Findings Of Fact At all material times, Respondent Sauer was licensed in Florida as an ordinary life agent working for Money-Plan International, Inc. (Money-Plan) and selling National Western Life Insurance Company (National Western) insurance and annuity contracts. From October 10, 1984, until sometime prior to the events in question, Respondent Sauer had been an agent for Northern Life Insurance Company (Northern Life). Respondent Sauer had about five years' relevant job experience at the time of the events in question. At all material times, Respondent Connell was licensed in Florida as an ordinary life agent working for Money-Plan and selling National Western insurance and annuity contracts. Respondent Connell had no significant job experience prior to his employment with Money-Plan about three months prior to the events in question. His principal employment at all material times has been as a real estate broker. During the spring of 1986, Money-Plan was soliciting employees of the Manatee County School District for the purchase of two types of National Western annuity contracts. The flexible-premium annuity contract permits periodic contributions in such amounts and at such times as the policyholder selects. The single-premium annuity contract involves only a single premium, such as in the form of a rollover from another tax-qualified retirement plan. The Manatee County School Board had approved these National Western contracts and an annuity contract offered by Northern Life for sale to Manatee County School District employees, who could pay the premiums by a payroll-deduction plan. Each client described below, except for Jack Dietrich, is a schoolteacher employed by the Manatee County School Board; Mr. Dietrich is a principal of a Manatee County elementary school. Each Respondent used the same general sales procedure. First, he would contact the client, set up an appointment, make the sales presentation, and often obtain a signed application at the end of the appointment. He would then leave the client a copy of the application and a National Western brochure. Upon delivery of the annuity contract some weeks later, the client would have a chance to review the specific provisions and, if she did not like them, reject the contract without cost or further obligation. The front side of the two-sided, one-page application requires some basic identifying information concerning the annuity contract selected and the applicant. The back side contains five disclosure paragraphs in somewhat larger print than that on the front side. The first disclosure paragraph does not apply to the annuity contracts sold by Respondents in these cases. The last disclosure paragraph reminds the policyholder to review annually the tax status of the contract. The second disclosure paragraph applies to the single-premium contract. This paragraph warns that: a) a withdrawal of more than 10% of the Cash Value during the first seven years after the contract is issued will result in the loss of 10% of the contribution and b) if the policyholder fails to use one of the approved settlement options, the contribution will earn interest at the lower Cash Value rate rather than the higher Account Balance rate. The third disclosure paragraph applies to the flexible-premium annuity contract. This paragraph provides: FLEXIBLE PREMIUM ANNUITY FORM 01-1063 If, prior to the annuity date, I withdraw my contributions in excess of the renewal contributions made during the previous twelve months or if I do not use one of the retirement benefit options under the policy for distribution of my account on the annuity date, my account will be subject to the following: (a) a charge of twenty percent (20%) will be made against my contributions during the first contract year and all contribution increases during a twelve (12) month period from the date of any increase (a contribution increase occurs when the new contribution is greater than the initial contribution plus the sum of all prior increases) unless such contributions are not withdrawn prior to the end of the seventh (7th) contract year following the year of receipt, and (b) interest will be credited on my contributions at rates applicable under the Cash Value provisions and not the Account Balance provisions. The fourth disclosure paragraph applies to both the single-premium and flexible-premium annuity contracts. This paragraph identifies two types of guaranteed interest rates. Four guaranteed annual rates, ranging from 9 1/2% for the first year after issuance of the contract to 4% after ten years, apply to the Account Balance. A single guaranteed annual rate of 4% applies to the Cash Value. The brochure describes the flexible-premium contract as having: "Stop and Go privileges: Contributions are fully flexible and nay be increased, decreased or stopped, subject to employer rules and IRS regulations." Elsewhere, the brochure states: "To avoid the surrender charge, the participant simply annuitizes the contract and elects one or more settlement options." (Emphasis supplied.) The brochure states that the policyholder is not currently taxed on the portion of her salary deducted by the employer to pay for the premium or, as to both types of contract, the interest earned by the premiums within the annuity contract. National Western offers in the brochure to calculate for any policyholder the maximum amount of salary that she may defer so as to avoid current income tax on her periodic contributions. The brochure explains how a policyholder may, subject to restrictions imposed by law, borrow her annuity funds without the loan being treated as a taxable distribution. The brochure cautions that the loan must be repaid within five years unless the proceeds are used for certain specified purposes relating to a principal residence. The brochure states in boldface: "Each participant will have an Account Balance and a Cash Value Balance." The Account Balance is defined as all of the contributions or premiums with interest from the date of receipt to the annuity starting date (of, if earlier, the death of the annuitant). The brochure explains: "The Account Balance is the amount available when the participant retires or [elects to begin receiving payments] and selects one or more of the approved settlement options." In such event, "[t]here are no charges or fees deducted from the Account Balance ..." The Cash Value for the flexible-premium contract is defined as 80% of the first-year premiums and 100% of renewal premiums with interest from the date of receipt to the date of withdrawal. If the policyholder increases the amount of her premiums in any year, the amount of the increase is treated as first-year premiums. The policyholder vests as to the remaining 20% of the first-year premiums seven years after the issuance of the contract or, if applicable, seven years after the year in which the premiums are increased. The brochure explains: The Cash Value is the amount received if the participant surrenders the contract without electing one of the approved settlement options, which are described in the next section of the brochure. The brochure offers no explanation of the provisions governing the vesting of 10% of the Cash Value of the single-premium contract. The brochure sets forth the differences in interest rates between the Account Balance and Cash Value in a clear boldface table. The table notes that the Cash Value guaranteed interest rate may be higher for the first year if a higher rate is in effect at the time of the issuance of the contract. Neither the application or the brochure mentions the interest rate applicable to policy loans. The flexible-premium annuity contract generally conforms to the above- described provisions of the application and brochure. This is the type of contract that the Respondents sold to each of the clients described below. No sample of the single-premium annuity contract was offered into evidence. This is the type of contract that Respondent Sauer sold to Mr. Dietrich, in addition to a flexible-premium contract. The flexible-premium annuity contract adds an important additional requirement for the policyholder to vest in the remaining 20% of the first-year premiums when calculating the Cash Value. The flexible-premium contract requires that the policyholder pay, in the six years following the first anniversary of the contract, sufficient additional premiums so that the accrued Cash Value, immediately before the 20% credit, equals anywhere from four to seven times the total first-year premium, depending upon the age of the policyholder when the contract is issued. In the case of a policyholder with an issue age of 57 years or less, the multiple is four. No such requirement would be applicable to a single-premium contract where the parties intend from the start that there shall be no additional premiums. More favorable to the policyholder, the flexible-premium annuity- contract provides that, after ten years, the annual interest rate on the Cash Value will be the greater of the guaranteed rate or one point less than the rate then credited to the Account Balance. Concerning policy loans, the flexible-premium annuity contract states that the policyholder may obtain a loan "using the contract as loan security." The amount borrowed may not exceed 90% of the Cash Value. Interest on the loan must be paid in advance. The rate of interest, which remains in effect for an entire contract year, is the greater of the Moody's Corporate Bond Yield Average, which is determined twice annually, or one point greater than the Cash Value interest rate in effect on the contract anniversary. The initial annual loan rate stated in the annuity contract issued to Rebecca McQuillen was 10 1/2%. Each flexible-premium annuity contract issued contains a statement of benefits. The one-page statement contains four columns showing, by Cash Value and Account Balance, the accrual of benefits if guaranteed interest rates apply or if current interest rates apply. The statement warns: "This contract may result in a loss if kept for only 3 years, assuming withdrawal values are based on guaranteed rate and not on current rate." The initial guaranteed rates were, for a contract issued on April 15, 1986, 10 1/2% on the Account Balance and 8% on the Cash Value and, for a contract issued on May 15, 1986, 10% and 7 1/2%, respectively. Respondent Connell visited Ms. McQuillen and Virginia Taylor on separate occasions in the spring of 1986 for the purpose of selling National Western annuity contracts. During these visits, Henry James Jackson, Jr. accompanied Respondent Connell and made the sales presentations to the clients as part of the training that Respondent Connell was then undergoing. Mr. Jackson is the vice-president of Money-Plan and supervisor of Respondent Sauer, who manages the Sarasota office of Money-Plan and supervises four or five agents, including, at the time, Respondent Connell. Respondent Connell signed the applications of Ms. McQuillen and Ms. Taylor, as the selling agent, in order to receive the credit for the sales. Respondent Connell earned this credit by arranging the appointments. In their applications, Ms. McQuillen projected periodic contributions totalling, on an annual basis, $2400 from her to the flexible-premium contract, and Ms. Taylor projected a total annual contribution of $2280. Respondent Connell subsequently visited Linda Rush, to whom he was referred by Ms. McQuillen. Respondent Connell himself made the sales presentation to Ms. Rush. In his meeting with Ms. Rush, Respondent Connell explained the mechanics of the flexible-premium annuity contract. He discussed the current interest rates and how they were set by market conditions. Although he did not discuss the specifics of the Account Balance versus the Cash Value, he gave Ms. Rush a copy of the application and the brochure. He also discussed generally that the annuity contract was primarily a retirement policy and that Ms. Rush would not enjoy all of its benefits, partly due to penalties, if she failed to keep it until retirement. Ms. Rush signed an application at the conclusion of their meeting. She projected a total annual contribution of $1200. Later, at Ms. McQuillen's request, Respondent Connell attended a meeting with her and a friend of hers named Mike Donaldson, who represents Northern Life. Mr. Donaldson had informed the clients of both Respondents, directly or indirectly, that his company's annuity contract was superior to those of National Western because of the latter's "two-tiered" interest rate whereby a lower rate of interest was credited to the Cash Value than the Account Balance. Respondent Connell did not perform well in the confrontation with his more experienced counterpart. Subsequently, the three above-described clients timely cancelled their contracts at no cost to themselves. In the spring of 1986, Respondent Sauer made a sales presentation to Mr. Dietrich. Mr. Dietrich's issue age was 56 years and he had owned a 15-year old tax-sheltered annuity with a surrender value of $8200. Meeting with Mr. Dietrich six times for a total of six to eight hours, Respondent Sauer discussed at length tax-sheltered annuities, as well as life insurance. The discussions involved the flexible-premium annuity contract that was purchased by all of the other clients involved in these cases, as well as a single-premium annuity contract for the $8200 rollover contribution. With regard to the flexible-premium annuity contract, Respondent Sauer discussed with Mr. Dietrich the lower interest rate used if the policyholder surrendered the contract, the penalty of 20% of the first-year premiums if the contract was surrendered in the first seven years, and the various ways that the policyholder could avoid the penalties. Respondent Sauer explained generally the similar penalties and lower interest rate applicable to a prematurely terminated single-premium annuity contract. In making the sales presentations to Mr. Dietrich, Respondent Sauer emphasized the loan options available with the these tax-sheltered annuities. Respondent Sauer stressed the small margin between the interest credited on the contract and the interest charged on a policy loan and stated that, at times, a National Western policyholder could borrow his annuity funds at a lower interest rate than he was being paid on the funds by the company. He also informed Mr. Dietrich that he did not need to pay back the loan, but could instead roll it over every five years. The loan options in the National Western annuity contracts are a major selling point and offset to some degree the so-called "two-tiered" interest rate. These tax-sheltered annuities compare favorably to other annuity contracts because the National Western policyholder does not earn a lower interest rate on that portion of the policy balance encumbered by the loan. Also, National Western has historically maintained a more favorable margin than that maintained by other companies between the loan rates charged and the interest paid on the Account Balance. At the time of the hearing, for example, the interest paid annually on the Account Balance was 9.5% and the interest charged annually on policy loans was 9.09%. Mr. Dietrich signed two applications. In the application for a flexible-premium contract, he projected a total annual contribution of $3850. In the application for a single-premium contract, he projected a rollover contribution of $8200. Respondent Sauer left Mr. Dietrich a copy of the application and the brochure. In the spring of 1986, Respondent Sauer made a sales presentation of the flexible-premium contract to Noah Frantz. Respondent Sauer explained to Mr. Frantz the different interest rates applicable to the Account Balance and the Cash Value, as well as the 20% penalty for early surrender. The sales presentation to Mr. Frantz took place shortly after the confrontation between Respondent Connell and Mr. Donaldson representing Northern Life. Respondent Sauer therefore found it necessary to inform Mr. Frantz that Respondent was familiar with the Northern Life tax-sheltered annuity because he used to sell it. Respondent Sauer emphasized the point by showing his Northern Life license to Mr. Frantz. Respondent Sauer obtained a signed application for a flexible-premium contract from Mr. Frantz, who projected a total annual contribution of $300. Respondent Sauer left Mr. Frantz a copy of the application and brochure. Subsequently, Mr. Dietrich and Mr. Frantz timely cancelled their annuity contracts at no cost to themselves. An important feature of the tax-sheltered annuities is their favorable federal income tax treatment. Within certain limits, the policyholder is able to exclude front his gross income the amount of his salary used to pay the premiums. The contributions, whether periodic or one-time, then earn tax-free interest, which is taxed when distributed later in the form of annuity payments. The Tax Equity and Fiscal Responsibility Act (TEFRA) imposes certain requirements on loans involving tax-sheltered annuities. In general, if these requirements are not satisfied, a nontaxable loan is converted into a taxable distribution. Both before and after TEFRA, however, a loan would be converted into a taxable distribution if the borrower, at the time of taking out the loan, had no intention of repaying it. An intent to roll over the loan periodically rather than repay it is evidence of a taxable distribution rather than a true loan. The use of a tax-sheltered annuity as security for a loan increases the risk that the policyholder will be forced to surrender prematurely the contract. In such event, the interest rate on the policy loan would generally be greater than the interest rate credited to the Cash Value because the loan interest rate is at least one point over the current Cash Value interest rate. The only time that a favorable margin could develop would be if, subsequent to setting the loan rate for the next year, the Cash Value rate increased by more than one point. It is more likely that a favorable margin would exist between the higher Account Balance interest rate and the loan interest rate. However, in April, 1986, the two stated rates were equal, although the effective rate charged on loans would presumably be somewhat higher because the annual interest is paid in advance at the beginning of each year. The viability of the strategy of borrowing at lower rates than are credited to the contract during the term of the loan depends upon the ability of National Western to establish and maintain a favorable margin between the Account Balance rate and the loan rate and the ability of the policyholder to retain his eligibility for the higher Account Balance rate. Neither Respondent made any material misrepresentations or omissions with respect to the flexible-premium contracts sold to Ms. McQuillen, Ms. Taylor, Ms. Rush, or Mr. Frantz. Each sales presentation gave an accurate and reasonably complete description of a somewhat complicated insurance product. Any possible material omissions in the presentation, or in the client's understanding of the material presented, were substantially cured by the application and brochure. The sales presentation to Mr. Dietrich was inaccurate with respect to Respondent Sauer's recommendation that Mr. Dietrich could, by continually rolling over loans, borrow against his contract without ever repaying the loan. By neglecting to mention the possible adverse tax consequences of such a strategy, Respondent Sauer inadvertently misled Mr. Dietrich. The sales presentation to Mr. Dietrich concerning the flexible-premium contract contained another omission. There was no mention in the application, brochure, or sales presentation of the requirement that Mr. Dietrich contribute, in the next four years, a sum equal to four times the amount of his first-year contributions in order to vest the unvested 20% of his first-year contributions when calculating his Cash Value. To the contrary, the brochure emphasized the flexibility accorded the policyholder in setting the amount of his contributions, as described in Paragraph 11 above. Although this omission occurred in all of the presentations, it had greater significance in the case of Mr. Dietrich, who planned on making- significantly greater first-year contributions than the other clients planned to make. In purchasing the flexible-premium annuity, Mr. Dietrich was obligating himself to contribute, based on his projected first-year contributions, an additional $15,400 over the next six years into what he had assumed was a flexible-premium contract.
