The Issue The issue for determination in this proceeding is whether Respondent, Dal Don Produce, Inc. (Dal Don), owes Petitioner $5,956 for watermelons for the reasons stated in the Producer Complaint filed with the Department of Agriculture and Consumer Services (Department) on December 26, 2003.
Findings Of Fact Pursuant to an agreement between Petitioner and Dal Don, Petitioner delivered seven loads of watermelons to Dal Don between November 11 and 24, 2003. The watermelons weighed approximately 291,016 pounds. Dal Don agreed to pay Petitioner $21,956.60 for the watermelons. Dal Don paid Petitioner only $16,000. Dal Don owes Petitioner $5,956.60. Dal Don did not provide Petitioner with an accounting or explanation for the unpaid amount. Fidelity & Deposit Company of Maryland (Fidelity) is the surety for Dal Don and provided bond for Dal Don pursuant to Surety Bond Number 08374953 (the bond). The conditions and provisions of the bond are to assure proper accounting and payment to producers, including Petitioner. In the absence of payment from Dal Don, responsibility for payment evolves to Fidelity.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order adopting the findings and conclusions in this Recommended Order and requiring Respondents to pay Petitioner the sum of $5,956.60. DONE AND ENTERED this 3rd day of November, 2004, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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, 2004. COPIES FURNISHED: Brenda D. Hyatt, Bureau Chief Department of Agriculture and Consumer Services Bureau of License and Bond 407 South Calhoun Street, Mayo Building Tallahassee, Florida 32399-0800 Bobby Williams Bobby Williams Farms 5005 Placid View Drive Lake Placid, Florida 33582 C. Catherine Bloebaum Dal Don Produce, Inc. Post Office Box 120036 Clermont, Florida 34712-0036 Kathy Alves Fidelity & Deposit Company of Maryland Post Office Box 87 Baltimore, Maryland 21203 Honorable Charles H. Bronson Commissioner of Agriculture Department of Agriculture and Consumer Services The Capitol, Plaza Level 10 Tallahassee, Florida 32399-0810 Richard D. Tritschler, General Counsel Department of Agriculture and Consumer Services The Capitol, Plaza Level 10 Tallahassee, Florida 32399-0810
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times material to this proceeding, Respondent was eligible for, and licensed as, an insurance agent in the State of Florida. The Respondent is currently eligible for, and licensed as, an insurance agent in the State of Florida. At all times material to this proceeding, Respondent was a licensed agent for United States Fidelity and Guaranty Company (USF&G). At all times material to this proceeding, Respondent was an officer, director, and stockholder of D.E. Brewer and Company (Company), an incorporated general lines insurance agency primarily located in Jacksonville, Florida. On or about April 24, 1986, the Company entered into an agency agreement with USF&G whereby the Company was given authority to solicit and sell insurance on behalf of USF&C. This agency agreement was cancelled unilaterally by USF&G on November 24, 1986. At all times material to this proceeding, all funds received by the Company on behalf of USF&G represented premium funds paid by consumers for the purpose of obtaining insurance and were trust funds received in a fiduciary capacity to be paid over to USF&G in the applicable regular course of business. Under the agency agreement with USF&G, accounts of premium funds received by the Company on behalf of USF&G were to be "rendered at the end of each month" and any "balance shown to be due to" USF&G was to "be paid to the designated reporting office not later than the twentieth day of the second succeeding month". On or about October 27, 1986, Southland Services of Jacksonville, Inc. (Southland) issued a check to the Company in the amount of $15,799.00 as a monthly installment for an auto policy and a general liability policy issued by USF&G. These premium funds were collected by the Company on behalf of USF&G. On or about November 21, 1986, Southland issued a check to the Company in the amount of $13,785.00 as a monthly installment for auto policy and a general liability policy issued by USF&G. These premium funds were collected by the Company on behalf of USF&G. On or about November 12, 1986, S. Gordon Blalock (Blalock) issued a check to the Company in the amount of $1,341.00 as a premium on an auto policy issued by USF&G. These premium funds were collected on behalf of USF&G. On or about December 3, 1986, USF&G notified Blalock that USF&G had not received the premium and unless Blalock remitted the premium within 15 days his policy would be cancelled. This matter was cleared up by Blalock with USF&G and the policy was not cancelled. On or about November 5, 1986, Anita Grusenmeyer, on behalf of Grusenmeyer & Associates, Inc. (Grusenmeyer) issued a check to the Company in the amount of $2,810.00 as a premium payment for insurance policies issued by USF&G. These premium funds were collected by the Company on behalf of USF&G. On or about December 15, 1986, USF&G requested documentation from Grusenmeyer as to proof of premium payment to the Company on these insurance policies since the Company had not rendered the premium payment to USF&G. This documentation was furnished and there was no interruption of the coverage. On or about November 24, 1986, USF&G unilaterally terminated its agency agreement with the Company due to the Company's failure to remit premium funds collected on behalf of USF&G. Prior to, and at the time of the termination of the agency agreement by USF&G, Respondent was Vice President, a director and stockholder (11%) of the Company, but on or about November 24, 1986, the date of the termination of the agency agreement, Respondent became president of the Company. By letter dated December 12, 1986 and addressed to Respondent, USF&G, under paragraph 9 of the agency agreement, made a demand on the Company for the records pertaining to business dealings between the Company and USF&G. This demand was again made by letter on January 21, 1987. However, there was some concern on Respondent's part in turning these records over to USF&G and it was determined that USF&G could make copies of such records with someone from the Company being present. Due to conflicts in schedules of both parties this was never accomplished, and, in the interim, USF&G concluded that it had the capability to reproduce the records on its computer. No further demand for the records was made and the records were never turned over to USF&G by the Company. Also in its letter dated January 2, 1987, USF&G advised the Company that the premium funds received in November, 1986, were overdue as well as the August, 1986, and October, 1986, account. The August, 1986, and October, 1986, account would be for premium funds received in June, 1986, and August, 1986, respectively. The September, 1986, account had been paid on or about November 20, 1986, using premium funds received from Southland on November 21, 1986, in the amount of $13,785.00 to cover a check previously issued by