance for the period December 3, 2002, to December 3, 2003, did not comply with the requirements of Chapter 440. Subsequently, someone forged an ACORD certificate of liability insurance, which indicated that it was produced by Salzberg Insurance Agency, and that indicated that GIO was covered from December 4, 2003, until December 4, 2004. The forged certificate was presented to Hernandez, Inc., upon the expiration of the policy addressed above. It was accepted by Hernandez, Inc., and considered to be a valid certificate. Both of the experts pointed out that with their practiced eye they could easily determine that the certificate was a forgery. However, there was no evidence that Mr. Hernandez, or his employees, had training in forgery detection. Accordingly, it was reasonable for them to accept the certificate as valid. U&M presented Hernandez, Inc., with an ACORD certificate which indicated insurance coverage from October 24, 2003, until October 24, 2004. The producer was Insur-A-Car Commercial Division of Charlotte, North Carolina. The insurer was The St. Paul, an admitted carrier in Florida. The insured was U &M. The certificate holder was Hernandez Enterprises, Inc. William D. Hager reviewed the certificate of insurance and the policy supporting the certificate. He noted that The St. Paul policy upon which the certificate was based did not apply in Florida because U&M was not working temporarily in Florida and because it included a policy endorsement that stated: "The policy does not cover work conducted at or from 3952 Atlantic BLVD #D-12 Jacksonville, FL 32207." U&M's mailing address in Jacksonville was 3952 Atlantic Boulevard, Suite D-12. The information page of the policy, at Part 3.A. states that Part One applies to North Carolina. Part 3.C., Other States Insurance states that Part 3 of the policy applies to the states listed, and then refers to the "residual market limited other states insurance." Mr. Hager testified that the policy did not indicate compliance with Chapter 440, because the policy is North Carolina based, applies only North Carolina rates, and does not provide Florida coverage. Mr. Sapourn, on the other hand, opined that the policy provided workers' compensation that complied with Chapter 440. Although it is possible that a worker who was injured during times pertinent may have received benefits, it is clear that the policy did not comply with the requirements of Chapter 440. The Division instituted a Stop Work Order against U&M and sought to impose penalties upon it for failure to comply with Chapter 440 for offenses committed at the exact times and places alleged in this case. U&M demanded a hearing and was provided one. In a Recommended Order entered April 7, 2005, an Administrative Law Judge recommended that the Division enter a final order affirming the Stop Work Order and assessing a penalty in the amount of $51,779.50. See Department of Financial Services, Division of Workers' Compensation vs. U and M Contractors, Inc., Case No. 04-3041 (DOAH April 7, 2005). The recommendation was adopted in toto by the Department of Financial Services on April 27, 2005. See In the Matter of: U and M Contractors, Inc., Case No. 75537-05 WC (DFS April 27, 2005). The evidence taken as a whole demonstrates that U&M did not have workers' compensation coverage in Florida that complied with the requirements of Chapter 440, during times pertinent. Mr. Sapourn testified that the theory behind ACORD certificates of insurance is that they provide a uniform document upon which business people may rely. This testimony is accepted as credible. In order to continue working on a project not addressed by the Stop Work Order, Hernandez, Inc., entered into and agreement with the Division which provided for partial payments of the penalty in the amount of $46,694.03. This payment was made with the understanding of both parties that payment was not an admission of liability.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is