Recommendation In view of the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Respondent Connell and Respondent Sauer not guilty and dismissing the Administrative Complaint filed against each of them. ENTERED this 30th day of November, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 88-3302, 88-3303 Treatment Accorded Petitioner's Proposed Findings 1-4. Adopted in substance. Rejected as irrelevant. Adopted. 7 & 9. Rejected as unsupported by the evidence. 8. First sentence adopted. Second and third sentences rejected as recitation of testimony. Fourth sentence rejected as unsupported by the evidence. Rejected as recitation of evidence. First sentence adopted. Second and fourth sentences rejected as unsupported by the evidence. Third sentence rejected as legal argument. & 14. Adopted in substance. & 15-16. Rejected as irrelevant, except that last eight words of first sentence of Paragraph 16 are adopted. 17 & 21. Rejected as unsupported by the evidence. Adopted. Rejected as irrelevant. Adopted in substance, except that first 16 words arerejected as unsupported by the evidence. Treatment Accorded Respondent's Proposed Findings 1-3 & 6. Adopted. 4 & 5. Rejected as subordinate. 7-11. Adopted in substance. Rejected as recitation of evidence. Adopted through word "policy." Remainder rejected asirrelevant. Last sentence rejected as subordinate. Remainder rejected as recitation of testimony. Rejected as recitation of evidence and legal argument. First sentence adopted. Remainder rejected as recitation of evidence. Rejected as irrelevant. 18-19. Rejected as recitation of evidence. 20. First two sentences adopted, except that from "and" through end of first sentence rejected as irrelevant. Last sentence rejected as not finding of fact. 21-22 & 25. Adopted in substance. 23-24. Adopted. 26. Rejected as unsupported by the evidence. 27-28. Rejected as recitation of testimony. 29-31. Adopted in substance. 30. Adopted. 32. Rejected as irrelevant through "policy." Remainder adopted in substance. 33-34. Adopted in substance, except that first sentence ofParagraph 34 is rejected as recitation of testimony. Rejected as irrelevant. Rejected as unsupported by the evidence, except that the first and tenth sentences are adopted. Adopted in substance. Rejected as irrelevant. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Richard R. Logsdon, Esquire 1423 South Fort Harrison Avenue Clearwater, Florida 34616 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue Whether or not the Respondent, Maxey Roger Watson, is guilty of violations of Sections 626.561, 626.611(3), 626.621(2), 626.611(9), 626.611(10), 626.621(6) and 626.611(7), Florida Statutes, through his business transactions with James B. Galloway. Whether or not the Respondent, Maxey Roger Watson, is guilty of violations of Sections 626.561, 626.611(3), 626.621(2), 626.611(9), 626.61L(10), 626.621(6) and 626.611(7), Florida Statutes, through his business transactions with Nancy E. Galloway.
Findings Of Fact THIS CAUSE comes on for consideration based upon the Administrative Complaint filed by the State of Florida, Office of Treasurer and Insurance Commissioner, against Maxey Roger Watson. The case number before the State of Florida, Office of Treasurer and Insurance Commissioner is Case No. 78-L-42K. The Petitioner, State of Florida, Office of Treasurer and Insurance Commissioner, is an agency of the State of Florida having among other functions the regulation of the insurance industry operating in the State of Florida. The authority for such regulation is found in Chapter 626, Florida Statutes. The Respondent, Maxey Roger Watson, is licensed by the Petitioner in the various categories of licenses set forth in the Petitioner's Composite Exhibit No. 2 admitted into evidence. The facts in this case reveal that between January of 1974 and April of 1977, inclusive, one James B. Galloway of Lake Butler, Florida, had been issued policy number VA 33672 through the Hartford Variable Annuity Life Insurance Company. During that same period, Nancy E. Galloway of Lake Butler, Florida, had been issued policy number VA 33671 with the Hartford Variable Annuity Life Insurance Company. Those two policies were part of an annuity program which the Respondent's company, First Jacksonville Corporation, had negotiated for the benefit of the Galloways and other employees of the Union County, Florida, School Board. During the time periods pertinent to this administrative complaint, the Respondent, Maxey R. Watson, was the majority stockholder of First Jacksonville Corporation, and did business as First Jacksonville Corporation. In addition, he was knowledgeable of the negotiations concerning the aforementioned Galloway policies. The specific terms and conditions of the arrangement which First Jacksonville Corporation had with the Union County School Board were to the effect that the payment of the premiums on the annuity plan would be handled by a payroll deduction from the warrants of the employees in the category of the Galloways. In turn, this money for the premium payments would be transmitted to First Jacksonville Corporation. First Jacksonville Corporation would then be responsible for the transmittal of the premium payments to the Hartford Variable Annuity Life Insurance Company and commissions would be forwarded to the First Jacksonville Corporation upon receipt of the premium payments. Another aspect of the arrangement, in theory, was to have the Hartford Variable Annuity Life Insurance Company submit billings for the premium payments directly to the First Jacksonville Corporation to aid the First Jacksonville Corporation in determining the amounts to be submitted to the insurer. However, even without those billing statements the premiums belonged to the insurer and were to be transmitted to it by First Jacksonville Corporation. Between January of 1974 and April of 1977, inclusive, the Union County School Board paid the premium payments on the policies of the Galloways to Maxey Roger Watson d/b/a First Jacksonville Corporation. The amount of the premium payments in this time sequence was a total of $2,164.00 for James B. Galloway and $2,164.00 for Nancy E. Galloway. These amounts, set forth as premium payments due and owing to the Hartford Variable Annuity Life Insurance Company on the accounts of the Galloways, were never remitted by First Jacksonville Corporation to the Hartford Variable Annuity Life Insurance Company, notwithstanding the obligation of the Respondent through his company to do so. The money received as premium payments on the Galloway accounts was placed in a bank account of the First Jacksonville Corporation and it was kept there together with other monies than the Galloway premiums. The Respondent had access to this bank account and used the proceeds of the premiums for personal and business reasons. The Respondent's explanation of why he used the premium payments for purposes of his own is tied in with his contention that the Hartford Insurance Group was acting unreasonably when it forwarded the billing statements on the accounts such as the Galloways directly to the Union County School Board, as opposed to the First Jacksonville Corporation, which had been agreed to. Respondent found out about this problem in 1973. He then began to take steps to have the arrangement changed to send premium notices directly to the various school boards he dealt with and have them remit the premiums directly to the insurance company and remove his organization from the responsibility. Nonetheless, the problem with the non-payment of premiums from First Jacksonville Corporation to the Hartford Variable Annuity Life Insurance Company continued to exist from 1973 through April of 1977 related to the accounts of the Galloways. During the pendency of that time period the Respondent used the Galloways' premiums for personal and business purposes, knowing that he was obligated to remit the premiums to the Hartford Variable Annuity Life Insurance Company. The Respondent was responsible for the bookkeeping of the First Jacksonville Corporation during the period of January of 1974 through and including April of 1977 and had the further expertise of being a licensed C.P.A. in the State of Florida. The Respondent had what he characterized as being an open-ended invoicing system for dealing with the premium payments. Under this system, according to the Respondent, it was difficult to ascertain what premium payments were due and owing to the various insurance companies, unless First Jacksonville Corporation received current billing statements on the amounts due and owing to the insurer. However, under the circumstances, the action of the Respondent in not remitting the Galloway premium payments to the Hartford Insurance Group constituted a willful violation of the provisions of the Insurance Code under Chapter 626, Florida Statutes. In view of these facts, the Petitioner has charged the Respondent with various violations of Chapter 626, Florida Statutes, in his transactions with James B. Galloway and Nancy E. Galloway. The first allegation pertains to Section 626.561, Florida Statutes. The Respondent has violated the conditions of that section in that he took the trust funds constituted of the premium payments in behalf of the Galloways and failed to account for and pay those premium payments to the insurer in the regular course of business and, not being lawfully entitled to those premiums, diverted and appropriated the funds to his own use. The complaint next alleges that the Respondent violated Section 626.611(13), Florida Statutes. That provision has been violated because the Respondent has willfully failed to comply with the requirements of Section 626.561, Florida Statutes, for the reasons stated above. The Administrative Complaint makes an allegation that the Respondent has violated the provisions of Section 626.611(9), Florida Statutes. This allegation has been established because the evidential facts show the Respondent is guilty of fraud and dishonest practices in the conduct of the business transactions involving the Galloways. A further allegation of the Administrative Complaint concerns an alleged violation of Section 626.611(10), Florida Statutes. The Respondent is guilty of a violation of that provision in that he misappropriated, converted and unlawfully withheld monies belonging to the Hartford Variable Annuity Life Insurance Company in the matter of the premium payments of the Galloways. There is an allegation that the Respondent has violated the provision of Section 626.621(6), Florida Statutes. Likewise, the Respondent has been shown to be guilty of that provision in that he has shown himself to be a source of injury or loss to the public or a detriment to the public's interest in his willful conversion and misappropriation of the Galloway premium payments to his own use, when those payments were properly to be remitted to the Hartford Variable Annuity Life Insurance Company. Finally, the Respondent has been charged with the violation of Section 626.611(7), Florida Statutes. That substantive allegation is one that the Respondent has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance. Taking into account all of the facts of this case, this contention of the Administrative Complaint has been shown.
