The Issue The issue in this case is whether the Respondent, William Robert Pearson, should be disciplined for alleged statutory and rule violations for his role in several insurance transactions.
Findings Of Fact The Respondent is licensed in Florida as a life including variable annuity agent (2-14), life including variable annuity and health agent (2-15), life agent (2-16), life and health agent (2-18), and health agent (2-40), regulated by the DFS's Division of Insurance Agent and Agency Services. He was so licensed at all times pertinent to this case. He was first licensed in 1988 and has been disciplined once, in September 2002, when he was given a Letter of Guidance for misrepresenting to a Pinellas Park resident that an annuity he sold her would generate interest in excess of 6.8 percent, when the guaranteed rate was three percent for the first year. During the transactions alleged in the Amended Administrative Complaint, the Respondent also was registered with OFR's Division of Securities as a Financial Industry Regulatory Authority (FINRA) broker representative associated with Transamerica Financial Advisors, Inc. (Transamerica). On August 21, 2012, based on some of the same facts alleged in this case, OFR charged the Respondent with failing to observe high standards of commercial honor and just and equitable principles of trade because he: participated in the liquidation of variable and fixed annuities on behalf of several elderly customers referred by insurance agents not licensed as FINRA broker representatives; executed the liquidations recommended to the customers by insurance agent Richard Carter; failed to appropriately record the transactions on the books and records of Transamerica; failed to review the transactions, or have them reviewed by Transamerica, as to suitability; and provided Agent Carter with blank Transamerica letterhead to be used to facilitate the transactions. A Stipulation and Consent Agreement was entered on December 18, 2012, in which the Respondent admitted the OFR charges and agreed to never seek a license or registration as a dealer, investment advisor, or associated person under the Florida Securities and Investor Protection Act, chapter 517, Florida Statutes. A Final Order incorporating the settlement agreement was entered on January 11, 2013. (This Final Order is the basis for Count IX, which was added to the charges in this case, as well as for one of the Respondent's affirmative defenses.) Count I-–Geraldine Busing Geraldine Busing was born on December 1, 1930. She has a high school education. Her husband of 44 years died in 2001. When alive, he handled the family finances. Mrs. Busing's income is from a pension of $728 a month and social security payments of $1,090 a month. In addition, she had substantial investments in two Schwab accounts. During the market decline of 2007-2008, Mrs. Busing became dissatisfied with the performance of her Schwab accounts. An insurance agent named Richard Carter recommended that she invest in annuities, which would reduce her taxes. (In her deposition, testimony was elicited from Mrs. Busing that Agent Carter told her that the Respondent would do her taxes for free for the rest of her life. It is not likely that he made such a representation, and there is no evidence that the Respondent knew about such a representation.) Mrs. Busing followed Agent Carter's recommendation. Agent Carter did not have a FINRA license and approached the Respondent, who worked for Transamerica, to facilitate the liquidation of Mrs. Busing's Schwab accounts, so she could follow Agent Carter's recommendations. The Respondent agreed. The Petitioner alleged that the Respondent provided blank Transamerica forms to Agent Carter and that Agent Carter "shuffled" the forms together with an EquiTrust Life Insurance Company (EquiTrust) annuity application and suitability forms and requested Mrs. Busing's signatures (although, it is alleged, one or more of the signatures on the Transamerica forms were not hers.) It is alleged that, unbeknownst to Mrs. Busing, Agent Carter gave the Respondent these forms, as well as a copy of her Schwab account statements, so he could liquidate her accounts, which totaled $627,000 at the time, "dump" the proceeds into a Transamerica account, and then "funnel" the liquidated assets into two EquiTrust annuities. It is alleged that Mrs. Busing became aware of these transactions in September 2010 after discussions with her accountant. Mrs. Busing testified that she has never met the Respondent and does not know him. She testified that she gave all of her Schwab account information to Agent Carter and did not expect him to share it with the Respondent. She testified that Agent Carter had her hurriedly sign a stack of papers without giving her a chance to review them. She said she was surprised when her stock broker, Barry Tallman, called to tell her that her Schwab accounts had been liquidated and used to open a Transamerica account. She denied ever receiving or signing the Schwab bank check dated July 7, 2010, used to open the Transamerica accounts; denied ever providing the Respondent and Transamerica with information for her customer account information (CAI) form used to open the Transamerica accounts; and denied that several of the Geraldine Busing signatures on the Transamerica documents used for the transactions were her signatures. She admitted to signing a Transamerica check dated August 13, 2010, which was used to purchase the EquiTrust policies. The Respondent testified that he telephoned Mrs. Busing at Agent Carter's request. He testified that she told him she wanted to implement Agent Carter's recommendation to liquidate the Schwab accounts and purchase annuities. He testified that he told her his services were not required because her current broker (Mr. Tallman) could handle it for her, unless she just wanted to avoid confronting her current broker. He said she wanted the Respondent to handle it, and he replied essentially that he would do whatever she and Agent Carter wanted him to do for her. The Respondent testified that he then mailed Mrs. Busing forms she had to fill out, sign, and return to him. He testified that he talked to her briefly by telephone about 15 to 20 times to answer questions she had about the forms. When she told him she received a Schwab check in the amount of about $150,000 and asked if she should mail it to him, he cautioned her that it would be better not to mail it and offered to drive to her house to get the check, which he did and returned immediately to Transamerica to open a Transamerica account with it. He testified that the Transamerica funds were used to purchase EquiTrust annuities at the direction of Agent Carter and Mrs. Busing. The evidence was not clear and convincing that Mrs. Busing's version of the facts is true and that the Respondent's version is untrue. To the contrary, Mrs. Busing's memory did not seem to be very good, and she seemed confused during her testimony. The evidence was not clear and convincing that the Respondent made any investment or insurance recommendations or misrepresentations to Mrs. Busing. The Petitioner's own witnesses (DFS and OFR investigators, Karen Ortega and Mercedes Bujans) testified that the Respondent never acted as Mrs. Busing's insurance agent. It was not proven by clear and convincing evidence that Mrs. Busing incurred tax and commission charges as a result of her Schwab account being liquidated, other than Transamerica's standard "ticket charge" for the transactions, which the Respondent admitted. There was no evidence that the Respondent received any remuneration on the EquiTrust annuity sales. Those commissions went to Agent Carter. The Petitioner contended in its proposed recommended order that the Respondent listed Mrs. Busing's annual income to be between $25,000 and $50,000, her investment objective as growth and income, and her investment time horizon as long-term. (Busing Deposition Exhibit 87). There was no testimony to put the exhibit in context or explain it. On its face, Busing deposition Exhibit 