Donald Brewer on an account that did not have sufficient funds to cover the check. The deposit of the Southland check into the account made the check written by Donald Brewer "good". In accordance with the agency agreement, the premium funds received from Southland ($15,799.00) in October, 1986, were due and payable on December 20, 1986, and the premium funds received from Southland ($13,785.00), Blalock ($1,341.00) and Grusenmeyer ($2,810.00) during November, 1986, were funds due and payable on January 20, 1987. However, these premium funds had been disposed of prior to Respondent becoming president of the Company on November 24, 1986, and the Company having insufficient funds that could be used to pay USF&G after Respondent became president, the funds were not remitted to USF&G in the regular course of business set forth in the agency agreement. All the premium funds received by the Company from Southland ($15,799.00 and $13,785.00), Blalock ($1,341.00) and Grusenmeyer ($2,810.00) in October and November of 1986 were deposited in the Southeast Bank, N.A., of Jacksonville, Florida, Account No. 001632637, an account on which Respondent had no check writing authority. All of the above-referenced funds were deposited in that account prior to Respondent becoming president on November 24, 1986. The Respondent was not the responsible agent for the three insurance accounts: Southland; Blalock; and Grusenmeyer, and none of the premium funds remitted to the company by these accounts were "received by" the Respondent. There is no evidence that these premium funds were "received by" any employee of the Company who was under the Respondent's direct supervision and control. There is no evidence that Respondent had access to, or responsibility for, the premium funds paid by Southland, Blalock and Grusenmeyer during October and November of 1986. Likewise, there is no evidence that the Respondent diverted or appropriated any of such premium funds to his own use or to the use of anyone other than to those entitled to receive them. Upon becoming president, Respondent opened a new bank account with the Florida National Bank, but there was no evidence that the account ever had sufficient funds, other than possibly premium funds belonging to other insurers which had been received on their behalf by the Company, to pay USF&G the premium funds due it from the Southland, Blalock and Grusenmeyer accounts. There was evidence that the Respondent had paid salaries to the employees out of the account, but no amount was established. Upon becoming president, Respondent began negotiating a settlement with USF&G on the amount of premium funds due USF&G. There was a dispute as to the amount but a settlement of approximately $52,000.00 was reached. Some of this amount has been paid, but there is a remaining balance. There was no evidence that Respondent, prior to becoming President of the Company, took any part in the policy decisions or administration of the Company, such as determining the manner in which the Company's receipts would be spent or to direct, control or supervise the activities of the employees or other insurance agents of the Company.
Recommendation Based upon the Findings of Fact, Conclusions of Law, the evidence in the record and the candor and demeanor of the witnesses, it is RECOMMENDED that the Petitioner, Department of Insurance and Treasurer enter a Final Order dismissing all counts of the Administrative Complaint filed against the Respondent, John Lanahan, Brewer in Case No. 87-2692. Respectfully submitted and entered this 26th day of July, 1988, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of July, 1988. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 87-2692 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case. Specific Rulings on Proposed Findings of Fact Submitted by Petitioner Adopted in Finding of Fact 2, except that there was no evidence presented as to the types of insurance licenses Respondent held. Adopted in Finding of Fact 1. 3.-9. Adopted in Findings of Fact 3 through 9, respectively. 10. Adopted in finding of Fact 10 but clarified to show the date of the check to be November 12, 1986, rather than November 21, 1986. 11-14. Adopted in Findings of Fact 11 through 14. 15-16. Adopted in Finding of Fact 15. 17-18. Adopted in Finding of Fact 16. 19. Adopted in Findings of Fact 16 and 17. 20-22. Adopted in Finding of Fact 18. Adopted in Finding of Fact 19 and 22. Adopted in Finding of Fact 20 except that there is competent evidence to show that the Grusenmeyer payment was received and deposited prior to Respondent assuming the Presidency. Adopted in Finding of Fact 18. Adopted in Finding of Fact 23, but although there was a sincere dispute as to the amount there was no competent evidence that that amount was $200,000 or that the settlement figure of $52,000 was not a fair representation of the amount owed to USF&G by the Company. Specific Rulings on Proposed Findings of Fact Submitted by Respondent Adopted in Findings of Fact 1 and 2. Adopted in Findings of Fact 3, 19, and 24. Adopted in Findings of Fact 8, 9, and 19 but clarified. Adopted in Finding of Fact 18. Adopted in Finding of Fact 12. Adopted in Findings of Fact 18 and 19. 7-8. Adopted in Findings of Fact 12, 18 and 19. Adopted in Findings of Fact 20, 21 and 22. Adopted in Finding of Fact 23. 11-12. Rejected as being argument, not a finding of fact. COPIES FURNISHED: S. Marc Herskovitz, Esquire William W. Tharpe, Jr., Esquire 413-B Larson Building Tallahassee, Florida 32399-0300 Judith S. Beaubouef, Esquire Peter L. Dearing, Esquire Post Office Box 4099 Jacksonville, Florida 32201 Honorable William Gunter State Treasurer ana Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issues in this case are whether the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA) failed to comply with applicable requirements and standards of Part I of Chapter 627, Florida Statutes, when it utilized a request for proposals (RFP) in autumn 1995 to arrive at its decision in early 1996 to contract with Intervenors, Audubon Insurance Company (Audubon), AIB Holdings, Inc. (AIB), and American International Insurance Company (AIIC), but not with the Petitioner, Bankers Insurance Company (Bankers), for insurance policy servicing work through the year 1999. Specifically, Bankers asserts: (1) that FRPCJUA improperly gave policy servicing work to AIB, which is not a licensed insurance company; that FRPCJUA violated Chapter 287, Florida Statutes, regarding competitive bidding requirements for state agencies; that, regardless whether Chapter 287 is applicable, whether FRPCJUA acted arbitrarily and in bad faith instead of using procedures equivalent to the procedures found in Chapter 287, Florida Statutes; and (4) that FRPCJUA violated the Government in the Sunshine Law, Chapter 286, Florida Statutes. The Respondent, the Department of Insurance (the Department), and the Intervenors oppose Bankers' assertions. After initially seeking maintenance of the status quo or a contract on the same terms as the others, Bankers now seeks money damages from FRPCJUA, including attorney fees and costs.