Recommendation It is recommended that the various licenses held by the Respondent, Maxey Roger Watson a/k/a Maxey Roger Watson, stated in the Petitioner's Composite Exhibit No. 2, be revoked. This recommendation takes into account the facts reported herein and the additional consideration of the Respondent's failure to comply with an agreement to repay the Hartford Insurance Group the premiums due on the Galloway accounts after entering into such agreement to make whole the Hartford Insurance Group. DONE and ENTERED this 30th day of January, 1979, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Edward L. Kutter, Esquire Office of the Treasurer and Insurance Commissioner 428-A Larson Building Tallahassee, Florida 32304 Frederick B. Tygart, Esquire Suite 400, Fletcher Building 100 Riverside Avenue Jacksonville, Florida 32204
The Issue Whether Respondent's license as a life insurance agent and life and health insurance agent and his eligibility for licensure in the state of Florida should be revoked, suspended or otherwise disciplined.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made: At all times material to this proceeding, the Respondent was licensed as a life insurance agent and a life and health insurance agent, carrying Agent Number 262984024, and is currently eligible for licensure. On or about June 11, 1991 Lena B. Pinkerman, an 85 year old widow, residing in Bradenton, Florida, was insured under the provisions of a National Western Life Insurance Company (National Western) Single Premium Endowment Policy Number 0100510100. Policy Number 0100510100 was owned by Arthur Pinkerman, Lena Pinkerman's deceased husband. Lena Pinkerman owned other National Western insurance policies. These policies had been sold to Lena Pinkerman, and apparently also to her husband, by the Respondent. The Respondent's agency with National Western terminated on March 10, 1991. On or before June 11, 1991 Lena Pinkerman requested the Respondent to effectuate the change of beneficiaries on one or more of the policies with National Western. On June 11, 1991 Respondent contacted National Western by telephone requesting the necessary forms for such change. The record of the telephone call to National Western by Respondent kept by National Western indicates that the Respondent requested forms for change of beneficiary and ownership to be sent to Respondent or the insured (Lena Pinkerman). By letter dated June 19, 1991, addressed to Lena B. Pinkerman at Respondent's address, 410 15th Street West, Bradenton, Florida 34205, National Western advised that only policy number 0100510100 would need an ownership and beneficiary change effectuated since it was the only policy owned by Arthur Pinkerman, Lena Pinkerman's deceased husband. The balance of the policies were owned by Lena Pinkerman. On June 24, 1991 Lena Pinkerman signed a letter that the Respondent had printed in ink for Lena Pinkerman's signature advising National Western that she desired to "cash-in" one of her policies to pay off some debts and to send the money to her temporary address, 410 15th St. W., Bradenton, FL 34205. Along with Lena Pinkerman's letter of June 24, 1991, referred to in the above Finding of Fact, National Western received a completed copy of its Policyowner's Change Request and Endorsement of Policy form signed by Lena B. Pinkerman, as the insured, requesting a change in ownership from Arthur Pinkerman to Lena B. Pinkerman. Also along with the June 24, 1991 letter National Western received a completed copy of its Surrender Request signed by Lena B. Pinkerman, as owner, requesting full cash surrender and advising National Western to mail the check to, Lena B. Pinkerman, 410 15th St. W., Bradenton, FL. 34205. Since Lena B. Pinkerman was "cashing-in" the National Western policy, there was no need to change the beneficiary. However, a change in ownership was required and was the reason for submitting the form. Policy Number 010510100 was originally purchased for a single premium payment of $100,000.00 and had a surrender value of $129,525.94 representing an increase in value of $29.525.94. There was testimony that the increase in value would be subject to the federal income tax since the gain had been paid, as well as testimony that since the increase in value was reinvested in a like annuity that it would not be subject to federal income tax at this time. None of this testimony rises to the level of being competent evidence upon which one could rely. Therefore, there is insufficient evidence to determine whether the gain is taxable or not taxable. A check made payable to Lena B. Pinkerman dated July 5, 1991 drawn on National Western in the amount of $125,727.55, the cash surrender value ($129,525.94) minus the amount withheld by National Western for taxes ($3,798.39), was received by the Respondent at the address given in the Surrender Request. The check referred to in the above Finding of Fact was endorsed by Lena B. Pinkerman and below her signature the Respondent wrote "For Deposit only to National Benefit Life". The check was deposited by Benefit Life on July 10, 1991. The Respondent had no control over the account into which the funds were deposited. By application dated July 8, 1991, signed by David R. Thomas as Annuitant and signed by Lena B. Pinkerman, as Owner, with Respondent signing as Agent, a Flexible Premium Deferred Annuity policy number 821962 in the amount of $125,727.55 was issued to Lena B. Pinkerman, as owner, with David R. Thomas, as the Annuitant by Benefit Life. The cash surrender check referred to in the above Finding of Fact deposited to the account of Benefit Life was used to pay the single premium of $125,727.55. The Respondent received $6,286.38 from Benefit Life as a commission on the sale of the policy. The commission paid by Benefit Life to the Respondent did not reduce the amount of the annuity policy issued to Lena B. Pinkerman by Benefit Life. On July 22, 1991, the Respondent prepared a letter printed in ink addressed to National Western requesting that National Western send the taxes withheld on the surrender of policy number 0100510100 to Lena Pinkerman at 410 15th St. W., Bradenton, FL 34205. This letter was signed by Lena Pinkerman. On July 30, 1991 National Western caused to be issued in the name of Lena B. Pinkerman a check in the amount of $3,7978.39 which represented the amount of taxes withheld earlier by National Western for taxes. This check was endorsed by Lena B. Pinkerman, with "For Deposit Only To Financial Benefit" written by the Respondent beneath the signature of Lena Pinkerman. This check was deposited in the Benefit Life account on September 9, 1991. There was no evidence that Respondent caused the delay in this check being deposited by Benefit Life. The amount of this policy was added to the original premium for the annuity policy. Question 7 on the Benefit Life application is addressed to the proposed annuitant and owner asks "Is this annuity applied for to replace any existing insurance or annuity policy?". Both David R. Thomas, the proposed annuitant and Lena B. Pinkerman, the owner, answered "no" to Question 7 and represented their answer to be true and correct to the best of their knowledge and belief by affixing their signatures to the application. The question asked of the agent on the Benefit application is "Do you have knowledge or reason to believe that the annuity applied for by this application will replace or change any insurance or annuity currently in force on the life of the proposed Annuitant?". Respondent answered "No". There was no evidence of any insurance or annuity currently in force on the life of David R. Thomas, the proposed Annuitant, which was being replaced by this annuity policy. There is competent substantial evidence to establish facts to show that Lena B. Pinkerman had knowledge of, and gave informed consent to, all of the Respondent's actions which resulted in Lena B. Pinkerman surrendering annuity policy number 0100510100 issued by National Western and using the funds received to purchase the Flexible Premium Deferred Annuity issued by Benefit Life, including but not limited to, submitting the Policyowner's Change Request And Endorsement of Policy, the Request for Surrender, the letters prepared for Lena Pinkerman's signature by the Respondent including the request to send monies withheld for taxes, the endorsement of all checks and the deposit of those checks with Benefit Life and the application to Benefit Life for the Flexible Premium Deferred Annuity, notwithstanding the testimony of Lena B. Pinkerman and David Thomas to the contrary. There is no evidence that Lena B. Pinkerman suffered any financial loss as a result of Respondent's action. In fact, there was unrebutted testimony that Benefit Life was a more stable company than National Western and the Benefit Life policy would in the long run yield more return for the policyholder than would the National Western policy. When Lena B. Pinkerman made a demand on the Respondent for the return of National Western annuity policy number 0100510100 or the funds received therefrom, the Respondent attempted to work out an arrangement with Benefit Life for the return of the commission which was a condition for the return of the premium payment. Benefit Life would not accept any thing other than full return of the commission before the return of the premium payment. At the time, Respondent was not financially able to return the full commission. There was no duty upon Benefit Life to return the premium or for the Respondent to return the commission since at the time of the demand the ten-day (look-see) waiting period had expired. Additionally, there was sufficient information on the policy and other documents to alert Pinkerman as to who to contact regarding this policy. The main concern of Lena B. Pinkerman was that the gain received on the surrender of National Western policy number 0100510100 would be subject to federal income tax. Although there was evidence to show that Lena Pinkerman did make a trip out of state for a period of time during June or July, 1991, there was insufficient evidence to establish the exact period of time she was out of state.
Recommendation Having considered the foregoing Findings of Fact and Conclusions of Law, it is, therefore, RECOMMENDED that the Department enter a Final Order dismissing the Administrative Complaint against the Respondent. DONE AND ENTERED this 21st day of December, 1992, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE 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 21st day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-3634 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all proposed findings of fact submitted by the parties in this case. Rulings on Proposed Findings of Fact Submitted by the Petitioner The following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the finding(s) of fact which so adopts the preceding proposed finding(s) of fact: 1(1); 2(2,3); 3(4); 4(5); 5(6); 8,(10); 12(12,13); 13(14,15) and 16(20). Proposed findings of fact 6 adopted in substance as modified in finding of fact 7 with the exception that the act was not with knowledge and consent of Pinkerman which is rejected as not being supported by competent substantial evidence in the record. Proposed finding of fact 7 is accepted in substance as modified in finding of fact 9 with the exception that the amount would be taxable which is rejected as not being supported buy competent substantial evidence in the record. Proposed finding of fact 9 is rejected as not being supported by competent substantial evidence in the record. Proposed finding of fact 10 is adopted in substance as modified in finding of fact 12 with the exception that the act was without the knowledge and consent of Pinkerman which is rejected as not being supported by competent substantial evidence in the record. Proposed finding of fact 11 is rejected as not being supported by competent substantial evidence in the record. The first two sentences of proposed finding of fact 14 is rejected as not being supported by competent substantial evidence in the record, not withstanding Pinkerman's testimony. The third sentence is adopted in substance as modified in finding of fact 15. Proposed finding of fact 15 is rejected as not being supported by competent substantive evidence in the record. 8. Proposed finding of fact 17 is not material or relevant to the conclusion reached in the Recommended Order. Also it is unnecessary. Rulings on Proposed Findings of Fact Submitted by the Respondent The Respondent's proposed findings of fact are set out in eleven numbered paragraphs which addresses each paragraph of the Administrative Complaint and mixes argument, discussion and proposed findings of fact. However, the findings of fact that can be "ferreted out" are adopted in substance as modified in findings of fact 1 through 21. COPIES FURNISHED: Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, FL 32399-0300 James A. Bossart, Esquire Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 Richard Lee Buckle, Esquire 442 Old Main Street Bradenton, Florida 34205
The Issue The issue to be determined is whether Petitioner (“Senior Financial Security”)1/ is entitled to an award of attorney’s fees and costs pursuant to section 57.111, Florida Statutes (2019).2/ Senior Financial Security is entitled to such an award if: (a) the Department of Financial Services’(“the Department”) actions were not substantially justified; or (b) no special circumstances exist that would make an award of fees and costs unjust.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, matters subject to official recognition, the Recommended Order and the Final Order from the underlying proceeding, and the entire record in the instant case, the following Findings of Fact are made: The Parties The Department is the state agency responsible for regulating and licensing insurance agents and agencies. That responsibility includes disciplining licensed agents and agencies for violations of the statutes and rules governing their industry. At all times relevant to the instant case, Jean-Ann Dorrell was a Florida-licensed insurance agent selling fixed annuities and fixed index annuities. She owns Senior Financial Security, a licensed insurance agency located in The Villages, Florida. Ms. Dorrell is not licensed to conduct securities business. The Initiation of the Department’s Investigation At all times relevant to the instant case, Susan Alexander was the regional administrator for the Department’s Jacksonville field office. Prior to becoming a Department employee in 1998, Ms. Alexander had been an insurance agent and financial advisor who held insurance licenses pertaining to life, health, variable annuities, and property and casualty. She also held a Series 6 investment license. At the time of the final hearing in the instant case, she still possessed the aforementioned licenses, but they were “on hold.” On July 1, 2014, Ms. Alexander received a complaint forwarded to her from the Department’s Division of Insurance Fraud. The complaint was from Laura Wipperman who had recently worked for Ms. Dorrell at Senior Financial Security. Ms. Wipperman’s complaint alleged that Ms. Dorrell regularly engaged in the following practices: (a) participating in the sale or delivery of annuities only for new clients, clients with money to move, or existing clients who insisted on meeting with her; (b) giving investment advice without having the necessary licensure; (c) instructing clients to procure reverse mortgages and use the resulting funds to purchase annuities; (d) instructing clients to surrender annuities and replace them with ones that are less suitable for them; and (e) encouraging clients to engage in financially disadvantageous transactions so that Ms. Dorrell would receive commissions. Ms. Wipperman executed an affidavit on July 29, 2014, alleging that Ms. Dorrell had her acting as an agent for Senior Financial Security clients between July of 2010 and March of 2013 despite the fact that she lacked the required licensure. Diana Johnson, another former employee of Senior Financial Security, also provided the Department with an affidavit on July 29, 2014, stating that: I began working for Jean-Ann Dorrell at Senior Financial Security about June of 2010, and I was the receptionist at that time. In the first part of 2013, I was promoted to [] office manager. I do not have and have not been licensed to sell insurance in Florida. . . . When I was promoted to the position of [] office manager, agent Dorrell expanded my duties to include, meeting with clients to review the client’s insurance coverage Agent Dorrell had a motto, “Don’t leave any money on the table.” If a client had an annuity that had a penalty free withdrawal available, I was instructed to contact the client to have them come in for a review. I would then solicit the sale of either another annuity or a life insurance policy and tell the client that funds are available and they will not incur a penalty to withdraw the funds from their policy. If the client made the decision to purchase a policy that I recommended, I would complete the application and have the client sign the paperwork along with the forms to have the funds withdrawn from the existing policy. Agent Dorrell instructed me to explain policies and the benefits. When a policy was issued, I would have the client come to the office and I would deliver the contract to them. . . . I would also answer any questions the client may have [had] about the insurance policy. Many times an appointment was made for agent Dorrell to meet with the client and when the client arrived at the scheduled time, agent Dorrell would make an excuse that she was not able to meet with the client and I was instructed to handle the sale of the policy and then complete the application. I am aware of certain situations where a client passed away and agent Dorrell would have me contact the relatives or beneficiaries to complete the paperwork to receive the death benefits. Agent Dorrell told [me] to sell some type of an insurance policy to the beneficiary using the proceeds from the death benefits. Janet Barbuto was a client who passed away that I remember. I sold an annuity policy to each of her two daughters, Elizabeth Barbuto and Maria Erb, using the proceeds from Janet’s policy. . . . Agent Dorrell would also have me review any client’s brokerage account they may have. Agent Dorrell would have me convince the client to either liquidate their account to cash or transfer the funds to her brokerage house account Agent Dorrell’s ultimate goal is to use funds from the client’s brokerage account to sell the client an annuity or life insurance policy. . . . I have prepared several Lady Bird deeds at the instruction of agent Dorrell. . . . I have taken several insurance company product training classes online for agent Dorrell. Agent Dorrell would send an email to me instructing me to take a particular product training course online. I would log onto the company’s website as agent Dorrell and complete the training course. Agent Dorrell would consistently berate me for