02-004763PL Department Of Financial Services, F/K/A Department Of Insurance vs. Martha Shows Naughton Status: Closed Recommended Order on Friday, June 20, 2003.

Summary: Without authority, Respondent applied for insurance from a company in a fraudulent manner.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, f/k/a DEPARTMENT )

OF INSURANCE, )

)

Petitioner, )

)

vs. ) Case No. 02 - 4763PL

)

MARTHA SHOWS NAUGHTON, )

)

Respondent. )

___ )

RECOMMENDED ORDER

Notice was provided and on March 7, 2003, a formal

hearing was held in this case. Authority for conducting the

hearing is set forth in Sections 120.569 and 120.57(1),

Florida Statutes. The hearing location was the City Hall,

City Council Chambers, 245 South Mulberry Street, Monticello,

Florida. The hearing was conducted by Charles C. Adams,

Administrative Law Judge.

APPEARANCES

For Petitioner: Da vid J. Busch, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

645A Larson Building

Tallahassee, Flo rida 32399 - 0333

For Respondent: David W. Collins, Esquire

Post Office Box 541

Monticello, Florida 32345

STATEMENT OF THE ISSUE

Should Petitioner impose discipline against Respondent's

insurance licenses as a Life and Health (2 - 18) and General

Lines Agent (2 - 20)?

PRELIMINARY STATEMENT

Petitioner, through an Administrative Complaint in Case

No. 62279 - 02 - AG, accused Respondent in a single count of

violating various provisions in its regulatory code, Chapter

626, Florida Statutes. This Administrative Complaint was in

association with an application for home owners insurance made

by George Carswell to American Strategic Insurance Company

(ASI). Respondent disputed the factual allegations in the

Administrative Complaint and requested a hearing pursuant to

Section 120.57(1), Florida Statutes, before the Division of

Administrative Hearings (the Division).

On December 10, 2002, the Division received the request

for formal hearing and assignment of an Administrative Law

Judge. The case was scheduled and heard as described.

At hearing Petitioner presented the testimony of Corinn

Marie Smith and Cynthia Elizabeth Gray. Petitioner's Exhibit

numbered 1 was admitted as evidence. It is the deposition

transcript of Rodney Dwayne Caan. Respondent testified in her

own behalf and presented the testimony of Corinn Marie Smith

and Ferdinand Edward Naughton II. The parties' Joint Exhibits

numbered 1 through 12 were admitted.

In response to a prehearing o rder the parties submitted a

stipulation of facts. The stipulation of facts is accepted

and those facts will be related in the fact - finding in the

recommended order.

On March 26, 2003, the hearing transcript was filed with

the Division. Pursuant to the agreement between counsel and

the Administrative Law Judge, the time for filing proposed

recommended orders was extended beyond the normal ten - day

opportunity for post - hearing submissions. The due date for

submitting the proposed recommended orders became May 7, 2003.

Petitioner met that deadline. Petitioner's proposed

recommended order has been considered. Although Respondent's

proposed recommended order was filed May 8, 2003, it has also

been considered. With the delay for filing proposed

recommended orders the requirement that the recommended order

be entered within 30 days of the receipt of the transcript has

been waived. Rule 28 - 106.216(2), Florida Administrative Code.

FINDINGS OF FACT

Stipulated Facts:

1. Respondent is currently licensed in Fl orida as a Life

and Health (2 - 18) and General Lines Agent (2 - 20), having (been

assigned) license number A189702.

2. At all times pertinent to the dates and occurrences

referred to in the Administrative Complaint, Respondent was

licensed in Florida to tr ansact property and casualty

insurance.

3. The Department has jurisdiction over Respondent's

insurance licenses and appointments.

4. Respondent was never an appointed agent with ASI.

5. Respondent's husband, Ferdinand Naughton II, was

appointed a s an insurance agent for ASI.

6. At all times pertinent to the allegations in the

Administrative Complaint, Respondent was employed at Morrow

Insurance of Monticello.

7. Respondent signed the name of her husband to the

insurance application at i ssue.

Additional Facts:

8. The house upon which the insurance application was

completed by Respondent had approximately 3,500 square feet of

heated and cooled space. The home had an additional 1,500

square feet of porches and carports. The core o f the house

had been made of pine. It was constructed in the 1830s in

Georgia and later transported from Georgia to Jefferson

County, Florida. The balance of the residence was constructed

in the mid - 1970s. The newer construction was a frame house.