87 was a request from Transamerica to the client to confirm certain information. The form had the Respondent's name printed on it, but it was not signed by either the Respondent or Mrs. Busing, and the evidence did not prove who completed the form. (The CAI form contained similar information and had both their signatures.) The Petitioner contends that the information on the confirmation request was "absurd," because it listed Mrs. Busing's annual income as between $25,000 and $50,000, when her taxable income was $11,108 for 2009 and $8,251 for 2010. There was evidence that her total annual income was about $48,000 for 2007, $32,600 for 2008, $22,358 for 2009, and $19,001 for 2010, with the decline due to the decline in the stock market. The evidence was not clear and convincing that the income information on that form or the CAI form was absurd. The investment objective and investment time horizon on the forms were questionable, but the evidence was not clear and convincing that these were misrepresentations by the Respondent. The Transamerica account was a Pershing money market account used to facilitate the purchase of annuities. The evidence was that a separate suitability analysis would be required by the insurance company offering the annuity. The evidence was not clear that the information in the forms signed by the Respondent was used for the purchase of EquiTrust annuities on behalf of Mrs. Busing. Those purchases were recommended and executed by Agent Carter. The evidence was not clear and convincing that switching Mrs. Busing's investments from Schwab to EquiTrust annuities was not suitable for Mrs. Busing or in her best interest. No expert witness testified to that effect. Counts II through IV–-The Kesishes In 2010, William Kesish and his wife, Josefa, owned several annuities. Mr. Kesish had managed their business affairs before he developed Parkinson's disease and dementia in his old age. After that, Mrs. Kesish cared for him and took over the family's finances by default. Mr. Kesish died on November 26, 2010. Mrs. Kesish was born in Spain in 1937. English is her second language. In 2010, she had difficulty conversing and reading in English and was unable to write in English. After her husband became mentally disabled, she used their bank account to provide for their needs, but she had no investment acumen beyond knowing generally that it was better to make more money from their investments than to make less or to lose money. She was recovering from cancer treatment in 2010 and was physically frail. On May 25, 2010, Paula Rego, a professional guardian, met with an attorney who believed the Kesishes were being exploited and in need of a guardian. Ms. Rego reviewed documentation provided by the attorney and, in June 2010, agreed to Mrs. Kesish's voluntary request to become the guardian of the Kesishes' property. On July 8, 2010, Ms. Rego became aware of the Respondent's involvement in the Kesishes' financial business. She telephoned the Respondent to explain her guardianship role and faxed him on July 15, 2010, to direct him to cancel any investment transactions that were underway. The Petitioner presented the testimony of Ms. Rego to explain her review of the documentation she collected in her research to attempt to piece together the financial transactions involving the Kesishes. She also testified as to the surrender charges and, to some extent, the tax liabilities that resulted from them. She also related statements made by Mrs. Kesish to her and, to some extent, to the DFS and OFR investigators, Karen Ortega and Mercedes Bujans, who also related some of the statements Mrs. Kesish made to them. The Petitioner also introduced an affidavit prepared by Ms. Ortega and signed by Mrs. Kesish on March 31, 2011. All of Mrs. Kesish's statements were hearsay. The hearsay cannot itself support a finding of fact.3/ In general, the hearsay demonstrated that Mrs. Kesish did not have a clear recollection of her interactions with the Respondent at the time of her statements. Agent Carter introduced the Respondent to Mrs. Kesish in March 2010. The Petitioner alleged essentially that Agent Carter schemed and collaborated with the Respondent to exploit the Kesishes by tricking them into financial and insurance transactions that would not be in their best interest, but would generate commissions and fees for them. It was alleged that, as with Mrs. Busing, the Respondent's FINRA licensure was required to buy and sell securities in furtherance of the scheme. The Respondent testified that Agent Carter told him about his clients, the Kesishes, and that he went to meet Mrs. Kesish in person because he had difficulty communicating with her over the telephone due to her hard-to-understand Spanish accent and limited proficiency in spoken English. He testified that she told him she wanted to get out of the stock market and was unhappy with her current stockbroker, Doreen Scott. (That part of the Respondent's testimony was corroborated by Ms. Rego, who concurred that Mrs. Kesish did not like dealing with Ms. Scott because she talked down to her.) The Respondent testified that he went to Mrs. Kesish's house, asked if he could be of assistance to her, and discussed her financial situation with her. He testified that he then returned to his Transamerica office and mailed forms for her to fill out and sign.4/ Similar to his dealings with Mrs. Busing, the Respondent testified that he spoke to Mrs. Kesish several times by telephone to answer questions about the forms. It is reasonable to infer that the Respondent knew Agent Carter would be helping her. The Respondent testified that when the completed forms were returned to him by mail, he telephoned Mrs. Kesish to verify the information on the forms and, in some cases, get information that was omitted to add it to the forms. The Petitioner attempted to prove that the Respondent knew or should have known Mrs. Kesish was mentally disabled and incapable of voluntarily instructing the Respondent to effectuate financial transactions on her behalf. Mrs. Kesish lacked knowledge in investing and was susceptible to being misled and exploited, but it was not proven that Mrs. Kesish was mentally incapacitated or unable to consent to Agent Carter's recommendations or instruct the Respondent. Ms. Rego herself did not find it necessary to initiate involuntary proceedings to establish a plenary guardianship of Mrs. Kesish's person and property until October 2013. (Count II) One of the Kesishes' investments was a Genworth Life and Annuity Insurance Company (Genworth) variable annuity (G-58), which they bought on October 31, 2008, for $86,084.89. It was designed to begin paying monthly income on October 31, 2022. It provided a waiver of surrender charges if either Kesish was hospitalized, admitted to a nursing facility, or died. As of March 31, 2010, G-58 had a contract value of $102,954.90. Mrs. Kesish signed a form on letterhead of the Respondent and Transamerica that expressed her desire for the Respondent to be their insurance agent on G-58. On May 27, 2010, the Respondent used an automated account transfer (ACAT) to liquidate G-58 and transfer the funds to a Transamerica brokerage account he opened for the Kesishes on the same date. The Respondent did not independently determine whether the liquidation was suitable or in the Kesishes' best interest. He relied on Agent Carter to do this. The Respondent and the Kesishes signed the CAI form to open the brokerage account. The surrender of G-58 took effect on June 14, 2010. As a result of the liquidation, the Kesishes were assessed a surrender charge of $4,576.91 and federal tax was withheld, and the net proceeds from the liquidation were $90,314.19. On June 29, 2010, the funds in Mrs. Kesish's Transamerica account were added to an EquiTrust policy Agent Carter had sold her (E-92F). The Respondent testified that this was done at the direction of Agent Carter and Mrs. Kesish. The Respondent did not act as the Kesishes' EquiTrust agent and received no commissions. The Petitioner alleged and proposed a finding