not selling life insurance policies because the client would not want to purchase one after I had asked the client if they would be interested in a policy. Agent Dorrell told me that the client does not know what they want and that I needed to learn how to sell policies. Agent Dorrell would say that if I did not learn how to sell, our door would not be open if all the clients said no to my recommendations. Matthew Plunkitt, another former employee of Ms. Dorrell, executed the following affidavit on December 11, 2014: During the time that I worked in agent Dorrell’s office there were a number of issues and regular business practices which made me decide to find a new job. . . . I sat in on several appointments at agent Dorrell’s direction where she would tell the consumer that they should be concerned about the stock market, that a stock market correction was coming, that they were going to lose a lot of money, and that they needed to get out of the market right away. Agent Dorrell was absolutely talking about investments which I knew that she was not licensed to talk to the consumer about. Agent Dorrell would then suggest that if the consumer would transfer their account to Van Guard Capital, the funds could then be turned into cash to purchase annuities, which would make the money safe and the consumer would not lose anything when the market made the correction which was coming. . . . When new clients would come into the office, agent Dorrell would sit with them for usually the first two appointments. Afterwards clients would then meet with usually Diana Johnson, the office manager and sometimes myself. Agent Dorrell was not in the office often, so Diana Johnson, as the office manager was required to handle everything in agent Dorrell’s absence. . . . I remember that on the appointments that I sat in on, everyone was sold an income rider on their annuity whether it was necessary or not. I do not know what the reasoning was behind the rider. . . . Being employed in agent Dorrell’s office was extremely stressful and she was frequently verbally abusive to her staff, threatening to fire them for not following her exact instructions. When objections would be raised about her instructions or office procedure, they would be told that we need to listen to her and not the clients or the insurance companies or the rules. I can’t remember the name of the client, but I remember that at one point she instructed me to pretend to be someone’s grandson to get the information she needed on a stock account. Her attitude made it impossible to discuss many of the issues in the office with her. Ms. Alexander supervised Ruth Williams, the Department’s lead investigator for this matter. Prior to her employment with the Department, Ms. Williams spent 10 years in the insurance industry and had acquired life insurance, health insurance, and variable annuity licenses. She also dealt with indexed annuities. The investigation of Ms. Dorrell was assigned to Ms. Williams, and Ms. Alexander received regular updates on the status of Ms. Williams’s investigation. At the close of a typical investigation, Ms. Alexander would review the evidence and the investigator’s recommendation. She could then decide that a case should be closed without any disciplinary action or that the case should be forwarded to the Legal Processing Unit in Tallahassee for an assessment of the allegations and evidence. If the Legal Processing Unit did not close the case, then the case would be forwarded to the Department’s General Counsel’s Office. Count I – Frederic Gilpin Frederic Gilpin was born in 1940 and worked in the automobile industry, primarily as a service manager in dealerships, for 44 years before retiring in 2006. Mr. Gilpin purchased a Prudential variable annuity in 2006 through Bryan Harris, an investment advisor in Maryland, for $260,851.14. On December 31, 2008, Mr. Gilpin’s Prudential variable annuity was worth only $200,989.32. By March 31, 2009, its value had fallen to $183,217.37. The decrease in the annuity’s underlying value coincided with the precipitous declines experienced by the stock market in 2008 and 2009. On May 1, 2009, Mr. Gilpin exercised a rider in the Prudential annuity contract that guaranteed a yearly income of $15,625.00. That annual income would continue for the rest of his life regardless of the stock market’s performance. The guaranteed income stream would only be destroyed if Mr. Gilpin withdrew from the annuity’s principal. Mr. Gilpin and his wife met with Ms. Dorrell in 2012 to discuss their financial situation. As recommended by Ms. Dorrell, Mr. Gilpin surrendered the Prudential annuity and used the proceeds to purchase a fixed index Security Benefit annuity. The purchase price of approximately $205,000.00 for the Security Benefit annuity was allocated between two accounts whose performance was tied to the Standard and Poor’s 500. Ms. Alexander obtained a letter that Mr. Gilpin wrote to Security Benefit on April 22, 2013, asking that the aforementioned purchase be rescinded: Please accept this letter as indication that I would like my annuity that was rolled over from Prudential and into Security Benefit on January 4th, 2013 rescinded and put back into the contract that we rolled it over from. . . . My agent, Jean Dorrell misrepresented the facts and did not disclose to me the guarantee that I would be giving up when I moved the money over. . . . I put my trust in Ms. Dorrell, and I believe that she did not do what was in my best interest and was simply looking to get paid by moving my annuity contract over. She listed in a letter to me that I was paying $15,000 per year in fees, as a big reason why I should move the money. I have since discovered that was a gross overstatement of the fees that I was paying in my Prudential contract. Upon closer examination, it looks more like my fees were closer to $7,000 per year, not $15,000 and my Management and Expense fee was set to drop from 1.65% to 0.65% when I hit my 10 year marker in 2016 (also not disclosed by Jean). I also paid a $13,077 surrender charge when I moved the contract. Jean told me not to worry about it because with the 8% bonus it would offset the fee that I was paying to move the money. While it appears that this is true, she didn’t take into consideration that I now am in a new contract with a new 10 year surrender charge both on my contract and the bonus I received with not as much liquidity on my money after the move. Probably the most egregious representation is that she stated to me that the old Prudential contract had no guarantees, and I have since come to understand that I had a very valuable lifetime income guarantee that gave me protected income for life based on a protected income base of $312,513.80, which guaranteed lifetime income of $15,625.69. . . . Now that I have moved the funds over, I have forfeited that guarantee. . . . The Department’s April 25, 2017, Administrative Complaint alleged that Ms. Dorrell violated multiple provisions of the Florida Insurance Code and the Florida Administrative Code by using misleading and/or false assertions to induce Mr. Gilpin to purchase an unsuitable annuity. The Findings of Fact from the Recommended Order demonstrate that the Department had valid reasons to question the suitability of the Security Benefit annuity. At the time of the exchange, the Prudential annuity only had four more years of surrender charges, and Mr. Gilpin started a new 10-year period of surrender charges with the Security Benefit annuity. Mr. Gilpin incurred a surrender charge of $13,077.56 for surrendering the Prudential annuity. While that surrender charge was more than offset by an eight percent bonus (i.e., $16,000.00) he earned by purchasing the Security Benefit annuity, that eight percent bonus was subject to recapture for the first six years. The Security Benefit annuity had a 100- percent participation rate, and a seven percent roll-up rate. In contrast, the Prudential annuity only offered a five percent roll-up rate. Also, Mr. Gilpin and his wife experienced significant health issues during the relevant time period and were fortunate to be well-insured. However, they would have likely incurred substantial penalties if they had been forced to use funds from the relatively illiquid Security Benefit annuity to finance their treatment. In addition, moving Mr. Gilpin’s funds from a variable Prudential annuity to the fixed index Security Benefit annuity cost Mr. Gilpin when the stock market rebounded from the lows of the most recent recession. Finally, a significant factor in assessing the suitability of the two annuities was whether Mr. Gilpin destroyed his guaranteed lifetime income stream of $15,625.69 by taking an excess withdrawal from the Prudential annuity. If he had not, then it becomes much easier to argue that the Security Benefit annuity was not a suitable replacement for the Prudential annuity. At the time it issued the Administrative Complaint, the Department possessed statements from Prudential indicating that Mr. Gilpin’s guaranteed income stream was intact as late as September 30, 2012. However, Mr. Gilpin’s hearing testimony, his 2010 and 2011 income tax returns, and Ms. Dorrell’s testimony called that into question. While the totality of the evidence presented at the final hearing did not clearly and convincingly demonstrate that Ms. Dorrell committed the violations alleged in Count I, Mr. Gilpin’s letter to Prudential, the Prudential statements, and a comparison of the Prudential and Security Benefit annuities provided the Department with a reasonable basis for pursuing Count I. This analysis is further discussed in paragraphs 81 through 84 in the Conclusions of Law. Counts II and III – Elizabeth Barbuto and Maria Erb Elizabeth Barbuto executed the following affidavit on November 10, 2014: My mom, Janet Barbuto passed away on April 16, 2014. My aunt, Marlene Brisco and my mom were both clients of agent Jean Ann Dorrell and Senior Financial Security. After the funeral, my aunt, Marlene Brisco, set up an appointment for my sister Maria Erb and me to meet with agent Dorrell to review my mom’s investments with agent Dorrell. When we got to the appointment, Diana Johnson and Matthew Plunkitt were waiting to meet with us. Agent Dorrell came in for a few moments and then left to meet with other clients. When I went into this appointment, I did not realize that I would be making any major decisions that day. I thought that I was going over my mom’s things, and that I would have time to make any major decisions afterwards. In the meeting, I was sitting next to Matthew and my sister Maria was sitting next to Diana. Diana did the majority of the talking. If there was something that I didn’t understand or needed to read Matthew would help me out, but he did not really explain anything about what we were seeing or signing. I remember filling out a form which appeared to be a new client form, asking about my risk tolerance and things. I thought that I would be signing some paperwork to have Mom’s policies placed into my name. Instead I now know that the paperwork, which Diana already had prepared, was paperwork to have new annuity contract[s] issued in my name, not transferring the contracts mom had [set] up into my name. The only thing I remember is that I was told that I would need to keep one for 10 years. I believe that one of the policies was placed with Athene and one was placed with Equitrust. I received a huge packet from Athene, but by the time that I opened it, it was too late to free look the policy. Since that time, I have paid more attention and have spoken to a family friend and financial advisor, David Hodge, who explained to me that I could have made different choices with my inheritance. In looking back on that day, I was still grieving the loss of my mother and cannot believe that paperwork was already prepared to move my financial future without anyone ever having talked with me beforehand to see what I was thinking about doing. At the Department’s request, EquiTrust and Athene offered refunds to Ms. Barbuto. Ms. Erb executed an affidavit on October 30, 2014, that mirrored her sister’s: My mom, Janet Barbuto, passed away in Florida in April, 2014. She was a client of agent Jean Ann Dorrell’s. While I was in Florida a few days after my mom’s passing, my sister Elizabeth Barbuto and I went to agent Dorrell’s office to discuss my mom’s estate. We had a meeting with two people, Diana and Matthew. I do not know either of their last names. Diana did most of the talking. Matthew did not say much. She explained to us that Mom had several Roth and IRA accounts. At sometime during that meeting agent Dorrell came into the office, talked for a few minutes, offered her sympathy, and then left. Agent Dorrell did not discuss any of the policies or accounts with us. Shortly after that one meeting, I returned to Oregon and haven’t been back to Florida to see agent Dorrell since. I think at that first meeting, I may have signed some papers, but I was still in shock, so I am not sure what I signed. At that point, the office of agent Dorrell emailed me some documents to be signed. I know that Mom’s two IRA’s needed to have mandatory withdrawals taken from them, before we could proceed with anything else. Most of Mom’s annuities were with American Equity and I remember at some point either Diana or Matthew informed me that American Equity did not do inherited IRA annuities for people who lived outside Florida, so it would be necessary for me to place my inheritance with another company. My sister is a Florida resident so this problem did not pertain to her. I am not sure if my sister is doing business with agent Dorrell’s office or not. I did receive two packages with contracts from agent Dorrell’s office and I signed where I was instructed to sign and returned everything to the office as instructed. The annuity policies which agent Dorrell selected for me were with Athene. After thinking about it, I contacted my financial planner in Pennsylvania, and found out that the paperwork I had signed was for a 10 year annuity, which I did not want to keep. A portion of Diana Johnson’s July 29, 2014, affidavit corroborated the affidavits from Ms. Barbuto and Ms. Erb: I am aware of certain situations where a client passed away and agent Dorrell would have me contact the relatives or beneficiaries to complete the paperwork to receive the death benefits. Agent Dorrell told [me] to sell some type of an insurance policy to the beneficiary using the proceeds from the death benefits. Janet Barbuto was a client who passed away that I remember. I sold an annuity policy to each of her two daughters, Elizabeth Barbuto and Maria Erb, using the proceeds from Janet’s policy. Counts II and III of the Department’s Administrative Complaint alleged that Ms. Dorrell violated the Florida Insurance Code and the Florida Administrative Code by: (a) directing an unlicensed person, Diana Johnson, to sell annuities to Ms. Barbuto and Ms. Erb; (b) failing to perform any insurance agent services for Ms. Barbuto’s transactions; falsely informing Ms. Barbuto that it was necessary to exchange her late mother’s IRA contracts for new financial instruments so that Ms. Dorrell could obtain a commission; and falsely stating to Ms. Erb that her non-Florida residency made it necessary for her mother’s IRA contracts to be liquidated with the resulting funds being used to purchase an annuity from Athene. The Department noted in the pre-hearing stipulation submitted prior to the final hearing in the underlying case that it would be dropping Counts II and III. Nevertheless, the affidavits from Ms. Barbuto, Ms. Erb, and Ms. Johnson provided a reasonable basis to support the Department’s allegation that Ms. Dorrell utilized unlicensed personnel to sell annuities. Ms. Johnson’s affidavit described how she would engage in the unlicensed sale of insurance products, and she specifically named Ms. Barbuto and Ms. Erb as examples of how Ms. Dorrell instructed her to sell products to the beneficiaries of death benefits. As explained in paragraphs 85 and 86, under the Conclusions of Law, the Department’s action against Petitioner as set forth in Counts II and III was, at the time that action was taken, substantially justified. Count IV – Deborah Gartner’s Annuities At the time of the final hearing in the underlying case, Deborah Gartner was a 71-year-old widow who met Ms. Dorrell at a Senior Financial Security seminar in 2007. Ms. Gartner filled out a form indicating that her net worth was between $500,000.00 and $1 million. In January of 2008, Ms. Gartner met with Ms. Dorrell in order to seek financial advice. Ms. Gartner had $201,344.14 in a Guardian Trust account and $195,182.44 in a Guardian Trust IRA. In addition, Ms. Gartner owned an $80,000.00 certificate of deposit. On a monthly basis, Ms. Gartner was receiving $1,381.00 from social security, $786.15 from a pension, and $4,500.00 from investment withdrawals. The latter came from depleting principal rather than interest. At the time of the January 2008 meeting, the stock market was declining, and Ms. Gartner was adamant about getting out of equities. Ms. Dorrell told Ms. Gartner that annuities would be appropriate if she was interested in principal protection and guaranteed income. Because she lacked a securities license, Ms. Dorrell could not legally recommend or instruct Ms. Gartner to liquidate her equity investments. On June 24, 2014, Ms. Gartner requested assistance from “Seniors vs. Crime,” a special project of the Florida Attorney General. Jon Hartman handled her case, and Mr. Hartman had extensive experience in finance. For example, he previously worked as the director of investments for the K-Mart Corporation’s pension savings plan and managed approximately $2 billion in assets. After leaving K-Mart, Mr. Hartman worked as the chief financial officer for a retail telecommunications company. His last position, prior to retiring from full-time employment, involved advising high net worth individuals on their investments. While Mr. Hartman has never sold insurance or held a brokerage license, he is a chartered financial analyst, and he described that credential as “the gold standard for people who wish to manage money on a professional level.” His November 20, 2014, investigative report from “Seniors vs. Crime” states that on December 31, 2007, Ms. Gartner had $394,814 invested in relatively liquid assets such as stock mutual funds, a short term bonds, and one or more money market funds. The report suggests that Ms. Dorrell arranged for the vast majority of the aforementioned money to be transferred into relatively illiquid annuities. The following paragraph from the report questions the wisdom behind transferring Ms. Gartner’s funds to annuities and whether subsequent annuity purchases enriched Ms. Dorrell at the expense of excessively limiting Ms. Gartner’s liquidity: While some investments in annuities may be appropriate, prudent financial management does not recommend that anyone place 90+% of their investable assets in annuities or any other single investment. All investors should maintain a well-diversified