The new portion was constructed not long after the original

structure had been moved from Georgia to Florida.

9. George Carswell, the applicant for the subject

insurance and his wife Caroline Carswell, owned the property

upon which the house was located at the time the application

was made.

10. The property had been deeded to the husband and wife

about one year before the insurance application date. It was

deeded by Virginia Carswell, George Carswell's mother,

concerning the mother's life estate in the pr operty. Aside

from the life estate, George Carswell had purchased the

property upon which the residence was found sometime in the

early 1970s. The total acreage owned by George Carswell where

the house was located consisted of four hundred - plus acres.

A t the time the application for insurance was made on the

home, Virginia Carswell held a mortgage and note from George

and Caroline Carswell for $225,000.00.

11. The residence in question had an internal burglar

alarm system in which doors to the residen ce were monitored

and an audible sound was emitted if the space was violated.

The power to operate the burglar detection system was through

electric power provided to the house. In addition, two smoke

detectors were installed in the house that were batte ry

operated. No devices to detect fires or burglars were

installed and monitored off - site.

12. The Monticello Volunteer Fire Department is located

approximately 4.8 miles from the residence related to the

subject insurance application.

13. At the ti me the policy was applied for, the

Carswells were not living in the home. The home was being

painted and other improvements made.

14. From January 2001 until sometime prior to April 6,

2001, George Carswell had spent between $20,000.00 and

$25,000.00 i n the refurbishment of the home.

15. As recently as the period August 2, 1996 through

August 2, 1997, the Morrow Insurance Agency of Monticello had

written a basic coverage policy through Allstate Insurance

Company on the subject residence for the benefit of Virginia

Carswell. The amount of the basic coverage was $225,000.00

reflecting the year the home was built as 1976. The Allstate

coverage for Virginia Carswell on the home in question was not

written by Respondent. Respondent was aware that the prope rty

had been insured by Allstate through the Morrow Agency in the

amount stated with Virginia Carswell, policyholder.

16. Respondent knew that Virginia Carswell held the

mortgage on the property in question that has been described.

17. Respondent wa s personally familiar with the home in

question, having visited the home three to four times, as

recently as March 8, 2001, for a birthday party.

18. While attending the birthday party at the home,

Respondent observed beautiful oriental rugs in the home and

antique furniture. Respondent was not aware of the value of

the oriental rugs and antique furniture that she saw. She did

not observe any on - going construction in the rooms that she

saw on that visit. From what Respondent saw the kitchen had

not bee n redone. The downstairs bathroom had not been redone,

nor the dining room. The roof had not been replaced. The

back porch had not been glassed - in or the carport closed - in.

Respondent did observe that the kitchen cabinets had been

refinished.

19. On De cember 1, 2000, George Carswell made an

application with Affiliated Insurance Agency in Tallahassee,

Florida, another ASI agent, to insure the subject property for

a period from that date through December 1, 2001. The total

premium quoted was $6,668.00. Pertinent data in the

application indicated, consistent with reality, that fire

protection offered in the home was by a smoke alarm locally

placed and that the distance to the fire department was five

miles or less. The type of policy being quoted was an HO3 for

a frame - construction home. The year of the construction was

stated to be 1950. The value of the house was stated as

$500,000.00, for purposes of the insurance quotation related

to basic coverage.

20. Subsequently, George Carswell made another

ap plication, the application at issue, through the Morrow

Insurance Agency as agent for ASI, which was prepared by

Respondent. Respondent was aware that George and Caroline

Carswell were not living in the subject home on the date the

policy period commenced through the application with Morrow

Insurance Agency. The policy period commenced March 7, 2001,

and ended on March 7, 2002, according to the application.

Respondent prepared the application notwithstanding her lack

of appointment as agent for ASI.

21 . The arrangement for business between ASI and the

Morrow Insurance Agency was one in which F.E. Naughton, II,

alone was the agency principal and registered agent. More

specifically, ASI had an agency arrangement with Morrow

Insurance of Monticello, Inc., through F.E. Naughton, II. The

application for contract had been made by F.E. Naughton, II,

on January 18, 2001. On January 21, 2001, ASI Underwriters

Corp. established the broker agreement with direct billing

between ASI and Morrow Insurance of Montice llo. In that

document, F.E. Naughton, II, signed as agent as of January 18,

2001. The agreement was confirmed by a vice - president with

ASI, through a signature dated January 21, 2001. There was an

addendum to the agreement, which set the commission's

sc hedule, effective January 21, 2001, as executed by F.E.