that the liquidation of G-58 allowed Agent Carter to represent to EquiTrust that the Kesishes had no other annuities and that the addition to E-92F was not replacing another annuity, which allowed Agent Carter to avoid having Genworth attempt to "conserve" G-58 (i.e., question the Kesishes as to whether they wanted to reverse the liquidation within the grace period for doing so). The evidence cited in support of the allegation and proposed finding is documentation of the initial purchase of E-92F in April 2010, not the addition in June 2010. There was no clear and convincing evidence that actions taken by the Respondent resulted in Agent Carter circumventing the replacement notice requirement, or that the Respondent should be held responsible for what Agent Carter did or did not do regarding the EquiTrust annuity. According to the Respondent, he made no investment recommendations to Mrs. Kesish, and all such recommendations were made by Agent Carter. He testified that he only took action in accordance with the wishes of Mrs. Kesish, who was being advised by Agent Carter. He denied that his purpose was to generate commissions or fees for himself or for Agent Carter, or to enable Agent Carter to conceal the replacement of the Genworth annuity. It was not proven by clear and convincing evidence that the Respondent's testimony was false. The Petitioner's proposed recommended order cites the testimony of Tarek Richey regarding his concerns about the Respondent's use of an ACAT to liquidate annuities, transfer of the proceeds to Pershing accounts at Transamerica, and use of those funds to purchase other annuities. Mr. Richey is a FINRA- licensed securities broker at Questar Capital Corporation, who employed and supervised the Respondent for about a month in early 2011, after he left Transamerica in December 2010. While supervising the Respondent, Mr. Richey was advised of OFR's investigation of the Respondent and reviewed the Respondent's documentation on the subject of OFR's investigation. One of Mr. Richey's concerns from his review of the Respondent's documentation was the use of ACAT, which would not guarantee that the client is aware of resulting surrender charges and tax consequences. He also was concerned that ACAT could have been used to bypass and avoid the use of forms required to analyze the suitability of annuities purchased for the Kesishes (and other clients). While he expressed these concerns, Mr. Richey had no personal knowledge and did not testify that the Kesishes (or the other clients) actually were unaware of surrender charges and tax consequences, or that liquidation was not suitable or in their best interest. Another of Mr. Richey's concerns was that the use of ACAT could result in the replacement of annuities without completing the required forms that would provide notice to the insurance company that its annuity was in the process of being replaced and give it an opportunity to conserve its annuity. Mr. Richey did not know that the use of ACAT actually resulted in the bypass of the replacement policy notice requirements for the Kesishes and other clients. He also did not testify that the Respondent should be held responsible for what Agent Carter did or did not do regarding replacement notices. Ms. Rego testified (based in part on discussions with a financial planner who did not testify) that she did not think the Genworth and EquiTrust transactions were not in the best interest of the Kesishes, mainly because of the Genworth surrender charge and tax consequences. There was no other expert testimony on the subject, and the evidence was not clear and convincing that those transactions were unsuitable or not in their best interest. (Count III) The Kesishes owned a Riversource Life Insurance Company (Riversource) annuity (R-30) that they bought on October 5, 2006. The contract had declining withdrawal charge rates that held at eight percent for the first four years. It had a death benefit rider. On March 23, 2010, a letter on the Respondent's Transamerica letterhead, written in English and signed by Mrs. Kesish, directed Riversource to list the Respondent as the Kesishes' financial advisor. On April 23, 2010, Mrs. Kesish signed a form directing Riversource to liquidate R-30. She also signed a form saying she knew there would be surrender charges. On April 26, 2010, Riversource sent the Kesishes a check for $26,430.07 (which was net after $2,454.30 in surrender charges). The testimony from Ms. Rego as to whether the liquidation of the Riversource annuity was contrary to the Kesishes' best interest, unsuitable, or in violation of suitability form or replacement notice requirements, was similar to her testimony with respect to the Genworth liquidation. There was no other expert or other clear and convincing evidence. (Count IV) The Kesishes also had Great American Life Insurance Company (Great American) annuities in the amounts of approximately $560,854 (GA-25) and $28,785 (GA-00), which were purchased in January 2010. GA-25 was owned by the Kesishes' trust, with Mrs. Kesish as trustee; GA-00 was owned by Mr. Kesish. By June 4, 2010, they had contract values of $580,854.71 and $29,970.46, respectively. On June 18, 2010, Agent Carter took Mrs. Kesish to lunch. A letter dated June 18, 2010, signed by Mrs. Kesish for her and her husband, written in English on the Respondent's Transamerica letterhead, directed the transfer of GA-25 to a Transamerica Pershing account (TA-25). An ACAT form dated June 20, 2010, signed by Mrs. Kesish and the Respondent, directed the liquidation of Mr. Kesish's GA-00 and the transfer of the proceeds to the Kesishes' Transamerica Pershing account. This transaction took effect on July 7, 2010.5/ After becoming involved through Attorney Hook, Ms. Rego had numerous discussions with Mrs. Kesish and with Agent Carter regarding the Kesishes' investments. Agent Carter attempted to explain and justify his actions to Ms. Rego and blame other insurance agents who he claimed had essentially stolen his clients by tricking them into replacing Allianz Life Insurance Company of North America (Allianz) annuities sold to them by him with GA-25 and GA-00. Ms. Rego's research notes evidence her understanding that the Great American sales to the Kesishes were unsuitable. During Ms. Rego's discussions and research throughout June 2010, the Respondent's name did not come up, and Ms. Rego was unaware of the Respondent having anything to do with the Kesishes. When she learned about the Respondent's role on July 8, 2010, she attempted to contact him. On July 15, 2010, she faxed the Respondent to instruct him to stop acting on behalf of the Kesishes. There is no clear and convincing evidence that the Respondent did not follow Ms. Rego's instructions.6/ On July 17, 2010, Great American sent Mr. Kesish a conservation letter urging him not to surrender GA-00. Ms. Rego then contacted Great American and had the surrender of GA-25 and GA-00 stopped. Had the transactions not been stopped, the Kesishes $60,000 in surrender charges would have been imposed. There was no other expert testimony or other clear and convincing evidence that the liquidation of the Great American annuities was contrary to the Kesishes' best interest, unsuitable, or in violation of suitability form or replacement notice requirements. Counts V through VI–-Edith Paz Edith Paz was born on January 20, 1926, and lives in Sun City Center. She has a high school diploma and held various jobs, from retailing to making plates in a dental office. Mrs. Paz married a GI returning from World War II. Her husband was successful in business before his retirement. Meanwhile, Mrs. Paz founded a successful real estate business and invested in the stock market. Mr. Paz died in 1999. In 2001, Mrs. Paz created a revocable trust with herself as trustee. When Mrs. Paz retired, she moved to Sun City Center. She did some investing, but was dissatisfied with her investments and her financial representative at the time. About that time, she met Glenn Cummings, an insurance agent who was a less experienced associate of Agent