portfolio based upon their risk tolerances and liquidity needs. Further, we are troubled by the fact that annuities typically carry high commission rates for agents. Information that we obtained from the insurance company web sites indicates that the commission rates for these types of annuities are 7-9%. . . . Further, we are curious to know the reasoning behind the transfer of the Reliance Standard annuities to different insurance companies [in] 2011. It appears that these transactions were motivated by additional commissions for Ms. Dorrell. It is our understanding that the current surrender charge for the two Allianz MasterDex 10 contracts is 7.50%, decreasing by 1.25% per year. The surrender charge will not drop to zero until February, 2019. For the two American Equity contracts, the current surrender charge is 16% and will not drop to zero until February, 2024. However, withdrawals limited to 10% annually from Allianz and American Equity may be taken without incurring a surrender charge on the anniversary date of the policies. Thus, the annuities severely restrict Ms. Gartner’s liquidity position. One of the conclusions in Mr. Hartman’s report stated that: It is our opinion that Ms. Dorrell “churned” Ms. Gartner’s investment portfolio for her benefit to earn commission income. As evidenced by the Guardian Trust statements as of December 31, 2007, Ms. Gartner had two different accounts totaling $394,814 that were invested approximately two-thirds in different equity mutual funds and the remaining one-third in short bond funds and money market funds. As stated on page 2 of this report, it is our opinion that no reputable financial advisor would place 90% or more of any client’s assets in any single investment vehicle. Ms. Gartner executed an affidavit on October 7, 2014, indicating that she completely relied on Ms. Dorrell to manage her finances after her husband’s death: To the best of my knowledge, everything that my husband had set up was in the stock market. Most of the funds were in IRA’s in his name. Nothing was in my name until he passed away. After Agent Dorrell had my portfolio transferred, everything was placed into Van Guard Capital Account number 5XG- 153754. . . . When I did meet with Agent Dorrell in the beginning when the accounts were fresh, Agent Dorrell would get out her chalkboard and explain and [] I didn’t understand what she was talking about, but it sounded good. So I would do what Agent Dorrell suggested. I trusted her like she was my sister, and so whatever Agent Dorrell suggested, I would go along with. I had no reason to question what was happening with my accounts. I was getting a monthly allowance of $2500.00 and I thought everything was fine. . . . Pretty soon, after I had some questions, and I would make an appointment with Agent Dorrell, and in would walk Goldie and she would take over. This went on for about two years. It was always Goldie. I’m not sure where the money was coming from. I am assuming that the money came from one of my annuities or my other accounts. I trusted Agent Dorrell to take care of everything and Goldie and Diana worked for her. They were getting instructions from Agent Dorrell on my behalf. In Count IV of the Administrative Complaint, the Department alleged that Ms. Dorrell: (a) operated without a brokerage registration and gave investment advice that led to the depletion of Ms. Gartner’s funds via the conversion of liquid brokerage assets into illiquid annuities; (b) recommended the liquidation of an annuity that caused Ms. Gartner to incur a substantial loss due to surrender charges; and (c) falsified information on annuity application forms. Thus, the Department accused Ms. Dorrell of violating the Florida Insurance Code and the Florida Administrative Code by disseminating false information and by demonstrating a lack of trustworthiness and expertise. Ms. Gartner’s assertions about how she relied on Ms. Dorrell to manage her money corroborated the portion of Mr. Plunkitt’s affidavit in which he stated that Ms. Dorrell gave investment advice without having the proper licensure. While the Recommended Order from the underlying proceeding indicates that the allegation that Ms. Dorrell gave investment advice turned on a credibility determination, the affidavits from Ms. Gartner and Mr. Plunkitt provided a reasonable basis for Count IV. Also, the report from “Seniors vs. Crime” presented a solid basis for concluding that Ms. Dorrell had mishandled Ms. Gartner’s funds. The substantial justification for pursuing Count IV is discussed further in paragraphs 87 through 89, under the Conclusions of Law. Count V – Deborah Gartner’s Real Estate Transactions Ms. Gartner and Ms. Dorrell became friends, and Ms. Gartner sought Ms. Dorrell’s advice in 2012 about selling her home in Summerfield, Florida. At that time, Ms. Gartner wanted to acquire a smaller home in The Villages, Florida. However, Ms. Gartner was having difficulty selling the Summerfield home. Along with referring Ms. Gartner to a real estate agent, Ms. Dorrell allegedly advised her to stop paying the mortgage on her Summerfield home and to do a short sale. Ms. Gartner and Ms. Dorrell informally agreed that Ms. Gartner would select a house in The Villages, Ms. Dorrell would purchase it, and Ms. Gartner would then buy the house from her. Ms. Dorrell made the initial purchase because Ms. Gartner lacked funds and/or a good credit rating following the short sale. Ms. Gartner and Ms. Dorrell discussed Ms. Gartner purchasing the villa from Ms. Dorrell, but they never reached a formal agreement on terms. Because a short sale would have a negative impact on her credit rating, Ms. Dorrell allegedly advised Ms. Gartner to buy a new car prior to executing the short sale. Ms. Gartner sold her 2003 Mazda Tribute to Ms. Dorrell for $10,000.00, and Ms. Gartner purchased a new car. Ms. Gartner selected a villa in The Villages, and Ms. Dorrell purchased it for $229,310.78 on November 1, 2012. Of the aforementioned amount, Ms. Gartner paid $10,000.00 and Ms. Dorrell paid the remaining $219,310.78. At this point in time, Ms. Dorrell was the legal owner of the villa. Ms. Gartner could not move into the villa immediately after the sale because it was being rented, and the tenants’ lease extended through April of 2013. Ms. Dorrell received the rental payments of $1,800.00 per month and paid the expenses associated with the villa between November of 2012 and April of 2013. Those expenses included items such as home insurance, cable television, lawn maintenance, and utilities. By May of 2013, Ms. Gartner had completed a short sale of her Summerfield home. She received a short sale benefit of $36,775.00 and a seller assistance payment of $3,000.00. Ms. Gartner moved into the villa in May of 2013. At that point in time, there was no formal agreement between Ms. Gartner and Ms. Dorrell about when Ms. Dorrell would sell the villa to Ms. Gartner or how Ms. Gartner would pay Ms. Dorrell for it. Ms. Gartner paid no rent to Ms. Dorrell from May of 2013 through April of 2014. In November of 2014, Ms. Dorrell sold the villa to Ms. Gartner for approximately $219,000.00, the same price that Ms. Dorrell had paid for it. In order to finance the sale, Ms. Gartner executed a promissory note that would pay Ms. Dorrell $100,000.00 with four percent interest. Ms. Dorrell did not record that promissory note. In order to finance the remainder of the purchase price, Ms. Gartner obtained a reverse mortgage. Ms. Gartner stated in her October 7, 2014, affidavit that “all of a sudden I received paperwork from Agent Dorrell stating that I owed her all kinds of money and if I did not pay up she could take my home.” Mr. Hartman’s report also covered the aforementioned transactions and reached the following conclusions: It is our opinion that Ms. Dorrell gave Ms. Gartner very poor investment advice in that she convinced Ms. Gartner to enter into a short sale without investigating other alternatives. Second, Ms. Dorrell either kept very poor records or deliberately kept Ms. Gartner “in the dark” regarding her financial obligations. Third, Ms. Dorrell did not formulate a reasonable exit strategy for Ms. Gartner to pay off her obligations to Ms. Dorrell. Apparently, her strategy was to force Ms. Gartner into applying for a reverse mortgage, using those proceeds to pay off the promissory note, and then get the rest of her money from Ms. Gartner’s IRA account [when] Ms. Gartner turned 70 and ½. That strategy would have a negative impact on Ms. Gartner’s income tax situation as it would increase her adjusted gross income, making her social security payments 85% taxable. It is our opinion that Ms. Dorrell has willfully and deliberately overstated her claims for monies due from Ms. Gartner. Further, we documented that Ms. Dorrell was not being truthful with us regarding her relationship with Ms. Gartner during our meeting on August 14, 2014. The true amount of the financial obligation that Ms. Gartner has to Ms. Dorrell is unknown. Ms. Gartner had signed a promissory note for $100,000. Beyond that, some amount is due Ms. Dorrell. However, we do not have sufficient information to make an accurate determination of the additional amount due. The Department’s Administrative Complaint alleged that Ms. Dorrell committed several wrongful acts such as: (a) advising Ms. Gartner to stop making mortgage payments on the Summerfield home; (b) arranging for the purchase of the villa and accepting a $10,000.00 deposit from Ms. Gartner without giving her credit for that payment; (c) failing to record the promissory note; and (d) pressuring Ms. Gartner to apply for a reverse mortgage and arranging to obtain the balance from Ms. Gartner’s IRA account in order to pay off the promissory note. According to the Department, the aforementioned allegations amounted to a violation of Florida Administrative Code Rule 69B-215.210 which declares that all life insurance agents must always place the policyholder’s interests first. The Department also concluded that the aforementioned allegations demonstrated a lack of trustworthiness to engage in the business of selling insurance. Ms. Gartner’s affidavit along with the report from “Seniors vs. Crime” provided a reasonable basis for the Department to pursue the allegations under Count V. The substantial justification for pursuing Count V is discussed further in paragraphs 90 and 91 under the Conclusions of Law. Count VI – Earl Doughman Earl Doughman was born in 1934 and was a client of Ms. Dorrell’s. He wrote the following letter to the Security Benefit Life Insurance Company on April 14, 2014: This letter is to file a formal complaint concerning the Total Value Annuity dated 9/30/2013. Jean A. Dorrell is the listed agent on my annuity. After a recent phone call to [acquire] information regarding my annuity, I discovered that I was extremely misled and all the important details of this contract were never disclosed to me. This links to Elder Financial Abuse. Jean A. Dorrell was never present during the presentation and sale of my annuity. Jean A. Dorrell was not present during the delivery of my annuity. Jean A. Dorrell never witnessed any process involved with my annuity. Diane Johnson did everything involved with the sale, presentation and delivery of my annuity. Why is Jean A. Dorrell the listed agent on my contract? Why did Jean A. Dorrell sign as agent on 8/28/2013? I never saw Jean A. Dorrell on 8/28/2013. I thought Diane Johnson was my agent. During the presentation, I asked Diane Johnson, “Why should I move from Midland National? Midland is paying me 3% guaranteed fixed interest.” Diane told me, “You are going from 3% to 4%.” Diane NEVER disclosed to me that this is a Rider with an ANNUAL initial charge of 0.95% and maximum charge of 1.80%. Diane presented the 4% interest as fixed guaranteed. This makes me very upset! The initial current interest rate is 1.5% with the Security Benefit Total Value Annuity. As I mentioned before, my Midland National annuity was earning 3% guaranteed. Also, the cap on my index with Midland was 5.25%. The cap with the Total Value Annuity is only 3.25%. This is not a good replacement from an annuity to annuity. Selling the Total Value Annuity to me was never suitable. This appears to be illegal and is definitely Elder Financial Abuse. It is my hope that this contract be terminated and my initial Purchase Payment of $29,492.30 be paid out immediately, with no penalties, because I was misled into purchasing this contract under false details regarding the Total Value Annuity. Security Benefit responded to Mr. Doughman’s letter on May 13, 2014, by notifying him that it would cancel the contract and refund the purchase price. The Department’s Administrative Complaint alleged that Ms. Dorrell violated numerous provisions governing insurance agents by having an unlicensed employee sell an unsuitable annuity to Mr. Doughman. Mr. Doughman’s letter describing how an unlicensed employee, Diana Johnson, sold him an annuity corroborated the affidavits of former employees of Senior Financial Security as to how Ms. Dorrell facilitated unlicensed activities. The aforementioned documents were a reasonable basis for pursuing Count VI, and the substantial justification for pursuing Count VI is discussed further in paragraph 92 under the Conclusions of Law. Count VII – Margaret Dial Margaret Dial was born in 1950. Ms. Dial met Ms. Dorrell in July of 2007 and purchased multiple annuities from her. One of those annuities was an Old Mutual annuity that she purchased on November 11, 2007. In 2013, Ms. Dorrell advised Ms. Dial to surrender the Old Mutual annuity and use the proceeds to purchase a Security Benefit annuity. After incurring $16,560.39 in surrender charges, Ms. Dial received $129,901.21 in the form of a check mailed to her home. On March 12, 2013, Ms. Dial signed an application to purchase the Security Benefit annuity recommended by Ms. Dorrell for $130,000.00. The application associated with the Security Benefit annuity was incorrect because it did not show that it was a replacement for the Old Mutual annuity. Ms. Dial’s surrender of the Old Mutual annuity and purchase of the Security Benefit annuity was problematic for multiple reasons. For instance, Ms. Dorrell sold the Old Mutual annuity to Ms. Dial and then encouraged her to surrender it and use the proceeds to acquire the Security Benefit annuity. In effect, Ms. Dorrell earned two commissions on the same money. Also, the manner in which the Security Benefit annuity was purchased could have potentially prevented Old Mutual from engaging in conservation efforts. “Conservation” is the term used to describe an insurance company’s effort to retain existing business. Ms. Dial filed a complaint with Security Benefit in April of 2016 stating that “Jean Dorrell had me CLOSE the account to transfer my monies with a great LOSS to Security Benefit.” Security Benefit responded with a June 8, 2016, letter offering to cancel the Security Benefit annuity and return Ms. Dial’s purchase payment. Security Benefit then issued the following letter to Ms. Dorrell on June 20, 2016: Security Benefit Life Insurance Company (“Security Benefit”) recently received and addressed a complaint from Margaret Dial, to whom you presented a Secure Income Annuity for sale in 2013. As part of our investigation, Security Benefit directed that you provide a statement addressing the complaint, which you furnished through your attorney. In the course of investigating Ms. Dial’s complaint, Security Benefit learned that despite the application and Annuity Suitability form for the Contract indicating otherwise, Ms. Dial’s purchase of the Contract had in fact involved the replacement of an existing annuity contract she owned (said contract was issued by Fidelity & Guaranty Life Insurance Company). Your statement indicated that the transaction was not disclosed to Security Benefit as a replacement due to clerical error on the part of your office staff. As you should know, the proper handling of proposed annuity replacements is a continuing focus of insurance regulators, including the Florida Office of Insurance Regulation. As such, the failure to disclose that a replacement will occur is a very serious matter and one that Security Benefit does not take lightly whether due to clerical error or otherwise. By this letter, Security Benefit is notifying you that any further failure to disclose replacement activity will result in the termination of your appointment and the enforcement of any other remedies available to Security Benefit under the terms of your Producer Agreement. (emphasis added) The Department’s Administrative Complaint generally alleged that Ms. Dorrell violated several governing statutes by transmitting false information and displaying a lack of trustworthiness. In addition to the fact that Ms. Dorrell had admitted to Security Benefit that she had failed to disclose the source of the funds that would be used to purchase the annuity, the Department knew that Ms. Wipperman had specifically named Ms. Dial as a client who had been misinformed about the amount of their surrender charges. That information provided a reasonable basis for pursuing Count VII against Ms. Dorrell. The substantial justification for pursuing Count VII is discussed further in paragraphs 93 and 94 under the Conclusions of Law. Count VIII – Unlicensed Activities The Department alleged under Count VIII of the Administrative Complaint that Ms. Dorrell and/or her employees performed work without having the proper licensure. Specifically, the Department alleged that Ms. Dorrell’s employees wrote Lady Bird deeds3/ and wills without being licensed attorneys. The Department also alleged that Ms. Dorrell and/or her employees encouraged clients to liquidate security holdings without being licensed investment professionals. The affidavits from Laura Wipperman, Diana Johnson, and Matthew Plunkitt provided a reasonable basis for the Department to pursue Count VIII. The substantial justification for pursuing Count VIII is discussed further in paragraphs 95 through 100 under the Conclusions of Law. Count IX – Performance of Unlicensed Insurance Activities The Department alleged in Count IX that Ms. Dorrell had Ms. Wipperman and Ms. Johnson perform acts that could only be performed by a licensed insurance agent. Those allegations were reasonably supported by the affidavits of Ms. Wipperman, Ms. Johnson, and Mr. Plunkitt. The substantial justification for pursuing Count IX is discussed further in paragraph 101 under the Conclusions of Law. Count X – Failure to Report Administrative Actions The Department dismissed Count X, but alleged in the Administrative Complaint that Ms. Dorrell violated Florida Law by failing to report to the Department two administrative actions taken against her by the states of Nevada and Wisconsin. This allegation was supported by a March 14, 2008, letter from Ms. Dorrell to Reliance Standard Life Insurance Company. That letter provided a reasonable basis for pursuing Count X, and the substantial justification for pursuing Count X is discussed further in paragraphs 102 and 103 under the Conclusions of Law.