Findings Of Fact In response to Hurricane Andrew, which struck in September 1992, insurers either stopped or significantly curtailed writing residential property and casualty insurance in Florida, or in parts of Florida. In response to this crisis, the Florida Legislature enacted Section 627.351, Florida Statutes, which created the Intervenor, the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA). FRPCJUA is an unincorporated association of insurers licensed to write residential property and casualty insurance in Florida. In addition to the licenses held by its members, FRPCJUA itself also is required by law to be licensed by the Respondent, the Department of Insurance (Department), as an insurer in Florida. FRPCJUA is governed by a Board of Governors chosen in accordance with the statute; some members are appointed by the Insurance Commissioner. The Petitioner, Bankers Insurance Company (Bankers), was represented on the initial FRPCJUA Board of Governors. The FRPCJUA Board hires an executive director and other staff to conduct the day-to-day operations of FRPCJUA. The evidence indicates that Florida Representative John Cosgrove and his staff were the primary drafters of the FRPCJUA legislation and that the House Insurance Committee he chaired was its primary sponsor. Rep. Cosgrove believed that the legislation did not intend to authorize FRPCJUA to contract with non-insurers for policy and claims servicing. Rep. Cosgrove's primary reasons for wanting to limit policy and claims servicing to insurers were to ensure the financial backing of those doing the work and to maintain regulatory control over them. However, policy and claims servicing providers bear no policy risk, and the Department maintains regulatory control over FRPCJUA both under the Section 627.351 and under the statutes regulating licensed insurers. Insurance Commissioner, Tom Gallagher, and his staff also were involved in the enactment of the FRPCJUA legislation. Commissioner Gallagher believed that the legislation authorized FRPCJUA to contract with non-insurers for policy and claims servicing. He believed that the legislation was not designed to enable insurers, who had "created" the insurance crisis by refusing to write or curtailing the writing of, insurance, to keep the lucrative policy and claims servicing to themselves. Section 627.351 requires FRPCJUA to operate pursuant to a plan of operations approved by the Department. FRPCJUA's first plan of operations and its articles of association were approved by the Department in 1993. The First Amended Articles of Association were approved by the Department on December 29, 1993. Before approving them, the Department reviewed both of these documents and required FRPCJUA to make corrections or revisions. Both of these documents provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. In addition, they provided that FRPCJUA itself could provide those services. Bankers' President, David Meehan, was on the FRPCJUA Board when it produced the first two versions of FRPCJUA's plan of operations. Bankers never objected to the provisions for the use of non-insurers to provide policy and claims services. In accordance with the plans of operation, FRPCJUA formed the Shared Market Insurance Services, Inc. (SMISI) to provide policy and claims services for FRPCJUA. SMISI in turn contracted with other entities, including Intervenor, Policy Management Services Corporation (PMSC), which did policy servicing using a computer system it developed called the Point System. In addition to the SMISI contract, FRPCJUA also had policy and claims servicing contracts with five servicing carriers: Bankers; Diamond State Insurance Company; Fortune Insurance Company; Intervenors, Audubon Insurance Company (Audubon); and American International Insurance Company (AIIC). In late 1994, Bankers objected to the growth of SMISI. When Bankers' President tried to persuade Commissioner Gallagher to abolish or down-size SMISI, he was informed that Gallagher himself supported SMISI. In response, Meehan said he was going to resign in protest. Gallagher told Meehan that he intended to ask all representatives of FRPCJUA's members to resign and asked Meehan to wait until all resigned for the sake of appearance. Meehan agreed. Approximately coinciding with Meehan's conversation with Commissioner Gallagher, the Department initiated a market conduct examination of Bankers. For various reasons, Bankers believed and alleged in this proceeding that Bankers was targeted for the market conduct examination and other punitive measures in reprisal for opposing SMISI and for arguing the issue with Commissioner Gallagher. Bankers' allegations were not proven by the evidence in this case, but Bankers' beliefs colored its perception of the Department's dealings with it from then on. They also caused Bankers to suspect that the Department also was trying to influence FRPCJUA to take punitive action against Bankers. But it was not proven that the Department's relations with Bankers had any effect on FRPCJUA's dealings with Bankers. In late 1994, Florida elected Bill Nelson to succeed Tom Gallagher as Insurance Commissioner in January 1995. Commissioner Nelson appointed William Wilson as new chair of the FRPCJUA Board and recommended that Wilson consider James W. (Jay) Newman, Jr., for appointment as new Executive Director of FRPCJUA. Wilson interviewed and hired Newman, who had impressive credentials (including service as Insurance Commissioner for the State of Virginia) and extensive and directly relevant experience. The Department approved FRPCJUA's Second Amended Plan of Operation on July 21, 1995. As with the earlier versions of the plan of operations, the Department reviewed the document and required FRPCJUA to make corrections or revisions before approving it. As with the earlier versions of the plan of operations, the Second Amended Plan of Operation provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. It also provided that FRPCJUA itself could provide those services. Although Bankers no longer was represented on the FRPCJUA Board, it knew of these provisions and voiced no objection to them. By September 1995, FRPCJUA had decided to reduce its business (so-called "depopulation") and thought that it soon would not need so many contracts for policy and claims servicing. It also thought it could save money by reducing the number of