Naughton, II, and the ASI vice - president on January 18, 2001,

and January 21, 2001, respectively.

22. The agreement between ASI and Morrow Insurance

Agency in the person of F.E. Naughton, II, concerni ng the

opportunities and responsibilities of F.E. Naughton, II, as

the registered agent for ASI stated in pertinent part:

1. AUTHORITY OF AGENT

The Broker grants to the Agent the usual

insurance agency authority subject

specifically to the limitations an d other

terms and conditions of this Agreement to:

*Receive and accept proposals for insurance

only as permitted within the classes and

lines of business shown in the Commission

Schedule and within limits and underwriting

guidelines established by ASI;

*C ountersign and deliver policies,

endorsements, and binders of insurance;

*Collect and receive premiums due ASI for

such insurance; and

*Bind risks, limited to the authority

provided in the ASI binding guidelines and

certain limitations that might be

esta blished at times to limit catastrophic

loss potential.

All of the foregoing authority and powers

shall be subject at all times to

restrictions placed upon Broker and Agent

by the laws or legally enforceable rules

and regulations of the authorities of the

state or states in which Agent is

authorized by Broker to write insurance and

to the terms and conditions of this

Agreement hereinafter set forth.

* * *

5. FIDUCIARY RESPONSIBILITY OF AGENT

Agent shall perform faithfully its duties

as Agent in comp liance with all - applicable

state statutes and regulations,

instructions of Broker, and shall protect

and further at all times the best interests

of Broker. All premiums received by Agent

and due Broker, shall be held by Agent as

trustee for Broker until d elivered to

Broker. . . .

23. Nothing about these terms contemplates the

opportunity for Respondent to take the application from George

Carswell for the subject property and to bind an insurance

policy in substitution for her husband F.E. Naughton, II, t he

true agent for ASI.

24. Respondent realized that she had not been appointed

by ASI to serve as agent; instead, ASI had made an arrangement

with her husband to be its agent. At hearing, Respondent

admitted that the fact that she was not appointed meant , "I

shouldn't sign an application." Moreover, she admitted that

she could not bind the policy with ASI, not being appointed as

its agent whatever the specifics of the risk contemplated by

the application.

25. Joint Exhibit 2 identified as the Division of Fraud

Investigative Report is constituted of a synopsis of facts

about this case and refers to an e - mail on January 4, 2002, to

Phil Fountain, Bureau Chief, Agency and Agency Investigations,

Florida Department of Insurance, in which Mr. Fountain is said

to have advised, "Unfortunately, it is often true and perhaps

'accepted practice' in the industry for one licensed agent to

sign another's name to an application as producing agent,

especially when you have a husband/wife situation." This

report goes on to say "Mr. Fountain did believe that the

Division of Agent and Agency could pursue this case filed

administratively." Assuming Mr. Fountain made these remarks

and the submission of the Joint Exhibit 2 for consideration,

supports that assumption, taken ou t of context, it is unclear

what Mr. Fountain meant. Did he mean that a husband or wife

can sign another's name to an application as producing agent

when both the husband and wife have been recognized by the

insurance company as agent? It would be hard t o imagine that

his remarks can properly be understood to allow what has

transpired in this case where Respondent has signed the George

Carswell application for insurance on the subject property as

F.E. Naughton, when in fact the husband did not take the

ap plication, and by the terms of the agreement between ASI and

the Morrow Insurance Agency, Respondent would not be allowed

to take the application for him, not being an agent for ASI.

F.E. Naughton, II, had never asked Petitioner if it would be

permissible for Respondent to sign his name on a policy

application with ASI. In the end, Respondent may not rely on

the remarks made by Mr. Fountain as a means to defend her

action in executing the application from George Carswell and

signing her husband's name whe n submitting the application for

insurance to ASI. Moreover, the division of labor within the

Morrow Insurance Agency in which F.E. Naughton, II, sold

commercial insurance, Respondent sold homeowners and mobile

home insurance and Ellen Kline, another agen t in the agency,

sold automobile insurance, does not create the opportunity for

Respondent to take the application and sign her husband's name

in the George Carswell matter. F.E. Naughton, II's,

permission for his wife to fill out the application and sign

his name does not legitimize the activity. Even if Respondent

has made a habit of signing her husband's name to applications

for insurance over 25 years, this does not justify signing his

name on this occasion.