The Issue Whether Petitioner is entitled to a refund of state group life insurance premiums retroactive to the date she became disabled and continuing through the date of approval of a waiver of premium based on disability.
Findings Of Fact During her entire career with the State, Petitioner was employed by the Department of Corrections (DOC). At all times material, DOC, like all State governmental agencies, had its own personnel office. At all times material, the Division of Retirement (Retirement) handled all governmental agencies’ employees’ retirement issues. At all times material, the State has provided its employees, including Petitioner at DOC, with various types of insurance through Respondent Department of Management Services (DMS), Division of State Group Insurance (DSGI), the Respondent herein. For more than 20 years, ending January 1, 2007, the State of Florida provided state officials, employees and retirees basic life insurance coverage through Prudential Insurance Company of America (Prudential). Although Petitioner retired on full disability in mid- 2000, at all times relevant to these proceedings, Petitioner has continuously participated in the State Group Insurance Program’s (Program’s), life insurance plan (Plan). The Program is authorized by Section 110.123, Florida Statutes. Because of enhanced benefits, employees were required to complete a new life insurance enrollment form during “open enrollment,” conducted in 1999, for coverage beginning January 1, 2000. Petitioner completed the life insurance enrollment form and dated it "10/04/99." Directly below Petitioner's signature on this enrollment form, the following statement appears: Waiver of Premium for Disability If you are totally disabled for a continuous 9 months and are less than 60 years of age at the time disability begins, Prudential will continue your coverage with no premium due, provided you report your disability within 12 months of its start and submit any required proof to Prudential. The second page, last paragraph of the 1999, enrollment form provided an address and a toll-free telephone number for Prudential, and advised participants that the form was intended to provide a summary of benefits, as more completely set out in the certificate. Petitioner produced the enrollment form in response to Respondent's request for production of documents. She identified her signature thereon at hearing, and had the enrollment form admitted in evidence as Exhibit P-1. She also admits in her Proposed Recommended Order that she signed it. Although her testimony waffled in some respects, on the whole, she testified to the effect that she had retained a copy of this form where she had access to it at all times material. She is, therefore, found to have had knowledge of its contents since 1999. Petitioner testified that she never received either a life insurance policy nor a certificate of insurance, from Prudential or from any entity of Florida State Government, and that neither her DOC Personnel Office, Retirement, Florida First,1/ or DMS/DSGI advised her at the time of her retirement in mid-2000, that she could apply to Prudential for a life insurance premium waiver. However, Petitioner also had admitted in evidence as Exhibit P-2, a “Continuation/Termination Form” which she signed on “4-11-00,” stating a retirement date of “3- 10-00.” That form specifies that “. . . the amount of life insurance shall be $10,000 . . .” with a footnote reading, “This [referring to the $10,000, amount] would only apply if Waiver of Premium is not approved.” (Bracketed material supplied.) Also, the credible testimony of Respondent’s witnesses and of exhibits in evidence show that a complete certificate of life insurance was mailed to Petitioner in a timely manner. There is no proof that the insurance certificate varied the substance of the enrollment form as quoted in Finding of Fact 7. Indeed, the certificate provided, in pertinent part: The Policyholder will continue the full premium for continuance of insurance in accordance with item 8 above, [referring to “Total disability commencing before age 60— Unlimited for Employee Term Life Insurance”] provided the employee furnishes written proof of such total disability when and as required by the Policyholder. * * * Period of Extension Protection for a Disabled Employee— one year after receipt by Prudential’s Home Office of written proof that his total disability has existed continuously for at least nine months, provided the employee furnishes such proof no later than one year after the later of (1) the date premium payments for the employee’s insurance under the Group Policy are discontinued or (2) the cessation of any extended death benefit under the provisions for “Extended Death Benefit for Total Disability” above, and successive periods of one year each after the year of extension under (1), provided the employee furnishes written proof of the continuance of the employee’s total disability when and as required by Prudential once each year. Only employees disabled before retirement and under 60 years of age were eligible for the premium waiver. Employees who became disabled during retirement were not eligible for the waiver. By the terms of her enrollment form and certificate, if Petitioner did not notify Prudential before the twelfth month, she could not receive the waiver. When, precisely, Petitioner became “totally disabled” for purposes of her State life insurance certificate’s definition is debatable, because for some time prior to her actual retirement date, she was working off and on while pursuing a “permanent total disability” determination, pursuant to the definition of that term as expressed in Chapter 440, Florida Statutes, The Florida Workers’ Compensation Law. Petitioner ultimately received the workers’ compensation ruling she sought, possibly before March 10, 2000. Petitioner’s last day of work was March 10, 2000, when, she testified, a superior had her forcibly removed from DOC property. Despite her assertion that she was not approved for in-line-of-duty retirement until September 1, 2000, Petitioner also testified that the State granted her retirement upon disability, effective April 1, 2000, and April 1, 2000, is the date put forth by Respondent as Petitioner's disability retirement date, as well. Upon that concurrence, it is found that Petitioner qualified for total disability for State life insurance purposes before retirement and that she qualified for the waiver by age at retirement. When Petitioner retired on disability in 2000, employees of both DOC and of Retirement knew that she was retiring on disability. Retirement provided Petitioner with printed materials referring her to the insurance company and/or DMS/DSGI for insurance questions and stating that Retirement did not administer any insurance programs. There is no evidence Petitioner asked anyone about the waiver in 2000. From her retirement date in mid-2000, until Prudential ultimately granted her a premium waiver in 2007, Petitioner paid the full life insurance premiums to the State Life Trust, either via deduction from her retirement or directly by her own check. From the date of her retirement through December 2006, Petitioner paid $4.20, per month for life insurance, and beginning January 1, 2007, through November 2007, she paid $35.79, per month. According to Petitioner, she only became aware of the availability of the potential waiver of premiums when she received a booklet during open enrollment in October 2007, advising her that beginning January 1, 2008, the State life insurance coverage would be provided through Minnesota Life Insurance. The specific language that caught her eye was: No premium to pay if you become disabled --- If you become totally disabled or as defined in your policy, premiums are waived. Petitioner conceded that there is no substantive difference between the foregoing instruction and the statement on her 1999, enrollment form for Prudential. (See Finding of Fact 7.) Petitioner applied for the Minnesota life insurance, with premium waiver, triggering a series of bureaucratic decisions that maintained her continuous life insurance coverage by Prudential and permitted Petitioner to apply to Prudential for waiver of the life insurance premium as described in her 1999, enrollment form. Although bureaucratic delays occurred through DOC’s personnel office, Prudential accepted Petitioner’s proof of age, disability, etc., and granted the waiver of premiums based on disability. The monthly premiums of $35.79, that Petitioner paid in October and November 2007, were retroactively reimbursed to her by the State, based upon Prudential's receipt of Petitioner's waiver package on October 3, 2007. Beginning in December 2007, Prudential activated the waiver of premium, so that Petitioner has not had to pay any premium since. Adrienne Bowen, a DSGI manager of Prudential contracts for twenty years, testified that, in 1999-2000, Prudential’s waiver did not apply until after nine months of continuous disability and after the participant had reported the disability to Prudential, and after Prudential had approved the waiver of premiums. She further testified that she believed that there was no provision for the waiver to apply retroactively. For this testimony, Ms. Bowen relied upon Exhibit R-11, a “Group Life Administration Manual,” which had been devised so that the State life insurance plan would be consistently administered. On the foregoing issues, The Group Life Administration Manual states, in pertinent part: WAIVER OF PREMIUM When an employee becomes disabled and is unable to work because of a disability, the employee may be eligible to extend the group life coverage without premium payments. In order to extend coverage, the employee must submit proof of disability within the period shown on the Group Contract (generally at least 9 months but less than 12 months after the total disability starts). If the proof is accepted, you may stop the premium on behalf of the employee’s group coverage. We recommend that premium payments continue for that employee until a decision is made regarding the claim. (Emphasis in original.) However, Ms. Bowen also testified that DSGI and Prudential now allow an insured to request the waiver at any time after nine months of continuous disability, without automatic denial if the employee’s first request is not made within 12 months after she first becomes disabled. This was done in Petitioner's situation in 2007. Prudential did not refuse to waive premiums because Petitioner’s application was not made within 12 months of total disability. However, the premiums refunded related back only to the first day of the month in which she made application for waiver. Petitioner seeks a reimbursement for overpayment of premiums from April 1, 2000, to September 30, 2007. Her first request to Respondent for an administrative hearing appears to have been made on or about May 12, 2008. After several levels of internal agency “appeals,” the cause was referred to the Division of Administrative Hearings on or about August 28, 2008.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Group Insurance, enter a final order which calculates the State group life insurance premiums Petitioner paid between May 12, 2006, and October 1, 2007, and orders payment to Petitioner of that amount within 30 days of the final order. DONE AND ENTERED this 23rd day of December, 2008, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of December, 2008.
The Issue The primary issue in this case is whether Respondent misrepresented or failed to disclose material terms and conditions pertaining to annuities that he sold to several senior citizens. If Respondent were found guilty of any disciplinable offense, then the next issue would be whether Petitioner should impose discipline for such violations as Respondent may be found to have committed.
Findings Of Fact At all times relevant to this case, Respondent Peter S. Tust ("Tust") held a valid license to transact business in Florida as a life insurance agent, which authorized him to sell products such as life and health insurance policies and fixed and variable annuities. This case arises from two separate transactions in which Tust sold an insurance product known as an equity index annuity to (a) Dora Indiviglia and (b) Abraham and Elaine Gelch. Petitioner Department of Financial Services ("DFS" or the "Department") is the state agency charged with administering the provisions of the Florida Insurance Code, among other responsibilities. The Department alleges that Tust fraudulently induced Ms. Indiviglia and the Gelchs to purchase annuities that were not suited to their respective financial needs. Because Tust is a licensed insurance agent, he falls within the Department's regulatory and disciplinary jurisdiction. Broadly speaking, an annuity is a contractual arrangement pursuant to which an insurance company, in exchange for a premium (or purchase price), agrees to pay the owner or his beneficiary a specified income for a period of time. Annuities are generally classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. With a variable annuity, the premium is invested on the owner's behalf in, for example, stocks or bonds, and the amount of the benefit, when paid, reflects the performance of that investment, be it positive or negative. Fixed annuities can be either "immediate" or "deferred." An immediate fixed annuity is one under which the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, in contrast, the premium is allowed to grow over time, until the contract "matures" or is "annuitized" and the insurer begins paying the benefit. The equity index annuities which Tust sold to Ms. Indiviglia and the Gelchs are considered fixed deferred annuities. An equity index annuity is a contract under which the insurer agrees to pay a benefit based on a premium that earns interest at a rate determined by the performance of a designated market index such as the S&P 500. The premium is not invested in the market for the owner's account (as would be the case with a variable annuity). Rather, to explain the concept in the simplest terms, the interest rate rises (or falls) in relation to the index's performance, within predetermined limits. (None of the annuities involved in this case permitted the interest to fall below zero; that is, an owner's principal was never at risk of being lost due to the market's performance.) It is undisputed that the equity index annuities which Tust sold to Ms. Indiviglia and the Gelchs were approved for sale to senior investors by the Department. Equity index annuities are typically long-term investments. Owners of such annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities permit yearly penalty-free withdrawals at set percentages. The accrued interest is generally not taxed until the funds are withdrawn or the benefit is paid under annuity. Besides taxes, the purchaser may incur substantial surrender penalties for canceling the contract and receiving his funds ahead of a specified date. Some equity index annuities identify a date——often many years in the future——on which the insurer will "annuitize" the contract if it has not done so already at the purchaser's request. This date is sometimes called the "maturity date." The benefit payable under the annuity is determined based on the account's value as of the maturity date, and the payments to the owner or beneficiary of the annuity begin at that time. Under the annuities in question here, the purchaser was not required to keep his or her funds invested until the maturity date. Rather, subject to certain limitations not at issue, the purchaser could elect to "annuitize" his or her contract practically at any time and thereby begin receiving the annuity payments. Therefore, in this case at least, the fact that the maturity date was beyond a purchaser's expected lifespan is not, of itself, compelling proof that the annuity was an unsuitable investment for him or her. The Indiviglia Transaction. In February 2005, Ms. Indiviglia attended one of the luncheon seminars that Tust routinely conducted in restaurants near his place of business in Boca Raton, Florida. At these seminars, Tust provided a meal and a sales presentation to his invitees. Tust made clear to those in attendance that he was selling equity index annuities and would recommend the purchase of this sort of annuity to anyone interested for whom such an investment would be suitable. Ms. Indiviglia was interested and made an appointment to meet with Tust. She was 65 years old at the time. As she told Tust when they met on February 25, 2005, Ms. Indiviglia's annual income was about $41,000, which she received from pensions and Social Security. She had recently sold some property and wanted to invest the proceeds, which amounted to about $150,000. Ms. Indiviglia had made financial investments before meeting Tust. She had invested in the stock market beginning in the late 1970s. Additionally, she had invested in a 401k account when she worked for the investment bank J.P. Morgan, had purchased mutual funds outside of the 401k, and had bought a variable annuity through another broker in 2003 or 2004. Ms. Indiviglia told Tust her goals were safety, growth, and future income. Upon meeting with Tust, Ms. Indiviglia agreed to purchase an equity index annuity from Fidelity and Guaranty Life Insurance Company ("F&G") for a premium of approximately $149,000. By purchasing this particular product, Ms. Indiviglia was eligible for, and received, a bonus of approximately $15,000, which was added to her account. If she surrendered (or canceled) this annuity during the first 14 years, however, Ms. Indiviglia would pay a penalty, starting at 18% for a cancellation during the first year and declining each year thereafter until the fourteenth year, when the surrender penalty would be 1%. The maturity (or annuity) date on Ms. Indiviglia's annuity was April 22, 2030. (Because she would be 90 years old by