Carter and also not FINRA- licensed. After several conversations, Agent Cummings gained her trust and advised her to liquidate and consolidate her assets before deciding what other financial products to purchase. He referred her to the Respondent for that purpose. Agent Cummings and Mrs. Paz testified that he referred Mrs. Paz to the Respondent on the advice of Agent Carter to save "exit fees" on liquidating her investments. The evidence was not clear as to how the Respondent would be able to do this. The Respondent testified to his understanding that Mrs. Paz wanted to get out of the stock market and switch to more stable investments and that she had a bad relationship with her stockbroker. The Respondent's testimony is consistent with Mrs. Paz's actual losses in the stock market and her testimony that she listened to and followed the advice of Agent Cummings because she was dissatisfied with her prior financial advisor, a Mr. Shrago. Mrs. Paz testified that she spoke to the Respondent just once, briefly. That conflicts with the testimony of the Respondent and Agent Cummings. Their testimony was that there were several telephone conversations after the initial contact. They related that the Respondent mailed Mrs. Paz the forms that needed to be filled out, that Agent Cummings was with Mrs. Paz when she filled out the forms, and that both spoke to the Respondent several times during the process. According to Agent Cummings, this happened on July 29, 2010, when he visited Mrs. Paz to show her illustrations regarding the annuities he was recommending. While there, he helped her complete the forms the Respondent had sent to have her investments liquidated and consolidated into a Transamerica Pershing account. There also was conflict in the testimony as to whether anyone explained investment options and consequences to Mrs. Paz. She testified that no one gave her any explanation. Agent Cummings testified that he explained everything in detail to Mrs. Paz and that she also talked to the insurance agents who represented the companies whose annuities she would be surrendering. He testified that Mrs. Paz knew exactly what she was doing. The Respondent testified that he had no involvement in those explanations. He testified that he simply made sure he understood what Mrs. Paz wanted him to do for her. (Count V) In May 2007, Mrs. Paz purchased a Jackson National Life Insurance Company (Jackson National or JNL) annuity (JNL-42A) on the advice of Mr. Shrago. The initial premium was $100,000, and it was issued with a five-percent bonus. As of May 25, 2007, it had an account balance of $105,017.01 and was receiving an annual rate of return of 7.75 percent. On July 12, 2010, Mrs. Paz signed a letter directing Jackson National to make the Respondent, who held an appointment to represent Jackson National, her agent-of-record on JNL-42A. The change took effect on July 15, 2010. On July 29, 2010, Jackson National faxed the Respondent a statement of account for JNL-42A, listing the balance as $108,253.48 (which reflected a prior withdrawal of $2,500 by Mrs. Paz). The statement disclosed the surrender charges in effect. After her discussions with Agent Cummings, Mrs. Paz signed forms requesting that JNL-42A be liquidated and the proceeds rolled over into a Great American Life Insurance Company (Great American or GA) annuity (GA-61). The Respondent facilitated the rollover. As a result of the rollover, Mrs. Paz incurred surrender charges of $4,871.41 and a partial recapture of the initial bonus in the amount of $2,706.34, for a total loss of $7,577.75. The Petitioner alleged, and Mrs. Paz testified, that the Respondent never discussed with her that there would be surrender charges. The Respondent did not disagree, but explained that he understood Agent Cummings already had done so and that he just made sure he was following Mrs. Paz's wishes. Concurring, Agent Cummings testified that he did explain the surrender charges to Mrs. Paz. The Petitioner alleged that the Respondent's actions "insulated M[r]s. P[az] from comparative financial counseling by her then current Jackson National insurance agent Gary Mahan." This was not proven by clear and convincing evidence. To the contrary, there was evidence that it was Mrs. Paz's choice to change agents, that Mr. Mahan knew about the change, and that he had no objection to the Respondent taking over for him as agent of record on the policy. The Petitioner also alleged that the Respondent "provided [Agent Cummings] with the Transamerica brokerage application, transfer forms and letter of instructions to transfer JNL 42A" to the Respondent as account representative. It was not proven that these documents were not mailed to Mrs. Paz in accordance with the Respondent's testimony. There was no expert testimony or other clear and convincing evidence that the liquidation of Mrs. Paz's Jackson National annuity and purchase of a Great American annuity was contrary to her best interest, unsuitable, or in violation of suitability form or replacement notice requirements. Mrs. Paz testified that Agent Cummings initially told her she would have to pay the Respondent $1,500 as a fee for his services with respect to JNL-42a and later told her the fee would be $2,600. Agent Cummings testified that the Respondent told her what his fee would be during the telephone conversation on July 29, 2010. Regardless who told Mrs. Paz what the Respondent's fee would be, or what she was told it would be, Mrs. Paz made out a $2,607.28 check to Agent Cummings' company, Big Financial, on July 29, 2010. On August 2, 2010, Big Financial gave the Respondent a check made out to the Respondent for $2,530, with the notation "Paz." (It is not clear from the evidence why the Big Financial check was made out for $2,530. When the DFS investigator questioned the discrepancy, Agent Cummings reimbursed Mrs. Paz $77.28.) The Respondent deposited the check the next day. The Allianz compliance guide prohibited agents from charging an additional fee for services that customarily are associated with insurance products. The Great American compliance guide prohibited fraudulent acts. By accepting the check from Big Financial, the Respondent received a fee from Mrs. Paz that was not authorized. (Count VI) Prior to meeting Agent Cummings or the Respondent, Mrs. Paz had investment accounts with Wedbush (WB-37) and Wells Fargo. There were two Wells Fargo accounts, an IRA (WF-15), and a trust account (WF-70). As of June 30, 2010, the Wedbush account (WB-37) had a balance of $349,438.11. The Wells Fargo IRA account (WF-15) had a net value of $51,737.11 prior to June 30, 2010. The Wells Fargo trust account (WF-70) had a balance of $332,798.76 prior to June 2010. The Respondent and Mrs. Paz communicated in the same manner they did for the Jackson National transaction. Mrs. Paz signed forms that enabled the Respondent to transfer the funds in the Wedbush and Wells Fargo accounts into two Transamerica brokerage accounts (TA-02) and (TA-86) using ACAT. Some of the forms referred to the Respondent as Mrs. Paz's "investment professional," but the sole purpose of the Respondent's involvement was to use Transamerica as a funnel to transfer funds from one investment to another. By August 11, 2010, the funds in the TA-02 account were used to purchase an Allianz annuity sold by Agent Cummings in the amount of $335,589.65. The funds in the TA-86 account were used to purchase a Great American annuity (GA-60) sold by Agent Cummings in the amount of $45,769.38. There was no expert testimony or other clear and convincing evidence that the liquidation of Mrs. Paz's Wedbush and Wells Fargo accounts and purchase of an Allianz annuity was contrary to her best interest, unsuitable, or in violation of suitability form or replacement notice requirements. Counts VII and VIII-–The Penwardens Wayne Penwarden was born on December 4, 1943. His wife, Sandra, was born on October 10, 1939. They inherited some money and decided to invest it. As of August 31, 2009, they had Morgan Stanley investment accounts that totaled close to half a million