26. On March 16, 2001, George Carswell s igned the

application for insurance from ASI. The day the application

was signed by George Carswell, F.E. Naughton, II, was not in

the office. F.E. Naughton, II, the agent for ASI, did not see

the George Carswell application before it was signed. He was

aware only that George Carswell was talking to Respondent

about insuring the dwelling. Respondent signed the name F.E.

Naughton on the line for the agency signature under George

Carswell's signature.

27. While anyone in the office may complete a n

application for insurance, such as in the George Carswell

case, only the agent may sign the application.

28. Respondent in trying to explain the reason why the

application for insurance was signed by George Carswell on

March 16, 2001, but was reflected as effective March 7, 2001,

stated, "I didn't really back date it. We started on 3/7. We

did not finish that application until the day he signed it.

That was when it was completed." Respondent did not believe

that the different dates of March 7, 2001, and March 16, 2001,

had any effect on the issuance of the policy where she

commented that "It was not bound so you don't have to have it

in 72 hours." This explanation does not effectively explain

the discrepancy in the application concerning the date upo n

which the application was signed March 16, 2001, and the date

described as commencing the policy period, March 7, 2001.

29. When the application was completed, in the blocks

related to the issue of whether the policy was bound or not

bound, no choice wa s made by checking the appropriate box.

30. On March 23, 2001, the application was received by

the customer service department for ASI.

31. The ASI form application indicated that the policy

was bound effective March 14, 2001, at 12:01 a.m. The premium

amount was $5,159.00 of which $1,431.75 was paid at the time

of the application.

32. Respondent also sent pictures of the house from the

outside front and back with the application. As alluded to

before, Respondent in consultation with George Carswell,

executed the details within the application, having some

knowledge of the house to be insured.

33. The application reflected that Virginia Carswell

held the mortgage on the property. The application filled out

by Respondent indicated that the dwelling h ad 1,900 square

feet. The reason Respondent gave for putting 1,900 square

feet instead of 3,500 square feet, which is the true number

within the dwelling, is her contention that what is called for

in the application she executed for George Carswell is the

ground floor total square footage. The house has two floors.

She compares the experience with ASI, for whom she had no

authority to act as agent, to that of other companies wherein

she states, "All the other companies I have require [sic] you

to put in the ground square foot, the ground floor square

foot, so that's what I put down, the ground floor square

foot." She holds that view, recognizing that both the

upstairs and downstairs are being insured and are part of the

heated and cooled space. She also acknowledges that the

dwelling being described in the application is the total

dwelling, not the first floor. In filling out the

application, she acknowledges that it does not call for square

footage of the ground floor as opposed to the square footage

o f the overall dwelling. Respondent's explanation for

describing the square footage as 1,900, not the actual 3,500,

is unpersuasive. Respondent misstated the square footage in

the application.

34. The application completed by Respondent erroneously

sta ted that the dwelling had fire protection reporting to a

central station and burglar protection reporting to a central

station.

35. In an earlier statement concerning the fire alarms

and burglar alarms reporting to a central station, Respondent

said, " Well, I'm the one who did this. But, I didn't put in

[sic] there. More likely, I just didn't know mark that one

[sic] . . . was marked. It would've been alright." Then at

hearing Respondent testified that George Carswell had told

Respondent that the fi re alarms were in the house in every

room and that the application referenced to a central system,

". . . it should not have been that, it should have been just

the fire alarm," referring to an internal system, not one

connected to a central station. Conc erning the burglar alarm

system, Respondent, in her testimony at hearing stated, "I

couldn't understand what he was saying. He was saying 'oh,

you know those alarms'. Well, no and he never . . . that's

all he ever told me was alarms, fire alarms." This was taken

to mean that the George Carswell never told Respondent that

there was a burglar alarm system reporting to a central

station. On the whole, Respondent is found to have filled out

the application to falsely reflect that fire protection and

burglar protection were available in the dwelling reporting to

a central station with a consequence that the applicant was

given a substantial discount in the insurance premium that was

unauthorized.

36. In the application, Respondent separately valued the

dwell ing at $775,000.00, when by contrast the BOECKH

Residential Valuation Process performed by Respondent listed

the value as $259,000.00. This is compared with the amount of

basic coverage on the dwelling when Virginia Carswell was the

insured in the period August 2, 1996 through August 2, 1997,

amounting to $225,000.00.