servicing contracts. Meanwhile, the contracts of the five servicing carriers were due to expire in February 1996, and the deadline for notice of non-renewal was approaching. (Bankers' contract would have expired in approximately June 1995, but it was extended.) Although all of the contractors were performing satisfactorily, Executive Director Newman thought FRPCJUA should give notice to the five servicing carriers that their contracts would not be renewed and should initiate a request for proposals (RFP) for new contracts. His desire was to reduce the number of contracts from five to either two or three. (The SMISI contracts and subcontracts were not due to expire, and no consideration was given to terminating those contracts at the time.) At the FRPCJUA Board meeting on September 19, 1995, which was noticed and conducted as an open meeting, Newman presented this idea, and the FRPCJUA Board agreed with him. It directed Newman to give notice of non-renewal to the five servicing carriers and to proceed with the RFP process. On October 18, 1995, FRPCJUA published notice in the Florida Administrative Weekly that it would be accepting proposals from insurance companies interested in servicing FRPCJUA policies and that the deadline for proposals would be December 4, 1995. The notice referred those interested to FRPCJUA staff from whom the RFP would be available at a later date. No specifics of the RFP were included in the notice. Prior to the Board's next meeting on October 25, 1995, Newman prepared Proposed Servicing Carrier Selection Criteria. At the Board's meeting on October 25, 1995, which was noticed and conducted as an open meeting, the Board decided to add a provision that FRPCJUA should reserve the right to reject all proposals and instead negotiate contracts apart from the RFP and that the criteria should allow all existing servicing carriers to be eligible for selection. The Board directed Newman to proceed with the RFP so that the Board would be in a position to make its selection decision at its December 1995 meeting. (It does not appear from the evidence that there was a November 1995 meeting of the Board.) Immediately after the meeting on October 25, 1995, Newman began the task of drafting an RFP with the help of FRPCJUA General Counsel Michael Colodny and FRPCJUA staff attorney Fred Karlinsky. At some point in the drafting process, Colodny noticed that, by its terms, the draft RFP only solicited proposals from servicing carriers (insurers) and could be construed to prohibit servicing providers (non-insurers) from responding. To include servicing providers, other modifications to the RFP also would have to made. Newman, Colodny, and Karlinsky re-drafted the RFP to accommodate proposals by servicing providers and issued the re-drafted RFP on November 7, 1995. Bankers did not object to the eligibility of non- insurers to respond to the re-drafted RFP. Instead, it proceeded to prepare its response. On November 17, 1995, FRPCJUA published an amended notice in the Florida Administrative Weekly that it would be accepting proposals from both insurance companies and non- insurers interested in servicing FRPCJUA policies and that the deadline for proposals would be December 6, 1995. The RFP provided for a pre-bid conference to answer any questions on the services to be rendered under the RFP; it also provided an opportunity for written inquiries after the pre-bid conference. The pre-bid conference was held on November 28, 1995. Bankers attended and asked questions about the applicability of Chapter 287, Florida Statutes, and Newman answered that it did not apply. Bankers also asked questions on how to present compensation proposals and how different proposals would be scored. Newman explained that the intent was to encourage creative responses. Questions also were asked at the pre-bid conference about the requirements for a non-insurer to act as a servicing provider. Newman explained the terms of the RFP and confirmed that proposals from non-insurers were welcomed. Bankers did not object then or at any time prior to submission of its proposal. The RFP provided that proposals would be evaluated by FRPCJUA's executive director and staff. Newman asked FRPCJUA Chief Operating Officer, Robert Sklenar, Colodny, and Karlinsky to assist him in evaluating the proposals. Sklenar had extensive (35 years) experience in the insurance industry, mostly as vice-president of personal lines for Travelers Insurance Company. His experience included the design and preparation of competitive scoring processes for vendor selection by Travelers. Newman asked him to prepare the documents to be used for scoring RFP responses (the score sheets). Proposals were received on December 6, 1995. Proposals were received from Bankers, AIIC, Audubon, PMSC, Fortune, Hartford Fire Insurance Company, Mobile America Insurance Group, Inc., National Con-Serv, Inc. (NCSI), American Southern Insurance Company, and Intervenor, AIB Holdings, Inc. (AIB), which had a subcontract for policy and claims servicing with Diamond State. The RFP provided that submission of a response signified acceptance of the terms and conditions of the RFP. Newman, Sklenar, Colodny, and Karlinsky met in Tallahassee to evaluate the responses on December 6, 1995. First, the four jointly evaluated the proposals to determine whether they met seven mandatory criteria. They determined that all ten proposals met the mandatory criteria. Then each evaluator independently scored the ten proposals on each of seven technical criteria, using a numerical point scale of 1 to 5 for each criterion. Then they compared their scores, discussed any differences, and attempted to reach consensus scores for each technical criterion. Then they added the consensus scores given on all technical criteria for each of the ten proposals. At this point in the process, the evaluation team observed that 15 points seemed to be a natural break point and reasoned that American Southern Fortune, Mobile America, and NCSI should be eliminated from further consideration because they got less than 15 points on the technical criteria. Of the proposals still under consideration, Hartford scored 23 on the technical criteria, PMSC scored 22, Audubon scored 21, AIIC scored 20, Bankers scored 18, and AIB scored 17. The evaluators then discussed the top two scorers, Hartford and PMSC. The team did not think FRPCJUA