dollars. They also had an annuity with ING USA Annuity and Life Insurance Company (ING) purchased for $150,000 on April 24, 2008. Agent Carter became acquainted with the Penwardens and introduced them to the Respondent. The Amended Administrative Complaint alleged that the Respondent provided required forms to Agent Carter for him to get the Penwardens signatures and, then, used funds from their Transamerica accounts to fund the purchase of Allianz annuities, which was deceitful and against the wishes of the Penwardens. The Petitioner's proposed recommended order proposed no such findings, and there was no clear and convincing evidence that the Respondent was guilty of those acts, that he said or did anything to deceive or mislead or withhold information from them, or took any action regarding them without their full knowledge and consent. (Count VII) On September 30, 2009, the Penwardens signed a change of agent request to make the Respondent their new ING insurance agent. They also signed CAI forms to open Transamerica brokerage accounts and transfer the funds from the Morgan Stanley investment accounts into them, using ACAT. The funds in the Transamerica accounts were then used to purchase Allianz's indexed annuities sold to the Penwardens by Agent Carter. On September 23 and October 16, 2009, the Penwardens purchased two Allianz MasterDex X annuities (MD-47) and (MD-24), respectively, with initial premium payments of $141,269.40 for MD-47 and $373,979.59, plus a premium bonus of $37,397.96, for MD-24. On June 17, 2010, acting on instructions from Agent Carter on behalf of the Penwardens, the Respondent liquidated the ING annuity. On June 30, 2010, the Penwardens added the $115,281.47 proceeds from the liquidation of the ING annuity to MD-47. The Petitioner proposed a finding that the surrender of the ING annuity cost $6,000 in surrender charges, which is true. The Petitioner omits from its proposed finding that the Penwardens received a premium bonus on the Allianz policy that more than offset the ING surrender charge. There was no expert testimony or other clear and convincing evidence that the liquidation of the Penwardens' Morgan Stanley accounts and ING annuity and purchase of Allianz annuities was contrary to their best interests, unsuitable, or in violation of suitability form or replacement notice requirements. (Count VIII) The Penwardens became dissatisfied with Agent Carter, and on November 9, 2010, signed a letter drafted by the Respondent on Transamerica letterhead to substitute him for Agent Carter as their sole financial advisor. On November 12, 2010, the Respondent was notified by Allianz that he would receive no commissions as servicing agent on policies sold to the Penwardens by another agent. On or about November 22, 2010, $37,408.54 was transferred from the Allianz MD-47 annuity into a new Nationwide Life and Annuity Insurance Company (Nationwide or NW) annuity (NW-08). The Respondent also effected a partial Internal Revenue Code, section 1035, exchange from the MD-47 annuity to a new annuity purchased from Nationwide (NW-09) for $23,746.19. On November 7, 2011, the Respondent faxed a request to transfer funds from the MD-24 annuity to fund a North American Company for Life and Health Insurance (North American or NA) annuity (NA-68). The Petitioner proposed a finding that the Respondent undertook these transactions on November 22, 2010, and on November 7, 2011, in order to benefit himself alone by generating commissions to replace the servicing agent commissions he was not getting on the Allianz policies. This was not proven by clear and convincing evidence. To the contrary, the Respondent explained that the transactions were done for the Penwardens' benefit after discussions regarding the benefits of diversifying out of the Allianz annuity into other annuities, which was accomplished cost-free. There was no clear and convincing evidence that these transactions were contrary to the Penwardens' best financial interest or that they were done solely to benefit the Respondent. There was no expert testimony or other clear and convincing evidence that the partial transfers from the Penwardens' Allianz annuities to other Nationwide and North American annuities were contrary to their best interest, unsuitable, or in violation of suitability form or replacement notice requirements. In early December 2011, Mr. Penwarden replaced the Respondent with another insurance agent. The Petitioner alleged that the Respondent went to the Penwardens home to harangue them for two hours about their decision to switch agents. The only evidence on this allegation was the deposition testimony of Mr. Penwarden and the testimony of the Respondent. Mr. Penwarden's testimony as to what occurred was vague. The Respondent agreed that he was disappointed that the Penwardens were switching agents, but testified that he went to the home to retrieve the policies he sold to the Penwardens, which would have to be returned to the insurance companies to cancel at no cost during the "free-look" period. He testified that he waited for an hour or more while Mr. Penwarden tried to find the policies in his home. The evidence was not clear and convincing, and the Petitioner did not propose a finding as to this allegation. Count IX and Related Affirmative Defenses Count IX is based on the Final Order entered in OFR's securities case against the Respondent as an additional ground for discipline under section 626.621(13), Florida Statutes. The Respondent cites it in his affirmative defenses of res judicata and collateral estoppel on Counts I through VIII. See Finding 2, supra. The Respondent also argues that the additional charge is barred by the ex post facto clause of the Florida constitution and due process clauses of the United States and Florida constitutions. As to the due process argument, the Respondent admitted the OFR Final Order in his answer to the original charges. He also had ample opportunity to demonstrate prejudice from the added charge, which he could not, and to present legal arguments, which he did. As to ex post facto, section 626.621(13) was added to the Florida Statutes, effective June 1, 2011. See Ch. 175, §§ 47 and 53, Laws of Fla. (2010). That was before the Respondent entered into the Stipulation and Consent Agreement that formed the basis for the OFR Final Order. Disciplinary guidelines for section 626.621(13) were added to the Florida Administrative Code on March 24, 2014. Fla. Admin. Code R. 69B-231.090(13). As to the collateral estoppel defense, the Respondent testified that he entered into the settlement with OFR because he was under heightened supervision by his employer due to securities violations, and he did not think any employer wanted to provide the required supervision (which he referred to as "baby-sitting.") The Respondent did not testify that he relied on the OFR Final Order to bar charges by DFS or that he believed the OFR Final Order would bar DFS charges.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Agent and Agency Services, enter a final order finding the Respondent guilty of violating section 626.611(7) and rule 69B-215.210 under Count V, and section 626.621(13) under Count IX, dismissing the other charges, and suspending the Respondent's insurance licenses for 12 months. DONE AND ENTERED this 15th day of October, 2014, in Tallahassee, Leon County, Florida. S J. LAWRENCE JOHNSTON 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 15th day of October, 2014.
The Issue The issues to be resolved in this consolidated proceeding concern whether the Petitioner, Abraham Maida's applications to represent certain life insurance companies should be denied based upon his alleged unlawful failure to forward premium funds from insureds to the insurers during the applicable regular course of business. Also at issue are the charges in the Administrative Complaint in the related penal proceeding which concerns the same factual conduct involving the Respondent's alleged failure to forward premiums to the insurers involved in the policy contracts at issue.