that time, the chances were good that Ms. Indiviglia would surrender or annuitize the contract before the maturity date.) In applying for the F&G annuity, Ms. Indiviglia executed an Annuity Application, a Confirmation Statement, and a Senior Annuity Suitability Acknowledgement. On page one of the Senior Annuity Suitability Acknowledgement, Ms. Indiviglia declined to answer certain questions related to her financial needs and objectives by placing a check mark beside the following statement: "No, I decline to answer the questions below, but I believe a Fidelity and Guaranty Life or Americom Life and Annuity annuity contract meets my needs for my financial situation." Ms. Indiviglia placed her signature and the date (3/8/2005) beneath this statement. On the second page of the Senior Suitability Acknowledgement, Ms. Indiviglia manifested her understanding of several statements, including the following, which she checked: ? This is not a short-term investment. ? Cash withdrawals from or a complete surrender of the contract are subject to certain limitations and charges as described in the contract. ? Surrender charges/fees may be incurred as a result of liquidating certain existing accounts; however, I believe this transaction to be in my best interest. Ms. Indiviglia placed her signature and the date (3/8/2005) below these statements. Tust delivered the F&G annuity contract to Ms. Indiviglia on May 16, 2005. Ms. Indiviglia executed a Delivery Receipt acknowledging that she had received not only the annuity contract, but also a contract summary. On the "Policy Information" page of the contract, which is Page 1, in boldfaced type, were the following provisions: RIGHT TO CANCEL. If you decide not to keep this policy, return it within 10 days after you receive it. It may be returned to any of our agents or it may be mailed to us.The return of this policy will void it from the beginning. Any premium paid will be refunded within 10 days of our receipt of this policy. YOU HAVE PURCHASED AN ANNUITY POLICY. CAREFULLY REVIEW THIS POLICY FOR LIMITATIONS. CANCELLATION MAY RESULT IN A SUBSTANTIAL PENALTY KNOWN AS A SURRENDER CHARGE. On Page 2 of the contract, the Annuity Date of April 22, 2030, was plainly disclosed, as was the "Surrender Factor" for each policy year from first (18%) to the fourteenth (1%). Three pages later, on Page 5, under the boldfaced heading, "SURRENDERS," appeared the following: Surrender Charge A surrender charge may be imposed on withdrawals and at death. The surrender charge equals the surrender factor for the appropriate policy year, as shown on the policy information page, multiplied by the amount of the account value withdrawn. The account value withdrawn consists of the amount paid upon a surrender request, or applied to an annuity option, and the surrender charge thereon. Waiver of Surrender Charges The surrender charge will not apply to the account value if payments are made under an annuity option. The Policy Information page clearly identified the Riders and Endorsements to the contract, one of which was entitled, "Partial Withdrawals Without Surrender Charges Rider." That Rider, which was attached to the contract, provided as follows: After the first policy anniversary, a portion of the account value withdrawn will not be subject to a surrender charge. The amount, which can be surrendered without a surrender charge, is up to 10% of the premiums paid, less any amounts previously surrendered in the current policy year which were not subject to the surrender charges. Maximum Benefit: the total maximum amount, which can be surrendered without a charge, is 25% of the premiums paid. Once the maximum amount has been surrendered without charges, any additional surrenders will incur a charge, unless additional premium is paid. Ms. Indiviglia held the F&G annuity into the third policy year. In or around July 2007, she made a penalty-free withdrawal of $12,000. Then, about a month later, she elected to surrender the contract, incurring a 16% penalty for the early withdrawal of her account balance. Although the evidence is not clear as to precisely how Ms. Indiviglia fared, financially, in this transaction, it is undisputed that, notwithstanding the surrender penalty, she actually made money on the investment——at least about $2,000 and perhaps as much as $14,000 or so. The provisions of the F&G annuity which DFS alleges Tust misrepresented or failed to disclose to Ms. Indiviglia were clearly stated, unambiguously, in the contract itself. The evidence fails to convince the undersigned to find, without hesitancy, that Tust misrepresented or failed truthfully to disclose to Ms. Indiviglia any of the F&G annuity contract's material terms and conditions, knowingly made other false representations of material fact about the product, or otherwise made any false promises in connection with the investment. Likewise, the evidence is insufficient to convince the undersigned that the F&G annuity was an inappropriate investment for Ms. Indiviglia, taking into account her stated financial needs and goals, age, wealth, and relative sophistication as an investor. To the contrary, viewing the evidence as a whole, the undersigned determines that the F&G annuity fell squarely within the range of reasonable investments for a person having Ms. Indiviglia's investment profile. The Gelch Transaction. In September 2006, Abraham Gelch, 73, and his wife Elaine, 68, attended one of Tust's luncheon seminars. Mr. Gelch was a retired accountant; to that time he had been primarily responsible for his family's financial decisions. Although Mrs. Gelch denied being knowledgeable regarding investments when she testified in this proceeding, she is well-educated, holding a bachelor's degree and a master's degree, and was sufficiently conversant at hearing regarding the subject annuities to persuade the undersigned that she was and is able to comprehend the particulars of the transaction in issue. After the seminar, the Gelchs met with Tust to discuss purchasing equity index annuities. At the time, they were living on Social Security plus the returns on their investments. The Gelchs had, in 2006, financial investments totaling nearly $2 million, most of which wealth was held in a brokerage account at Morgan Stanley. According to their U.S. income tax return, which they gave to Tust, the Gelchs' adjusted gross income for 2005 was approximately $100,000, about $35,000 of which was derived from investments, according to other information the Gelchs provided Tust. At the meeting with Tust, Mr. Gelch completed a "financial goals and needs" form on which he ranked his investment objectives in order of importance. He ranked the items from 1 to 6, with "1" being the most important, as follows: Protecting my assets from losses 1 Growing my assets 2 Generating more income 3 Leaving money to my children/heirs 6 Replacing my pension income for my spouse if I pass first 4 Protecting my assets from taxes at death 5 Mr. Gelch placed his signature and the date (09/27/06) below this enumeration of his priorities as an investor. On the same form, Mr. Gelch expressed his agreement with the statement, "It is important that my investments are 100% safe from this point forward," and he expressed disagreement with the statement, "I am willing to take some risk (and possible losses) with my investments." Mr. Gelch disclosed on the form that he and his wife had suffered investment losses of $300,000 between 2000 and 2002. In completing the statement, "My greatest financial concern is ," Mr. Gelch wrote: "OUTLIVING MY INCOME." Ultimately, Mr. and Mrs. Gelch agreed to purchase six equity index annuities, two issued by Allianz Life Insurance Company of North America ("Allianz"), and four by Midland National Life Insurance Company ("Midland"), for premiums totaling, in the aggregate, approximately $1.4 million. These annuities were similar in concept to the F&G annuity that Ms. Indiviglia had purchased, having interest rates pegged to market indices, surrender charges for early termination, limitations on penalty-free withdrawals, annuity dates some years in the future, and strong protection against loss of principal.1 With the Allianz annuities, surrender penalties declined over ten years, from 15% in the first year down to 2.14% in the tenth policy year. After one year, the Gelchs could withdraw up to 10% of the premium annually without penalty, to a maximum (over the first 10 policy years) of 50% of the premium paid. Under the Allianz annuities, the Gelchs could begin making systematic withdrawals of credits——that is, they could take distributions of interest earned on their accounts—— without penalty after the fifth policy year. The maturity dates for the Allianz annuities were in 2016. The Midland annuities, like the others, provided for surrender penalties, which declined from 18% to 2% over fourteen years. After the first year, the Gelchs could withdraw up to 10% of the "accumulation value" (premiums paid plus interest earned) of each policy annually without penalty, up to the entire value of the respective annuity. The maturity dates for the Midland annuities fell in 2048 and 2053. In connection with the applications for the Allianz annuities, Mr. and Mrs. Gelch each completed the following forms: Application for Annuity, Product Suitability Form, and Statement of Understanding. In the Product Suitability Form, the Gelchs identified a net worth of more than $1 million and confirmed prior investments in certificates of deposit, fixed annuities, variable annuities, and stocks/bonds/mutual funds. In a section entitled, "Accessing your money," the Gelchs indicated that they intended to access the funds in "10 or more years" as a lump sum. Each Allianz Statement of Understanding is a five page document that identifies the terms of the annuities, including the surrender charges and the methods of calculating interest. The Statements of Understanding do not guarantee a 6-9% return, which is what Mrs. Gelch testified Tust had promised the annuities afforded. Instead, for an indexed investment, each document states, "At the end of each contract year, the capped monthly returns are added together to calculate your indexed interest for that year. If this sum is negative, the indexed interest for that year will be zero." In connection with the applications for the Midland annuities, the Gelchs were provided Annuity Disclosure Statements, which identified the liquidity provisions and contained the following declaration: I understand that [this] annuity is a long- term contract with substantial penalties for early surrenders. A surrender charge is assessed, as listed below on any amount withdrawn, whether as a partial withdrawal or full surrender, that is in excess of the penalty-free amount applicable. The surrender charges vary by product option and decline as [shown in the table.] (Emphasis in original; table in original not reproduced here.) Mr. And Mrs. Gelch each signed and dated this declaration, manifesting their understanding of the surrender charges, which charges, as the disclosure form further explained, "allow the company to invest long-term, and in turn, generally credit higher yields." In addition, on the respective disclosure forms that the Gelchs signed, each of them specifically refused (by signing or placing initials next to the word "Decline"), a 7-year surrender charge option offering no bonus; and a 10-year surrender charge option offering a 5% bonus. Instead, Mr. And Mrs. Gelch each separately requested (by signing or placing initials next to the word "Elect"), the 14-year surrender charge option offering a 10% bonus. Mr. Gelch also completed a Deferred Annuity Suitability Form for Midland, which among other things included the following: 4. An annuity is a long-term contract with substantial penalties for early surrenders and/or distributions. In answering the following question, do not include the funds used to purchase this annuity contract, or any funds from annuities already owned. Do you have sufficient available cash, liquid assets or other sources of income for monthly living expenses and emergencies? Yes ? No (Emphasis in original; check mark handwritten on original.) Mr. Gelch affixed his signature to the suitability form, immediately below a declaration stating: I acknowledge that I have read this Deferred Annuity Suitability Form and believe this annuity meets my needs and is suitable. To the best of my knowledge and belief, the information above is true and complete. Mr. and Mrs. Gelch owned the Allianz and Midland annuities for a little more than a year before surrendering them in January of 2008. The surrender penalties for such early terminations, which charges had been fully disclosed to the Gelchs, were steep: 18% on the Midland annuities and 15% on the Allianz annuities. Despite the surrender penalties, which totaled approximately $200,000, the Gelchs' net loss on the investments (owing to their decision to surrender the annuities so soon after purchasing them) was only about $23,000, due to the investment gains and the bonuses. The provisions of the Allianz and Midland annuities which DFS alleges Tust misrepresented or failed to disclose to the Gelchs were clearly stated, unambiguously, in the written disclosures provided to the Gelchs, not to mention in the contracts themselves. The Gelchs, in turn, gave Tust (and through him the issuing insurers) numerous objective manifestations, in writing, of their understanding of these material terms and conditions. The evidence fails, ultimately, to convince the undersigned to find, without hesitancy, that Tust misrepresented or failed truthfully to disclose to the Gelchs any of the annuity contracts' material terms and conditions, knowingly made other false representations of material fact about the products, or otherwise made any false promises in connection with the Gelchs' investments. Likewise, the evidence is insufficient to convince the undersigned that the Allianz and Midland annuities were inappropriate investments for the Gelchs, taking into account their stated financial needs and goals, respective ages, health, wealth, and relative sophistication as investors. To the contrary, viewing the evidence as a whole, the undersigned determines that the annuities fell squarely within the range of reasonable investments for persons having the Gelchs' investment profile. Ultimate Factual Determinations. In view of the historical facts found above, the undersigned has determined, based the appropriate standard of proof (discussed below) as applied to the evidence adduced at hearing, that Tust is not guilty of any of the following offenses with which he was charged: (a) willfully misrepresenting the terms of any annuity contract as proscribed in Section 626.611(5), Florida Statutes; (b) demonstrating a lack of fitness or trustworthiness to engage in the business of insurance, which is punishable under Section 626.611(7), Florida Statutes; (c) engaging in fraudulent or dishonest practices, a disciplinable offense pursuant to Section 626.611(9), Florida Statutes; (d) willfully failing to comply with, or of violating, a provision of law, which is punishable under Section 626.611(13), Florida Statutes; violating any applicable provision of law, which may subject the violator to discipline under Section 626.621(2), Florida Statutes; (e) engaging in unfair methods of competition or deceptive acts, as prohibited in Section 626.9541, Florida Statutes; and (f) failing to present accurately and completely every fact essential to a client's decision, as required under Florida Administrative Code Rule 69B-215.210. Moreover, although Tust did not have the burden to prove his innocence in any respect, the greater weight of the evidence nevertheless persuades the undersigned to determine that he did, in fact, fulfill the obligations he owed to Ms. Indiviglia and the Gelchs under Section 627.4554, Florida Statutes, which governs transactions involving sales of annuities to senior consumers.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a Final Order finding Peter S. Tust not guilty of the charges that were brought against him in this proceeding. DONE AND ENTERED this 3rd day of November, 2009, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM 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 3rd day of November, 2009.