should enter into a contract under the RFP with either Hartford or PMSC. By this time, the evaluation team was aware that the SMISI contract would terminate as of December 27, 1995, for "breaches and defaults of the agreements and obligations owing to the FRPCJUA by SMISI," in accordance with correspondence from FRPCJUA Board Chairman Wilson, dated November 14, 1995; however, it was anticipated that PMSC would continue to handle the SMISI business--fully half of FRPCJUA's total book of business--under a direct contract with FRPCJUA. Due to capacity concerns, the team did not think additional business should be directed to PMSC until those concerns were allayed. Meanwhile, Hartford's proposal disclosed that it would not be in a position to handle a large number of policies for some time, and it proposed either delaying initiation of services or subcontracting with PMSC in the interim. The evaluation team did not think either alternative was acceptable. Evaluation of the mandatory and technical criteria took approximately six hours and was not completed until 1 or 2 a.m. on December 7, 1995. The evaluators decided not to review or evaluate the compensation proposals; however, the other three evaluators persuaded Newman to at least look at the compensation proposals and generally advise the group as to the general nature and parameters of the compensation proposals without identifying the proposers. Colodny was unable to meet again on December 7, 1995. Newman, Sklenar, and Karlinsky met briefly to review the proposals, but it was decided that Newman would conduct a more thorough review and report his findings and recommendations to the others by telephone. Although Newman knew the team would not recommend either Hartford or PMSC, he evaluated their compensation proposals for information and comparison. Hartford offered a flat 18.42% fee. PMSC offered two alternatives. One was a very favorable flat fee of 14.9%; the other proposed flat dollar amounts. Bankers proposed an 18% fee for six-month policies, and an 18.45% fee if FRPCJUA returned to annual policies. The other compensation proposals were tiered by volume (either net written policies or policies in force). AIB structured its compensation proposal as follows: 18% fee for $25 million net written policies (NWP); 17.75% for $25-$30 million NWP; 17.50% for $30- $35 million NWP; 17.25% for $30-$40 million NWP; and 17.00% for more than $40 million NWP. Audubon proposed a 17.9% fee for up to 50,000 policies in force (PIF), 17.5% for up to 100,000 PIF, and 16.9% for over 100,000 PIF. AIIC structured its proposal: 20.0% for up to 50,000 PIF; 19.5% for up to 100,000 PIF; 19.0% for up to 150,000 PIF; 18.5% for up to 200,000 PIF; 18.0% for up to 250,000 PIF; and 17.5% for over 250,000 PIF. In order to evaluate the tiered proposals, Newman had to exercise professional judgment as to future volume in light of FRPCJUA's "depopulation" efforts and intention to replace five contracts with just two or three. Newman did not score the Hartford and PMSC compensation proposals since he knew the team would not be recommending that FRPCJUA should enter into contracts with either under the RFP. In Newman's judgment, based on a 15 point scale, the Audubon and AIB compensation proposals deserved scores of 14, Bankers' proposal deserved a score of 10, and AIIC deserved a score of 9. Adding these scores to the technical scores, Audubon's proposal would be scored the best, with 35 points, AIB would score 31 points, AIIC would score 29 points, and Bankers would score 28 points. As agreed, Newman telephoned the other evaluators to discuss the compensation proposals and Newman's scoring of them. All agreed with Newman's assessments. They decided to recommend that FRPCJUA contract with Audubon and attempt to negotiate with the others to accept Audubon's compensation proposal. Sklenar wanted to recommend that FRPCJUA contract with Audubon and one other; Newman thought it would be more prudent to contract with three. It was agreed to recommend that FRPCJUA first attempt to negotiate with AIB and AIIC to accept Audubon's compensation proposal and to negotiate with Bankers (and, if necessary, those previously eliminated from consideration) only if either AIB or AIIC refused to accept Audubon's compensation proposal. The recommendation of the evaluation team was put in writing on December 11 and was presented to the FRPCJUA Board at its meeting on December 14, 1995, which was noticed and conducted as an open meeting. The evidence was that the Board had a full and open discussion of the recommendation. Ultimately, the Board voted unanimously to accept the evaluation team's recommendation, and it instructed Newman and his staff to proceed with contract negotiations. Section 24 of the Second Amended Plan of Operation provided a means for resolving disputes with respect to any decision of the FRPCJUA Board. Section 24 provided: Except as to any dispute, cause of action, claim or controversy arising under, or out of, any contract or Agreement pertaining to bonding or borrowing by the Association, any person or entity aggrieved with respect to any action or decision of the Board of the Association, or any Committee thereof, (other than matters regarding Assessments which appeals are governed by Sections 15, 16 and 17 hereof) may make written request of the Board for specific relief. All written requests for relief or redress shall be deemed Appeals and shall be delivered to the Executive Director. The Executive Director shall schedule any Appeal for hearing at the next regularly scheduled Board meeting occurring, not less than ten (10) days nor more than forty (40) days from the Executive Director's receipt of the Appeal. Any person or entity whose Appeal for relief is denied by the Board may appeal to the Insurance Commissioner in the manner provided by § 627.371, Florida Statutes. A transcript of any Appeal items shall be made at the time of hearing. In accordance with Section 24 of the Second Amended Plan of Operation, Bankers and Fortune appealed from the FRPCJUA Board's action taken at its meeting on December 14, 1995. Before the next scheduled meeting of the FRPCJUA Board on February 7, 1996, Newman was able to successfully negotiate contracts with Audubon, AIIC, and AIB. However, the contracts were not finalized and executed by the time of the meeting. Bankers also indicated its willingness