Findings Of Fact The Petitioner, Abraham George Maida, is licensed in Florida as a life insurance agent, a life and health insurance agent and a dental health care contract salesman. The Department is an agency of the State of Florida charged with licensing life, health and other types of insurance agents, with regulating their licensure and practice and with enforcing the licensure and practice standards embodied in the statutes cited hereinbelow. Abraham Maida engaged in the business of selling insurance coverage to various employees of the City of Jacksonville. The premium payments for this coverage were collected by payroll deduction from the employees, and lump sum premium checks were remitted over to the Petitioner/Respondent, Mr. Maida, by the appropriate personnel of the City of Jacksonville. Mr. Maida, in turn, was required by his contractual arrangements with the underwriting insurance companies involved and by the Florida Insurance Code, Chapter 626, Florida Statutes, with timely remitting those premium funds over to the insurers who underwrote the risk for the employees in question. Mr. Maida failed to timely remit the premium funds which he collected from the City of Jacksonville to the relevant insurers for the months of February, March and April of 1990, in the case of policy contracts written on behalf of Loyal American Life Insurance Company. Additionally, Mr. Maida failed to timely remit the premium funds received from the City of Jacksonville, after it received them by payroll deduction from its employees, for the months of March, April and May of 1990, with regard to the premium funds due in contracts involving the ITT Life Insurance Company, in accordance with his contract with that company. Mr. Maida failed to timely remit the insurance premiums of James E. Daniels to the ITT Life Insurance Company, as well. The Petitioner/Respondent's contracts with these insurance companies required him to remit premium funds which he received from insureds, within thirty (30) days of receipt, to the insurance company underwriting the risk involved. This the Petitioner/Respondent failed to do for the companies involved in the above Findings of Fact and for those months of 1990 delineated above. In the case of most of the delinquent premium funds due these companies, Mr. Maida authorized them to debit his commission and/or renewal accounts with those companies, which were monies due and owing to him from the companies, in order to make up the premiums which he had not remitted over to the companies involved at that point. That procedure did not defray all of the delinquent premium amounts, however. in the case of ITT Life Insurance Company and the monies owed that company by Mr. Maida, it was established that $10,554.21 of delinquent premium amounts were owing to that company and not timely paid by Mr. Maida. Although he paid the portion of that figure representing the March premium funds due the company for March of 1990, he did not directly pay the premium funds due for April and May of 1990 but, rather, suffered the company to charge those delinquencies, for those months, to his agent's commission account. This procedure still left $4,877.54 unpaid, as of the time of hearing. It was established by witness, Steven Heinicke of that company, that Mr. Maida is their most consistently delinquent agent, in terms of timely remission of premium funds due the company for insurance business which Mr. Maida has written. It has also been established however, that Mr. Maida made a practice of always paying premium funds due the companies for which he wrote insurance in the precise amounts owing, regardless of whether the billing statements to him from those companies had inadvertently understated the amounts which they were due. It was also established that his failure to timely remit the insurance premium funds in question was not due to any intent to defraud those companies of the funds involved or to permanently convert the funds to his own use. Rather, it was established that Mr. Maida's difficulty in timely payment of the premium funds was due to misappropriation of the funds because of financial problems which he was suffering at tee times in question, due at least in part to federal income tax difficulties he was experiencing. There has been no shoring in this record that Mr. Maida is not a competent insurance agent in terms of his abilities and qualifications to fairly and effectively obtain and contract for insurance business with insureds on behalf of the insurance companies he represents. There was no showing that he lacks reasonably adequate knowledge and technical competence to engage in the transactions authorized by the licenses or permits which he presently holds or which he seeks in the licensure application involved in this proceeding.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the candor and demeanor of the witnesses, it is, therefore RECOMMENDED: That the Petitioner be found guilty of the violations found to have been proven in the above Conclusions of Law portion of this Recommended Order and that his licenses and eligibility for licensure with the insurers for which license application was made be suspended for a period of three (3) months. DONE and ENTERED this 5th day of June, 1991, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk the Division of Administrative Hearings this 6th day of June, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-6670 Respondent/Department's Proposed Findings of Fact: 1-7. Accepted. COPIES FURNISHED: Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Norman J. Abood, Esq. Willis F. Melvin, Jr., Esq. 1015 Blackstone Building Alan J. Leifer, Esq. Jacksonville, FL 32202 Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300
Findings Of Fact Edward Berk, Respondent, was at all times here relevant licensed as an ordinary life, including disability, insurance agent to represent Founders Life Assurance Company, Standard Security Life Insurance Company of New York, American Variable Annuity Life Assurance Company, Wisconsin Life Insurance Company, Columbian Mutual Life Insurance Company, and Lone Star Life Insurance Company. He is licensed as a disability insurance (2-40) agent to represent American Family Life Assurance Company of Columbus and an ordinary life (2-16) agent to represent Estate Life Insurance Company of America. (Exhibit 1). On April 12, 1979 Respondent pleaded guilty in the U. S. District Court for the Southern District of New York of violation of 18 USC 1341 and 1342 to wit: unlawfully, willfully and knowingly devising and intending to devise a scheme and artifice to defraud and to obtain money from The Travelers Insurance Company by means of false and fraudulent pretenses, representations , and promises. He was found guilty and sentenced to two years imprisonment on each of five counts, the sentences to run concurrently. The execution of the sentence was suspended and Respondent was placed on probation for a period of two years (Exhibits 2)
The Issue A notice and order to show cause, issued to Respondent on January 15, 1992, seeks to terminate Respondent's grandfathered status under Section 626.988, F.S., and seeks to suspend or revoke Respondent's certificate of authority pursuant to Section 626.891, F.S. Various violations are alleged, including expanding the scope of functions being performed on April 2, 1974; soliciting prospective insurance customers by placing enclosures and solicitations in First Union Bank customers' bank statements; adding resident life agents; and allowing an unlicensed individual to solicit applications of insurance in Florida. The issues for resolution in this proceeding are whether the alleged violations occurred and if so, what discipline or remedial action is appropriate.
Findings Of Fact Respondent, First Union Mortgage Corporation (FUMC), is a North Carolina corporation with its principal place of business at 301 South Tryon Street, Charlotte, North Carolina. FUMC is a "financial institution agency" as defined in Section 626.988(1)(c), F.S. FUMC is a wholly-owned subsidiary of First Union Corporation, a registered bank holding company with headquarters in Charlotte, North Carolina. First Union Corporation is also a financial institution as defined in Section 626.988(1)(a), F.S. First Union National Bank of Florida, N.A., is a national bank authorized to do business in Florida and is a sister corporation of FUMC. Until February 8, 1987, FUMC was known as Cameron Brown Mortgage Company. Under that name it had engaged in certain insurance activities in Florida since the late 1960's. When Cameron Brown became FUMC there was no change in ownership, affiliation or corporate structure. Before and after the name change the company was owned by First Union Corporation. THE DECLARATORY STATEMENT On April 2, 1974, Section 626.988, F.S., took effect, prohibiting insurance agents or solicitors licensed by the Department of Insurance (DOI) from engaging in insurance agency activities as employees, officers, directors, agents or associates of a financial institution agency. The same section includes a "grandfather" provision for continued operation of financial institution agencies which were in existence and engaged in insurance agency activities as of April 2, 1974. FUMC represented