37. In an attempt to explain the difference between the

BOECKH value and the much larger amount in the application

pertaining to general coverage for the dwelling, Respondent,

in a statemen t given prior to hearing, refers to a letter from

Maddog Construction in which that builder indicated that the

replacement cost for the house approached $200 per square

feet. Respondent describes the letter where she states, "If

the you read the letter fr om the builder, $200 is square foot

times 3,500 feet . . . ." By extension of the Respondent's

view that would mean the value would be $700,000.00, not

$775,000.00, accepting George Carswell's representations that

the overall square footage in the house i s 3,500 square feet.

In her statement made before hearing concerning valuation,

Respondent stated, "What I do know about the house is that its

all hand - done. The wood has been cut. The floors were out of

pine, antique floors. The baseboards were 12 inc hes high

hand - cut. Um, the wood, the wood paneling was hand - cut, laid

and carved." Respondent acknowledges that none of these

features in the house were part of the application.

Respondent refers to some conversation with an unnamed person

in an unnamed location concerning the difference in the price

of the BOECKH value and the higher general coverage

information for the dwelling, whereas in the statement made

before hearing, Respondent says, "This is what, this is what

we were trying to tell some lady when we called about the

differences. And, she said not to worry about it. That when

the inspector came, he would see all of this and it would be

okay. Just send it on in." This inspector is taken to mean

an inspector from ASI. No inspector ever came to reconcile

the difference between the BOECKH value and the higher general

coverage information for the dwelling as submitted by

Respondent in the application. In another place in the

statement made by Respondent prior to hearing in response to a

questio n concerning what would make the house worth

$775,000.00, Respondent said, "Because of the woodwork in it."

Respondent refers in her statement before hearing to the

coverage from Allstate when Virginia Carswell had insured the

dwelling at $225,000.00, com pared to the request for coverage

in the amount of $775,000.00 in the application at issue. The

difference is attributable to the Maddog replacement value

letter wherein through the earlier statement made, Respondent

says, "Then I asked George for some so rt of a appraisal to go

with it and, when he got the appraisal from the builder, the

one that had done it, he was the one that increased the value

of it." Then in her statement made prior to hearing,

Respondent refers to the cost of $200 a square foot val ue and

the subject dwelling where she says, "I used $200 because the

newer houses in Tallahassee that are very nice homes today,

are being built for $200 a square foot. And they are not

fancy homes." Later in that statement, she says, "We have

general co ntractors. We have one who just finished his home

and it was $200 a square feet [sic]. Westminster Oaks is

building little brick houses and ten years ago they were

charging $200 a square foot." When confronted with the fact

that $200 a square foot multi plied by 3,500 and equals

$700,000.00 not $775,000.00 in the application, Respondent

then indicated in her earlier statement in explaining how the

$775,000.00 was arrived at, "Well, George told me the bank

wanted $775,000." When asked what bank, Responden t stated,

"Whoever it was. I don't know. So, that's what I did, and he

knew it too, that when it was inspected, if this was not

corrected, he would have to come down to whatever the

inspector said." Ultimately, Respondent indicated in her

earlier statem ent that the insured value went from $230,000.00

to $775,000.00 "because I had the letter from Maddog."

38. At hearing, in her testimony, when asked if she had

a problem with placing $775,000.00 coverage value on it, she

said, "Yes I did, yes I did." N onetheless, she indicated she

was duty - bound to pass the application along to the insurance

company. She explained that duty to be associated with the

belief that an ASI inspector would inspect the home to make

certain the valuation was correct. At heari ng Respondent

testified that she told George Carswell several times that the

policy would probably not be approved for the amount of

$750,000.00.

39. Having considered Respondent's explanations, there

was no reasonable basis for filling out the applicati on

indicating that the dwelling was worth $775,000.00 in relation

to insurance coverage.

40. In the application, Respondent stated that the year

that the dwelling was constructed was 1975. While additions

were made to the home around that time, Responde nt knew that

the core of the home was constructed in the 1800s.

41. In explaining the reason why she indicated that the

year of construction of the dwelling was 1975, in her

statement prior to hearing, Respondent said, "That's when it

was put there and re - plumbed, rewired, re - roofed. The whole

thing was redone. So, according to the book, you count that

as the age." The book referred to was from "ASI." Respondent

commented in the statement prior to hearing, "It was

completely rebuilt." Further she sa id, "Yeah. I mean, they

came in, and there it was with the walls, no porches on it, no

wiring in it. They had to replace everything in it just like

building a new house from the ground up."