to accept the terms being offered to the other three if FRPCJUA would agree to contract with Bankers as well. At the Board's meeting on February 7, 1996, which was noticed and conducted as an open meeting, the Board fully and openly discussed several subjects relevant to the RFP contracts, including capacity concerns and whether to contract with Bankers, Fortune and Hartford. Ultimately, a motion was made to reject the RFP process and negotiate contracts with the five existing servicing carriers--i.e., Audubon, AIIC, Bankers, Fortune, and Diamond State--with new contract provisions and a blended compensation rate. The Board voted to approve the motion with only member Diaz voting "no." Bankers and Fortune indicated that the Board's action was acceptable to them, and Chairman Wilson announced that the Board's action mooted the appeals of Bankers and Fortune. Audubon, AIIC, and AIB did not indicate whether the Board's action was acceptable to them. Before the next regular meeting of the Board, all three appealed from the Board's action under Section 24 of the Second Amended Plan of Operation. The next regular meeting of the FRPCJUA Board was held on February 29, 1996, which was noticed and open to the public. The Board considered a motion by member Ricciardelli to rescind its action on February 7, 1996. After a full and open discussion, the Board voted to approve the motion; members McGriff and Burgess voted "no." As part of its attempt to prove improper influence by the Department and arbitrary and capricious action by the FRPCJUA Board, Bankers introduced as evidence that Insurance Commissioner Nelson contacted Board member McGriff once by telephone prior to the meeting on February 29, 1996, to ask him to support the FRPCJUA staff's recommendation made on December 14, 1995. But there also was evidence that Bankers' representatives contacted McGriff several times to ask him to vote to uphold the Board's action on February 6, 1996, and it is self-evident that Commissioner Nelson's telephone contact did not influence McGriff at all. In accordance with Section 24 of the Second Amended Plan of Operation, on February 29, 1996, Bankers filed an appeal of the Board's actions of that date, and Bankers presented its appeal to the Board at a meeting on April 7, 1996, which was noticed and open to the public. After hearing and discussion, the Board denied the appeal. On April 24, 1996, Bankers appealed the Board's decision to the Department of Insurance. It is found from the evidence presented that the FRPCJUA's actions in connection with the RFP were neither arbitrary nor capricious. The Board and its staff set about to reduce the number of servicing contracts it had (other than the SMISI contract) from five to either two or three in order to save money. FRPCJUA thoughtfully adopted a reasonable RFP process for achieving its objective and implemented the RFP in a thoughtful and reasonable manner. The result achieved the objective. FRPCJUA replaced the five existing servicing contracts with three new contracts and has saved FRPCJUA millions of dollars a year in servicing fees. Bankers presented the testimony of an expert in business valuation, RFP processes, and gaming theory in an attempt to prove that the RFP process and the scoring of the proposals was so flawed as to be arbitrary and capricious. But Bankers' evidence itself was flawed. First, Bankers' expert questioned RFP specifications that Bankers accepted. Second, the expert questioned the points given by the evaluators on the scoring scale they used without ever reviewing or considering any proposals other than those submitted by Bankers, Audubon, AIIC, and AIB. Third, while the expert conceded that it was important to understand the thought processes of the evaluators in assessing the validity of their judgments, he had absolutely no evidence and no knowledge about the judgments of Colodny or Karlinsky. Fourth, while the expert criticized the scoring system as not being sophisticated enough to indicate "fractional differences" between proposals, and criticized the team's failure to use a "tie-breaking" mechanism, he conceded that the consensus scoring used by the team was a valid and acceptable way to assess relatively small differences between proposals and to break scoring ties. Fifth, much of the expert's criticism amounted to disagreements as to how to evaluate aspects of the proposals; meanwhile, as the expert admitted, in most cases the evaluation required the exercise of professional judgment, and the evaluation team had more and better expertise. The expert's testimony did not prove that the RFP process and the scoring of the proposals was arbitrary or capricious.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order denying Bankers' appeal and claim for money damages and attorney fees. DONE AND ENTERED this 10th day of November, 1998, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON 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 Filed with the Clerk of the Division of Administrative Hearings this 10th day of November, 1998. COPIES FURNISHED: Douglas A. Mang, Esquire Wendy Russell Wiener, Esquire Mang Law Firm, P.A. Post Office Box 11127 Tallahassee, Florida 32302-3127 Michael H. Davidson, Esquire Division of Legal Services 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Seann M. Frazier, Esquire Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. Post Office Drawer 1838 Tallahassee, Florida 32302 Perry Ian Cone, General Counsel AIB Insurance Group, Inc. 2500 Northwest 79th Avenue Miami, Florida 33122 Michael Colodny, Esquire Stuart B. Yanofsky, Esquire Colodny, Fass & Talenfeld, P. A. 2000 West Commercial Boulevard Suite 232 Fort Lauderdale, Florida 33309 Fred E. Karlinsky Associate General Counsel Florida Residential Property and Casualty Joint Underwriting Association 101 North Monroe Street Suite 1000 Tallahassee, Florida 32301 Zollie M. Maynard, Esquire William C. Owen, Esquire Panza, Maurer, Maynard & Neel, P.A. 215 South Monroe Street, Suite 320 Tallahassee, Florida 32301 Mitchell B. Haigler, Esquire Paul R. Ezatoff, Esquire Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302 J. Stephen Menton, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551
The Issue At issue is whether respondent committed the offenses alleged in the administrative complaint and, if so, what disciplinary action should be taken.