to DOI that it was entitled to the grandfather exemption for its pre-1974 insurance agency activities, and in February 1988, FUMC filed a petition for declaratory statement pursuant to Section 120.565, F.S. for determination of its status. After notice to FUMC and to the public, a proceeding on the petition was conducted on March 30, 1988 by a staffperson of DOI appointed as hearing officer. On August 5, 1988, a declaratory statement was issued, and on September 2, 1988, an amended declaratory statement was issued. The latter statement finds in pertinent part: First Union Insurance Group (formerly the insurance division of Cameron Brown Company) was engaged in insurance agency activities prior to April 2, 1974. First Union Mortgage Corporation through First Union Insurance Group has continuously [word apparently deleted here] licensed agents and conducted insurance agency activities in Florida since and before April 2 1974. The scope of insurance agency activities continuously conducted by First Union Mortgage Corporation has been limited to: One life and health insurance agent, (Mr. Winifred Eugene Strickland), who served as an agent for the insurance division of Cameron-Brown Company while also serving as a salaried employee of American Heritage Life Insurance Company. Although Mr. Strickland apparently had one or more additional sub- agents involved in soliciting Cameron-Brown Customers, their involvement was sporadic and does not meet the test for "continuously engaged" so as to entitle First Union Mortgage Corporation to more than one life and health insurance agent. One non-resident property and casualty agent, (Charles Johnson). Mr. Johnson has been licensed as the successor agent for Mr. Hubert Reid Jones. Mr. Jones and Mr. Johnson sold, through countersignature relationships with Florida agents, property and casualty insurance prior and subsequent to April 2, 1974. The solicitation and servicing of customers of Cameron-Brown Company (now First Union Mortgage Corporation) was the focus of its insurance agency activities. . . . (Petitioner's Exhibit A Pages 3-4) The amended declaratory Statement also provides: . . . But for application of the "grandfathering" provisions of Section 626.988(5), Florida Statutes, any insurance agent or solicitor licensed by the Department of Insurance (the Department) would be prohibited from association with First Union Mortgage Corporation in insurance agency activities. . . . (Petitioner's Exhibit A Page 5) The amended declaratory Statement concludes as follows: . . . Pursuant to Section 626.988(5), Florida Statutes, the Petitioner's subsidiary, First Union Mortgage Corporation, is entitled to continue to engage in insurance agency activities through First Union Insurance Group by utilizing one licensed non-resident property and casualty insurance (Class 9-20) and one licensed resident life and health insurance agent. This recognition of grandfather status for Petitioner's subsidiary First Union Mortgage Corporation does not extend to Petitioner's subsidiary, First Union National Banks of Florida. First Union Mortgage Corporation may solicit prospective insurance customers so long as neither the Petitioner, First Union Corporation, nor any subsidiary bank plays an active role in such insurance solicitation through endorsements, bank mailings, providing space within bank offices, or similar activities. . . . (Petitioner's Exhibit A Pages 7-8) emphasis added. CERTIFICATE OF AUTHORITY AS "THIRD PARTY ADMINISTRATOR" In addition to its activities described in the amended declaratory statement, FUMC (then, Cameron Brown) was engaged in other insurance related activities prior to 1970. Under contracts with various life and health insurers Cameron Brown provided third party administrator services including receiving and reviewing applications, issuing policies, explaining and collecting premiums and accounting for and remitting premiums to the insurance companies. The insurance companies with whom Cameron Brown contracted handled the actual solicitation and sale of the policies. The contracts in effect in 1968, 1970 and 1978 between Cameron Brown and Minnesota Mutual Life Insurance Company were typical of the arrangements with other companies, according to Charles Johnson, Jr., retired vice president in charge of insurance agency operations at Cameron Brown. (Transcript, p. 102). As provided in the contracts with Minnesota Mutual Life Insurance Company, the administrative services were in connection with the mortgage insurance program made available by the insurance company to borrowers of Cameron Brown. (Respondent's Exhibits number 1, 2, 3). This included borrowers in the State of Florida, although the services were being provided out of Cameron Brown/FUMC's principal offices in Charlotte, North Carolina. Prior to 1983, when Chapter 626 Part VII, Florida Statutes was enacted, Florida did not regulate third party administrators as such. Section 626.8805, F.S. now requires a certificate of authority to be issued by the Department of Insurance (DOI). On or about September 26, 1986, Cameron Brown applied to DOI for authorization to operate in the State of Florida as a third party administrator. The application was prepared by Peter Nagle, senior vice-president of FUMC who had just recently joined what was then Cameron Brown. On the application, and later in October, in response to DOI's request for additional information, Nagle indicated that Cameron Brown had operated as an administrator of insurance plans since December 1983 and that the company was not providing such services on plans for Florida residents. This information was an inadvertent error, primarily the result of Nagles unfamiliarity with the company's history. There is no evidence that the information was material to a determination of the company's eligibility for certification. Nor is there evidence of any scheme by the company to conceal its past practices at the time of application in 1986. In its application Cameron Brown disclosed its affiliation with First Union Corporation, and further provided that First Union National Bank of Florida conducted only credit insurance activities in First Union Corporation locations in Florida. DOI issued a certificate of authority for Cameron Brown to operate as an administrator in the State of Florida on October 14, 1986. The cover letter provides, "the certificate is perpetual and shows no expiration date contingent upon your annual filing, due March 1st". (Petitioner's exhibit B, p.17) Those annual filings have been made, and on May 18, 1987, the certificate of authority was reissued in the name of FUMC. During the declaratory statement proceeding, the company's third party administrator status was never an issue. DOI never asked about, and FUMC never mentioned, the existence of its certificate or the company's insurance administration activities. The staff of DOI involved in the declaratory statement proceeding did not know about their agency's grant of the certificate to FUMC. Their pique at FUMC"s failure to affirmatively raise the certificate issue, however, is misplaced in the absence of any evidence that the outcome of the declaratory statement would have been altered with that knowledge. At most, the staff can only say that their investigation would have been different had they realized that FUMC was providing insurance administration services. INVESTIGATION AND ALLEGED VIOLATIONS After the third party administrator certificate was issued, and after the amended declaratory statement was issued, sometime in 1989, DOI began investigating all financial institutions claiming grandfathered status under Section 626.988, F.S. This included FUMC, and during a two day visit to the Charlotte, North Carolina headquarters, DOI staff, obviously other than staff involved in the certificate process, learned for the first time that FUMC was operating as an administrator of insurance plans. Even then this did not trigger further investigation of the administrator activities, as there was no evidence that the company was out of compliance with its amended declaratory statement. Approximately a year later, in the summer of 1990, DOI's Bureau of Agent and Agency Investigations began receiving inquiries regarding Monumental General Insurance solicitations mailed to First Union Bank customers in Florida. Gail Connell, DOI Analyst II, opened her investigation. A few months later complaints were received from insurance agents who were also customers of First Union Bank regarding solicitations done by American Heritage Life. The brochure from Monumental General sent to First Union Bank customers listed a toll-free number for the plan administrator, First Union Insurance Group, a division of FUMC. The mailing included letters from the president of Monumental General and the senior vice-president of First Union National Bank of Florida, with an enrollment form for a $1,000 no-cost accidental death group policy and optional additional coverage. Benefits and premiums for the additional coverage were explained in the brochure. A pre-paid postage reply envelope was addressed to "First Union Insurance Group, Plan Administrator, Attn: Daniel J. McPherson, Licensed Resident Agent, P. O. Box 2678, Jacksonville, Florida 32203-9851". (Petitioner's Exhibit C; pp. 157-163.) Daniel McPherson is not one of FUMC's grandfathered agents nor a successor to a grandfathered agent. The American Heritage Life mailings were stuffed in bank statements of customers of First Union National Bank. These mailings included a simple check- off form for the customer to return for more information and for a personalized quotation for term life insurance. Some mailings indicated return to "C. Dennis Wiggins, Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203- 9851", and others required return to "Robert T. Jones, Sr. Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203-2678" (Petitioner's Exhibit C, p 141, 154). Neither of these agents are FUMC's grandfathered agents or their successors. The American Heritage mailings also included a toll-free number for information. Gail Connell called that number and was eventually connected to a person identified as Sheila Auten, an insurance specialist for FUMC in North Carolina. Ms. Connell said to Ms. Auten that she was interested in more information about the term life policy addressed in the brochure. Ms. Auten asked questions about Ms. Connell's name, address, age, occupation and general health. Ms. Auten gave some history about American Heritage Life, estimated a premium for Ms. Connell, and offered to take her application over the phone. In response to Ms. Connell's question, she indicated that the completed application would be mailed to American Heritage Life in Jacksonville. Ms. Connell did not reveal her occupation as DOI investigator. Ms. Connell said she needed to think about the decisions and asked Ms. Auten to mail her something. A few days later Ms. Connell received a brochure explaining the product, a premium rate sheet and an application form. A few weeks later, when Ms. Connell did not return the application she received this letter from Sheila Auten: Dear Ms. Connell: Recently we sent you a proposal for term life insurance from American Heritage Life Insurance Company. I regret I have been unable to reach you by telephone to discuss it and answer any questions you may have. This term insurance is one of the best values on the market today. You can be sure it will provide you with a high level of life insurance protection at a very competitive rate. Once you decide to apply for this valuable insurance coverage, I would be happy to answer your questions or help you apply. Don't delay. Call me now at 1-800-366-8703. (Petitioner Exhibit C, p. 176) Ms. Auten is not licensed in Florida as an insurance agent or customer account representative. DOI considers it necessary for third party administrators to use licensed agents if they are engaged in solicitation of insurance. Based on her investigation, including a review of the compensation paid to FUMC for its agency activities compared to its administrator activities, Ms. Connell concluded that FUMC was using its administrator status to perform functions beyond the scope of its amended declaratory statement. She also concluded that FUMC was using unlicensed agents (Sheila Auten) to solicit insurance. These conclusions form the basis for the allegations in the agency's Notice and Order to Show Cause issued to FUMC on January 15, 1992. FUMC concedes that no grandfathered agent participated in the Monumental and American Heritage solicitations which triggered Ms. Connell's investigation. The two insurance companies solicit customers through direct mailings conducted by their licensed agents, which mailings go to customer lists provided by First Union National Bank of Florida or are enclosed in bank statements sent out by that institution. The bank has endorsed some of the products offered by the insurance companies. Other than provide marketing advice to the insurance company, FUMC plays no part at all in the sending or preparation of the mail solicitations. The bank sends out its statements; the insurance company or its agent, unaffiliated with FUMC, sends the inserts to the place where the bank statements are prepared; and a machine stuffs the inserts. The returned inquiry forms go to a Florida post office box, as indicated in paragraphs 18 and 19 above, and are forwarded to FUMC for its administrative support services. Those services include the further response to inquiries (as evidenced by Ms. Connell's encounter with Sheila Auten), review and approval of applications based on the insurance company's underwriting guidelines, entry into the administrative system, issuance of the policy and explanation to the customer, drafting the premiums out of the customer's account, and general servicing of the policy. These functions are consistent with administrator agreements between FUMC and Monumental General effective October 1, 1986; and FUMC and American Heritage Life effective November 1, 1989. There is no evidence that FUMC has been subject to discipline in the past, has operated unprofessionally or has caused harm or risk of harm other than through what DOI asserts is the impermissible involvement of a financial institution in the insurance business. It is primarily its status as a financial institution that has resulted in this proceeding against FUMC.
Recommendation Based upon the foregoing, it is hereby RECOMMENDED that the amended notice and order to show cause be dismissed. DONE AND ENTERED this 22nd day of October, 1992, in Tallahassee, Leon County, Florida. MARY CLARK 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 October, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1476 The following constitute rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Fact Adopted generally in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 1. Adopted in paragraph 14. Adopted in paragraph 6. Adopted generally in paragraph 7, but the implied characterization of that order as establishing the only way that insurance activities might be conducted is rejected as discussed in the conclusions of law. Rejected as irrelevant. Rejected as an inappropriate characterization as a grant of exemption, as discussed in the conclusions of law. Adopted in part in paragraph 7, but the characterization of the order as a permit is rejected. See paragraph 8, above. Rejected as contrary to the evidence and law. Rejected as improperly precluding the possibility of Respondent's later presenting evidence of other activities in which it engaged as of April 2, 1974, if it is determined that third-party administrator status must also be grandfathered in order to continue. This was not an issue in the prior proceeding. Rejected as contrary to the evidence, as to deliberate concealment. Adopted in paragraph 14. Adopted in part, as to the first sentence. Otherwise, rejected as unsupported by the evidence. Rejected as argument rather than proposed finding of fact. Adopted in paragraph 12. 17-18. Adopted generally but Respondent's contention as to evidence in this proceeding is rejected, as provided in conclusions of law, paragraph 32. 19. Rejected as unnecessary. 20-27. Rejected as argument. 28-29. (not included in the filing). 30-33. Rejected as contrary to the weight of the evidence. Adopted in paragraphs 20-22, except for the characterization of the activity as "soliciting". Rejected as unsubstantiated by the evidence. This case establishes only that the department now interprets FUMC's administrator activities as solicitation, not that it is a policy supported by rule, procedure or reason. Rejected as contrary to the evidence. The level of compensation did not establish the association the department theorizes. Rejected as unsupported by the weight of the evidence. The response given by the witness on page 189 was a qualified, inconclusive response. Respondent's Proposed Findings of Fact Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 7. Adopted in paragraph 8. Adopted in paragraph 3. Included in Conclusions of Law. Adopted in paragraph 11. Adopted by implication in paragraph 11. 9-10. Adopted in paragraph 8. 11-14. Adopted in substance in paragraph 9. 15. Rejected as unnecessary. 16-17. Adopted in paragraph 12. Adopted in paragraph 14. Adopted in paragraph 12. Adopted in paragraph 13. Adopted in substance in paragraph 9, but there is no competent evidence that the same kinds of services were being provided since 1970. Rejected as unnecessary. Adopted in paragraphs 4 and 14. Adopted in paragraph 7. 25-26. Adopted in substance in paragraph 6. 27-31. Rejected as unnecessary. Adopted in paragraph 13. Adopted in paragraph 15. Adopted in substance in paragraph 7. Adopted in paragraph 15. 36-37. Adopted in paragraph 7. Addressed in Conclusions of Law. Rejected as unnecessary and cumulative. Adopted in paragraph 25. 41-42. Adopted in paragraph 26. 43-44. Rejected as cumulative and unnecessary. 45. Adopted in paragraph 26. 46-49. Adopted in paragraphs 20-22. Included in Conclusions of Law. Rejected as cumulative and unnecessary. 52-53. Adopted in paragraph 27. COPIES FURNISHED: Lisa S. Santucci, Esquire Dennis Silverman, Esquire Department of Insurance Division off Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 J. Thomas Cardwell, Esquire Virginia B. Townes, Esquire Akerman, Senterfitt & Eidson, P.A. Post Office Box 231 255 South Orange Avenue Orlando, Florida 32802 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-2152 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