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received and the entire record compiled herein, the following relevant facts are found. Respondent, John Roger Pascale, currently holds an insurance license issued by the Florida Department of Insurance (Petitioner), and is eligible for the issuance of further licenses. It is admitted that Respondent was a licensed general lines agent during times material to the Complaint allegations herein. Respondent, however, has voluntarily elected not to renew his license since September, 1980. By its five count Administrative Complaint dated June 13, 1980, Petitioner advised Respondent that it intended to revoke, refuse to issue or renew, or to impose lesser penalties as may be proper under the provisions of Sections 626.611 and 626.621, Florida Statutes. The main thrust of Count I is that Respondent committed the following violations: Received premiums or other funds belonging to insurers or others in transactions under his license which were trust funds received by him in a fiduciary capacity, which funds he failed to account for or pay to the insurer, insured or other persons entitled thereto in violation of Chapter 626.561(1), Florida Statutes. Lacked one or more of the qualifications for the license or permit as specified in the Insurance code in violation of Chapter 626.611(1), Florida Statutes. Willfully, under his license, circumvented the prohibitions of the insurance code. Chapter 626.611(4), Florida Statutes. Was willfully deceptive with regard to an insurance policy in violation of Section 626.611(5), Florida Statutes. Demonstrated a lack of fitness or trustworthiness to engage in the business of insurance contrary to the requirements contained in Chapter 626.611(7), Florida Statutes. Demonstrated a lack of reasonable and adequate knowledge and technical competence to engage in the transactions authorized by the license or permit. Chapter 626.611(8), Florida Statutes. Engaged in fraudulent or dishonest practices in violation of Chapter 626.611(9), Florida Statutes. Misappropriated, converted, or unlawfully withheld monies belonging to insurers, insureds, beneficiaries, or others and received in the conduct of business under his license. Chapter 626.611(10), Florida Statutes. Willfully violated an order, rule or regulation of the insurance department, or willfully violated a provision or provisions of the insurance code. Chapter 626.611(13), Florida Statutes. Withheld information from which the issuance of a license or permit could have been refused had it then existed and been known to the department contrary to the requirements of Chapter 626.621(1), Florida Statutes. Violated a provision of the insurance code contrary to Chapter 626.621(2), Florida Statutes. Violated a lawful order, rule, or regulation of the department in violation of Chapter 626.621(3), Florida Statutes. Has shown himself to be a source of injury or loss to the public or detrimental to the public interest in violation of Chapter 626.621(6), Florida Statutes. In support of the above allegations, Petitioner produced as its primary witness, Delores V. Cardet, who first purchased insurance from Respondent in November of 1977. The agent employed by Respondent with whom Ms. Cardet transacted business was Rigo Avila (Avila). (See Petitioner's Exhibit 1) Ms. Cardet's insurance application was transmitted to Lumberman's Insurance Company to effect the appropriate coverage. Her complaint against Respondent is that the wrong address was placed on her insurance application and that she was overcharged for insurance based on the premiums quoted by agent Avila. Respecting the allegation that agent Avila placed the wrong address on her insurance application, evidence indicates that when this matter was called to Respondent's attention, the matter was taken care of and Ms. Cardet subsequently received billing notices at the correct address. (Petitioner's Exhibit 3). During the time in which Ms. Cardet purchased insurance through Respondent's agency, she was employed as a manager for Beneficial Finance Company of Florida. As part of her employment duties, Ms. Cardet is involved in collections and has received management training from her employer. During the period in question Ms. Cardet had one address change. This change was properly brought to Respondent's attention and the change was effected without incident. Respondent quoted Ms. Cardet a total premium during 1978 of $699.00 whereas the insurer, Lumberman's Insurance Company, charged Ms. Cardet an annual premium of $677.00. The $22.00 overcharge represented the difference between the premium quoted by agent Avila and the actual premium charged. The excess was referred to the premium finance company (Sonny Financial Services) where it was handled as a credit toward the balance owed by Ms. Cardet. During 1979, Ms. Cardet was quoted a total annual premium of $797.00 for renewal of her insurance policy. Her policy reflects a premium of $662.00 plus two (2) motor club memberships for her two (2) vehicles at the rate of $50.00 each. The remaining difference of $35.00 was refunded from Kemper Insurance Company and forwarded to Sonny Financial Services as a credit toward the remaining balance of Ms. Cardet's premiums. 2/ Linda Manning, the underwriting service manager for Lumberman's Mutual Casualty Company, a subsidiary of the Kemper Insurance Group, acknowledged that in the insurance business, mistakes regarding insurance print-outs occur on a frequent basis. Ms. Manning services several hundred premium changes daily and testified that there are numerous reasons for an agency to give a prospective insured an improper quote. Among the reasons listed by Ms. Manning is the fact that drivers' records are not always available for a prospective insured and rate adjustments occur for various reasons. COUNT TWO The gravamen of Count Two is that Respondent's employees used an incorrect address when insurance was placed by Respondent's agency for Mr. Jeffrey Brown which resulted in the insured not getting a premium notice from the insurance company. It is also alleged that Respondent willfully listed an incorrect address for Mr. Brown in a lower rate territory which gave the insured the advantage of a lower premium. In support of the above allegations in Count Two, Petitioner introduced the testimony of Respondent's former spouse, Robin LaPlante. Ms. LaPlante's husband, Jeffrey Brown, purchased insurance through Respondent's agency on February 26, 1978. It is alleged that Respondent falsely indicated on the Brown application for automobile liability coverage with Lumberman's Mutual Casualty Company that Mr. Brown's address was in Lauderhill, Florida, whereas he actually resided in Miami, Florida. Ms. LaPlante's complaint with Respondent is that they sold a van, which was one of the two vehicles covered under the policy, and it took approximately nine (9) months before the van was deleted and a refund check was issued for termination of that coverage. Ms. LaPlante had no direct dealings with Respondent and/or his agents during the time in question. Respondent's dealings were with Ms. LaPlante's former husband, Jeffrey Brown, who did not appear to testify in these proceedings. COUNT THREE As amended by Order dated December 31, 1980, Count Three alleges that Respondent employed the services of someone other than his employees or himself to complete a portion of an insurance application; that the insured was sold membership in a motor club without his knowledge and consent and that the Respondent unlawfully endorsed a check payable to the insured from the insurance carrier to reinstate the insured's policy which had been cancelled by the insurance carrier. In support of Count Three, Petitioner presented the testimony of Stanley Friehofer. Friehofer went to Houston Motors in Dade County, Florida, for the purpose of purchasing a Subaru Brat. To do so, it was necessary for Friehofer to provide evidence of insurance on the vehicle in order to obtain financing through the dealership. Sam Houston, the salesman involved, arranged the financing on behalf of the automobile dealership. Friehofer had obtained an insurance quote from his stepmother who was also in the insurance business. After discussing the possibility of the stepmother's agency issuing a policy, Mr. Houston called Respondent, John Pascale, who was at the dealership on other matters, Respondent quoted a rate less than that quoted by Friehofer's stepmother. Friehofer paid Houston Motors $440.00 and was given an insurance binder by Sam Houston. (Petitioner's Exhibit 20). Friehofer was accompanied by his brother at Houston Motors. Also present at the time was Sam Houston. Friehofer testified that Sam Houston completed the entire insurance application and issued him the insurance binder 3/ Friehofer never received a policy for his insurance although he received a bill from Kemper Insurance Company of Orlando, Florida. (Petitioner's Exhibit 22). Friehofer noted three errors on his insurance application. Those errors were (1) his marital status (Friehofer is single), (2) the use of the vehicle was incorrectly noted, and (3) the premium quoted was the wrong amount. Friehofer also complained that he was incorrectly enrolled for membership in a motor club contrary to his consent. When Friehofer purchased the vehicle from Houston Motors, he was in the process of transferring from the Virgin Islands. Friehofer therefore used his brother's address on his insurance application. According to Friehofer, his first acquaintance with Respondent was during the taking of a deposition in this matter. Linda Manning confirmed the fact that Lumberman's Mutual charged Richard Friehofer a premium of $410.00 for insurance coverage to his vehicle. Friehofer received a cancellation notice dated April 30, 1979, from Kemper Insurance Company (Kemper) and was instructed by a Mr. Bell of Kemper to obtain "dual coverage" until Kemper could investigate the matter and refund the premiums expended by him to maintain dual coverage when the situation was resolved. Friehofer received an agency check from Respondent dated June 28, 1979. (Petitioner's Exhibit 23). Friehofer initiated the call to Kemper to advise that he intended to cancel his insurance which was effected by Respondent's agency. After Friehofer advised Kemper that he planned to cancel his coverage, he notified Respondent approximately four (4) days later. Respondent received a refund from Kemper and was unable to contact Friehofer. Respondent therefore endorsed the check and returned it to Kemper to reinstate the coverage. Respondent later learned of Friehofer's intention to, in fact, cancel the coverage and Respondent stopped payment on the check to Kemper. (See Respondent's Exhibit 1). Thereafter, Respondent refunded the premium paid from Kemper to Friehofer on June 28, 1979. (Respondent's Exhibit 13). COUNT FIVE 4/ Count Five charges Respondent with the sale of membership in a motor club to an insured and accuses the Respondent of misappropriating $38.00 of the insured's money. In support of this allegation, Petitioner introduced the deposition of Betty Monette. The thrust of this allegation is that Ms. Monette was quoted a renewal premium for her Personal Injury Protection (PIP) insurance coverage of $142.00. Thereafter, Respondent's employees determined that they could provide the same coverage through another carrier for $104.00. As a consequence, Respondent refunded the difference of $38.00 to Ms. Monette, however, the refund was accompanied by a transmittal which erroneously stated that the refund resulted from a cancellation of a motor club membership. Ms. Monette acknowledged having received the $38.00 refund, and the difference i.e. $104.00, coincides with the premium charged by Banker's Insurance for the PIP coverage. RESPONDENT'S DEFENSE Sam Houston is an official affiliated with Houston Motors. Houston contacted Respondent, who happened to be at the dealership attending to an unrelated business matter at the time the Friehofers were at the dealership to purchase a Subaru vehicle. Houston has not participated or otherwise benefited from insurance commissions derived by Respondent. Houston Motors has a policy of not being affiliated with insurance salesmen or other brokers based on legal requirements imposed upon the automobile dealerships. Houston was in charge of handling financing and insurance arrangements for purchasers of vehicles at the dealership when Stanley Friehofer purchased his vehicle from Houston Motors. Houston recalled copying basic pertinent data from a financing application onto an insurance application due to the rush that Respondent found himself in after he had quoted Friehofer a premium for coverage. Houston is not licensed to sell automobile or property insurance and is unfamiliar with the procedure of quoting premiums. When shown a copy of the insurance application executed on behalf of Friehofer, Houston recalled completing the name, address, company, telephone number, state, car information and lienholder on the insurance application. Houston was certain that he did not complete any item listed on page 2 of Petitioner's Exhibit 21 which was received in evidence herein. Houston is only licensed to sell credit life, accident and health insurance in connection with financing agreements. Houston finally recalled giving Friehofer a receipt for the $440.00 tendered for insurance premiums. Houston remembered that the Friehofer transaction was unique and to the best of his recollection, had not been previously handled by him in that fashion. Respondent, John R. Pascale, is, as stated herein, a licensed casualty, property agent who holds what is designated as a "220" license. Respondent received a bachelors degree in Business Administration from Pace University and has been involved in the insurance business since he was approximately nineteen (19) years old. Respondent started his first insurance agency in Florida during 1971, and the agency grew to five (5) offices employing approximately sixteen (16) to twenty (20) employees, presently. In response to the specific charges, Respondent had no personal dealing with Ms. Cardet on her purchase of insurance from the Pascale agency. The agent involved was Rigo Avila who was dismissed from Respondents employ on August 6, 1980. Respondent's agency files reflect that Ms. Cardet had several address changes during the three-year period in which she was insured with the assistance of Respondent's agency. Respondent countered the allegations that he incorrectly listed the wrong address for Ms. Cardet by assigning her to an area which charges lower premiums by asserting that there was no economic advantage to do this since the agency collects a commission on the amount of premiums charged. Thus, a lower premium nets the agency a lower commission. Therefore, during 1977, when Ms. Cardet was quoted a premium of $699.00, Kemper Insurance determined that the premium was approximately $677.00. A refund check was sent to Respondent which was forwarded to Segral Premium Finance Company for credit to Ms. Cardet's premium finance balance. Likewise, during 1978, Ms. Cardet was quoted a premium of $797.00 with a down payment of $300.00, with the balance financed over three (3) installments through a premium finance agency. Respondent was paid directly by the agency and the overcharge (alleged) represented a $100.00 motor club membership and a $35.00 refund which was remitted by the carrier. The refund was transferred to the premium finance agency for credit to Ms. Cardet's premium balance account. Sonny Financial Service received the $35.00 check in question. (See Respondent's Exhibits 2 and 3) Respondent acknowledged that it is an agency responsibility to correct an error once the agent learns of the error or through diligence, it is otherwise brought to the agent's attention. To correct errors, Respondent's agency usually amends the policy by means of a "declaration." Finally, Respondent acknowledged that the bookkeeping errors relative to the Cardet account had been the subject of a civil claim which was amicably settled in Ms. Cardet's behalf. (See Respondent's Exhibit 5 and 6) The insurance rates of residents in Lauderhill are generally less than the rates charged residents in Dade County. The producing agency has no control over a carrier's billing procedures. Respecting the allegations surrounding the Jeffrey Brown/Robin LaPlante matter, evidence reveals that Respondent sent policy changes per Jeffrey Brown's request to the carrier during April and September of 1978. (See Respondent's Exhibits 5 and 6) As to the allegations surrounding the Betty Monette incident, evidence revealed that Respondent was able to obtain the identical coverage through another carrier for Ms. Monette at a lower rate and thus was refunded $38.00 of a quoted $142.00 premium. The transmittal letter which accompanied the refund check, however, incorrectly stated that the $38.00 refund represented a credit for cancellation of a motor club membership. (Respondent's Exhibit 10) When all of these charges surfaced, Respondent attempted to get an understanding from his employee, Mr. Avila, who abandoned his employment with Respondent. However, Respondent did all that he could to effectively resolve the difficulties and terminated Avila's employment relationship by sending him a mailgram on August 6, 1980. (See Respondent's Exhibits 11 and 12) As to the allegations surrounding the Friehofer incident, Respondent was at Houston Motors in an effort to canvass and otherwise "drum up' additional business through the dealership. Respondent met Mr. Friehofer, quoted the insurance premium, explained the various coverages available, asked if there were questions and solicited Mr. Houston to complete the necessary basic data. Respondent acknowledged that it was not a good business practice for him to leave the insurance forms with Mr. Houston to complete, however, he considered the situation rare and unusual. He also felt that it was both an accommodation for Messrs. Houston and Friehofer. Respondent admitted that he benefited from the transaction by receiving the commission from the Friehofer insurance contract. Respondent completed the second sheet of the insurance application with the exception of the signature. (See Petitioner's Exhibit 21) Respondent did not leave any blank forms at the Houston agency or any other business enterprise. Respondent has not shared commissions received with any unlicensed or unemployed person who is not authorized to complete insurance forms. Respondent received the refund check from the Friehofer insurance application on June 20, 1979. He reviewed his file, and noted that there was no file notation regarding any intent by Mr. Friehofer to cancel his insurance coverage. He made an effort to contact Mr. Friehofer and learned that he was living with his brother-in-law in Miramar, Florida, and commuted on weekends to the Virgin Islands. He, therefore, redeposited the refund check to Kemper thinking that the policy had been erroneously cancelled. (See Petitioner's Exhibit 25 and Respondent's Exhibit 13)
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, hereby, RECOMMENDED: That the Respondent be issued a letter of written reprimand cautioning him against the practice of allowing unlicensed or unauthorized persons to assist in completing forms which may be used to effect insurance coverage. In all other respects, it is RECOMMENDED that the complaint allegations filed herein be DISMISSED. RECOMMENDED this 25th day of March, 1981, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of March, 1981.