Findings Of Fact At all times pertinent hereto, respondent, James Brian Cantwell, was licensed by petitioner, Department of Insurance and Treasurer (Department) as an insurance agent. At all times pertinent hereto, respondent was, pursuant to a written agreement of appointment dated January 11, 1993, appointed as an agent for Capital Security Life Insurance Company (Capital) to solicit applications for insurance on behalf of Capital. In exchange therefor, Capital obligated itself to pay respondent such commissions, progress and persistency bonuses, and service fees due under its schedule of compensation for policies issued as a result of applications submitted by respondent. Following respondent's resignation in October 1993, Capital undertook an audit of respondent's accounts. Such audit revealed that between March 17, 1993, and September 23, 1993, respondent submitted to Capital fifty applications for insurance in the name of fictitious or non-existent persons, and that in reliance on each application Capital had issued a policy of insurance and had paid respondent the total sum of $4,035.09 in first-year commissions, progress and persistency bonuses, and service fees for securing such policies. 1/ Such audit further demonstrated that each of the fifty policies lapsed following issuance due to nonpayment of premium. As a consequence, Capital lost the premiums it would have earned had the policies been predicated on legitimate applications and had they remained in effect; however, the value of that loss is not of record. The out-of-pocket loss to Capital as heretofore noted, of $4,035.09, has, however, been established.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department enter a final order revoking the licenses and eligibility for licensure of respondent, James Brian Cantwell. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 1st day of March 1995. WILLIAM J. KENDRICK 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 1st day of March 1995.
The Issue The ultimate issue for determination in this proceeding is whether Petitioner should withdraw Respondent's approval as an Eligible Surplus Lines Insurer in Florida for the reasons stated in the Order To Show Cause.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. Respondent is an alien insurer subject to the provisions of Section 626.918, Florida Statutes. Respondent is organized under the laws of Antigua and Barbuda, B.W.I. Respondent's port of entry is in Florida. Respondent is an unauthorized insurer in the state. An unauthorized insurer is not issued a certificate of authority or license to sell insurance in the state. An unauthorized insurer is made eligible to conduct business in the state pursuant to the Unauthorized Insurer Process Law in Sections 626.904 through 626.912, Florida Statutes. Respondent is eligible to sell surplus lines insurance pursuant to Sections 626.913 through 626.937, Florida Statutes. There are approximately 215 surplus lines insurers in the state. They do not participate in the Florida Guaranty Fund. /1 Surplus lines insurers are not eligible to sell life insurance, basic workers' compensation, or primary automobile liability insurance. Surplus lines insurers are eligible to write only those risks that a licensed carrier in Florida will not write. Respondent derives 100 percent of its business from the sale of insurance in Florida. Respondent's annual premium volume in 1990 was approximately $11.2 million. Of the total premiums received in 1990, approximately $7 million was attributable to physical damage premiums for private passenger automobiles and approximately $4.2 million was attributable to other liability insurance. Respondent filed an annual report for the fiscal year ending December 31, 1990, and quarterly reports for the quarters ending September 30, 1990, and March 31, 1991. Admitted assets on all three reports was comprised primarily of cash and common stock. The reported value of common stock exceeded 10 percent of the reported value of admitted assets in each report. The reported value of admitted assets in the annual report was $13,457,506. Cash and common stock were valued in the respective amounts of $3,490,701 and $8,385,365. The reported value of common stock was approximately 62 percent of the reported value of admitted assets. The reported value of admitted assets in the quarterly report ending September 30, 1990, was $10,450,539. /2 Cash and common stock were valued in the quarterly report for September 30, 1990, in the respective amounts of $1,365,129 and $5,811,711. The reported value of common stock was approximately 55.6 percent of the reported value of admitted assets. The reported value of admitted assets in the quarterly report ending March 31, 1991, was $10,022,106. 3/ Cash and common stock were valued in the quarterly report for March 31, 1991, in the respective amounts of $3,635,626 and $4,676,645. The reported value of common stock was approximately 46.6 percent of the reported value of admitted assets. The date of acquisition, cost, or market value of the common stock cannot be determined from the reports filed with Petitioner or from the other evidence presented during this proceeding. Petitioner would normally use the Securities Valuation Office as an indicator of the proper value of common stock listed in the financial reports. Respondent was requested to submit the particular stock for valuation and failed to do so. 4/ Respondent reported the value stock of subsidiaries and related corporations to be $403,000. The projected ratio of written premiums to surplus as to policyholders was 8.33 percent, or approximately 4.3 percent over the statutory limit imposed on authorized insurers. 5/ The actual ratios for the year, however, were in compliance with statutory limits. Respondent increased its capital by approximately $2.5 million dollars. The infusion of capital in that approximate amount brought Respondent into statutory compliance with respect to both subsidiary stock and net written premium ratios. Respondent is required by law to maintain a trust fund for the protection of its policy holders in an amount equal to the capital and surplus required of authorized insurers. Respondent established a trust fund in the amount of $1 million when it was approved as an eligible surplus lines insurer on August 11, 1988. The amount of the trust fund was equal to the capital and surplus required of authorized insurers at that time and satisfied all state requirements. The amount of capital and surplus required of authorized insurers has subsequently been increased to $1.150 million. Respondent was not charged in the Order To Show Cause with failing to maintain its trust fund in an amount of capital and surplus required of authorized insurers and that issue is irrelevant for the purposes of this proceeding. /6 The trust fund must consist of investments of the same general character and quality as are eligible investments for like funds of like domestic insurers. The trust fund maintained by Respondent is not required to be reflected as a line item in the financial statements contained in any of the reports required to be filed by Respondent and is not separately stated. There is no way to determine from the required financial reports what assets are contained in the trust fund or whether the trust fund assets consist entirely of cash, entirely of common stock, or some combination thereof. Admitted assets include cash on deposit in an amount sufficient to capitalize the trust fund Respondent is required to maintain. Cash on deposit increased $2,125,572 from September 30, 1990, to December 31, 1990, and $144,925 from December 30, 1990, to March 31, 1991. The value of common stock increased $2,573,654 from September 30, 1990, to December 30, 1990, and decreased $3,708,720 from December 30, 1990, to March 31, 1991.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent not guilty of the allegations in the Order To Show Cause and imposing no disciplinary action against Respondent's eligibility as an unauthorized alien surplus lines insurer. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st of January 1992. DANIEL MANRY 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 January 1992.
Findings Of Fact The administratively complaint alleges that Respondent violated the provisions of Section 517,16(1)(a), F.S. by having sold notes, which were securities as defined by Section 517.02(1), F.S., which were unregistored in violation of Section 517.07, F.S., and having represented that said notes were secured by first mortgages when in fact they were not so secured in violation of Section 517.16(1)(d), F.S., on two occasions to Joseph M. and Patricia Barton. The first sale is alleged to have occurred on June 14, 1974, in the amount of $15,000, and the other sale is alleged to hake occurred on September 29, 1973 in the amount of $5,000. The Petitioner introduced Exhibit 1 which was received and which indicates that only the common stock of Equitable Development Corporation was registered with the State of Florida, Division of Securities. The Petitioner presented no evidence relative to the alleged sale occurring on June 14, 1974. It is therefore not proven. The Petitioner called Gregory Stevens who was the sole witness at the hearing and who was a license securities salesman and licensed mortgage broker. In September 1973 Stevens was self employed doing business for Gregory Stevens, Investment Incorporated. Stevens stated that he dealt in first mortgages. Respondent testified that he obtained the mortgage documents through Financial Resources Corp., the president of which was Mr. Rinehart. Respondent was assured by Mr. Rinehart before he began handling these mortgages that they were not required to be registered as securities because they ware exempt, and that the State had so indicated for this type of transaction. Respondent testified that he sold a note and mortgage to his clients, Joseph and Patricia Barton, in his capacity as a licensed mortgage broker on behalf of Gregory Stevens Investments, Inc., of which he is president. Exhibit 10 is a sample order form for another contract which shows that such transactions were in the corporate entity. Respondent's uncontroverted testimony was that only he individually is licensed to sell securities, and that no mortgages were sold as securities. The evidence is that on September 29, 1973, a promissory note of the Equitable Development Corporation was issued to Joseph and/or Patricia Barton, secured by a Mortgage Deed issued by Equitable Development Corporation. The face amount was $5,000. The Bartons also received a quitclaim deed. The mortgage deed specifically covenants that the underlying property is free and clear of all encumbrances except current and future real estate taxes. Respondent testified that he physically examined the property which secured the mortgages and it looked good. He saw appraisals at double the face amount of the mortgages he sold. Those clients who requested title insurance or opinions of title from a lawyer could obtain same, and when they were requested he saw then and they never showed any defects or other encumbrances. This was the procedure followed with the Bartons, although neither title insurance nor a title search and opinion were obtained requested by the Bartons. The Respondent indicated that at the time of said sale to the Bartons that he believed, and had no reason not to believe, that said mortgage was a first mortgage as it recites on its face. The Hearing Officer notes that Section 517.06(7), F.S., 1973, was amended effective October 1, 1973, and the Barton transaction took place on September 29, 1973. Therefore, the applicable provision is the unamended law found at Section 517.06(7), F.S.A. Regarding the law existing at the time and its interpretation, the Respondent also introduced Exhibit 2, 4, and 5 which letters indicate that the sale of notes secured by mortgages would be exempt from registration as exempt transactions pursuant to Section 517.06(7), F.S.A., and setting forth guidelines for exempt transactions. Without dealing with the question of estoppel, these exhibits state the agency's interpretations of the then existing law. The Hearing Officer finds the agency's interpretation as set out in Exhibits 2, 4, and 5 is an accurate interpretation of the statute. The Hearing Officer finds that a note is a security as defined in Section 517.02(1), F.S. Regarding the allegation that the note sold to the Bartons was an unregistered security, it is admitted that it was not registered, however, the Respondent asserts that the sale was a transaction exempted under the provisions of Section 517.06(7), F.S.A. Having examined the note and mortgage in question, the Hearing Officer finds that the note and entire mortgage securing it were sold in a single sale to one purchaser. The note and mortgage do not indicate any expressed recourse agreement or guarantee as to repayment of interest, principal, or both offered in connection with the sale. While the Respondent could not specifically recall the Barton transaction, he testified that purchasers were generally shown the property, an assessment of the property prepared by an appraiser indicating each lot's value, and it was represented that they would receive a first mortgage securing the note on lots worth two times the value of the note. There was no showing that the Respondent knew or should have known the mortgage to the Bartons was not a first mortgage and title to the property not clear. The transaction of September 29, 1973, was exempt under the law existing at that time. The Petitioner therefore has failed to show any violation of Section 517.16(1)(d), F.S.
Recommendation The agency having failed to show a violation of Section 517.16(1)(d), F.S., by the Respondent and the Hearing Officer having found that the September 29, 1973 transaction was exempt recommends that the charges be dismissed. DONE and ORDERED this 27th day of February, 1976. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Fred O. Drake, III, Esquire Counsel for Petitioner Charles W. Musgrove, Esquire Counsel for Respondent