42. In testimony at hearing, Respondent refers to George

Carswe ll's father and the changes made around 1975 to the

dwelling where she stated, "When he brought the house in, he

had it completely fixed. They added bedrooms on. They added

porches, carports, and things, and a big deck in the back ---

not a deck, but a bri ck area in the back to overlook the

lake." She refers also to the provision of central heat and

air. Later in the hearing testimony, Respondent refers to the

reason for stating that the house was built in 1975 as that

date being "When they did all the ad ditions, they added over

60 percent to the house."

43. Contrary to Respondent's representations concerning

the expectation of the ASI Home Owner's Program Manual, in

identifying the age of the dwelling, the dwelling in question

would not be considered as constructed in 1975. The manual

states in reference to the age of the dwelling:

Age is determined by subtracting the year

in which construction of the residence was

completed from the year in which the policy

is effective.

If acceptable documentation d emonstrates

that a residence has been totally

renovated, the year in which the total

renovation began may be used as the date of

construction. Total renovation will

require totally new electrical, plumbing

(above the slab), heating and A/C, roof and

windo w systems, and must be verified by a

certified inspector based on an onsite

inspection. Submit Prior to Binding .

44. Whatever the nature of the additions and

improvements at the dwelling, they were not verified by a

certified inspector based on an onsite inspection as

Respondent reports the facts. Such information from a

certified inspector based on an onsite inspection was not

submitted prior to the binding of the policy. Therefore, the

age of the dwelling could not be considered as 1975.

45. The plan code for issuing the policy established by

Respondent in the application was HO3. The ASI Homeowner's

Program Manual calls for the policy to be written as an HO8

because under that manual it would be considered a home

greater than 30 years old. Responden t would have realized the

need to prepare the application under Plan Code HO8 had she

properly utilized the manual.

46. In the application related to underwriting

information on the line to describe the prior insurance

carrier, Respondent indicated that the applicant for

insurance, "just purchased home." This was not true.

47. When asked whether Respondent was aware of the date

upon which George Carswell had been deeded an interest in the

property, Respondent revealed that she was not aware of it at

the time she filled out the application. That omission made

it inappropriate for her to say that the property was just

purchased when filling out the application.

48. Concerning underwriting information as to prior

claims by the applicant George Carswell , Respondent indicated

that there were no prior claims when completing the

application. Respondent perceived this question on the

application as pertaining to homeowner losses only. In a

prior statement before hearing, when asked whether Respondent

had i nquired of George Carswell about any prior claims,

Respondent stated, "Not for homeowners I didn't because I know

him. He's not had any homeowner's claims. I'm insuring the

home period, I'm not insuring a car. I'm not insuring him a

boat. I'm insuring his home." When asked whether the

application being completed was specifically in relation to

homeowner claims, in the earlier statement given by Respondent

she said, "No, but if that's what I'm providing, then that's

what I'm going to insure. That's wha t I'm interested in. I'm

not interested in if he's had a car claim. I'm not interested

in if he's had a boat claim. I'm interested in if he's had a

homeowner's claim." In the testimony at hearing, Respondent

continued to hold to the view that the quest ion in the

application concerning prior losses was "just dwellings." But

Respondent knew that George Carswell had sustained other fire

losses unrelated to dwellings. What exact knowledge

Respondent had of other forms of losses suffered by George

Carswell not for a home was not specifically identified in the

record.

49. The Homeowner's Program Manual for ASI addresses

loss history where it states:

Risk with one previous property claim

within the last three years may be bound

based on agent's judgment.

Risks with any previous personal liability

claims and/or two or more property claims

should be referred to company before

binding.

50. Whether George Carswell's other property losses, not

pertaining to a home, may have allowed this policy to be bound

by Respondent or referred to the company for binding was not

established. But this uncertainty in the record does not

justify Respondent indicating that there were no prior claims

by George Carswell.

51. In completing the application, Respondent, in

descri bing general coverage information, listed the property

as Protection Class 09. In accordance with the ASI's

Homeowners' Program Manual, description of eligibility for

underwriting purposes, homes located on more than five acres

and located in Protection C lass 09, are ineligible risks.

Respondent, in testimony at hearing, stated "Mr. Carswell told

me his mother had deeded him the house and from five to seven

acres, more or less. The rest of the property was owned -- was

family." To the contrary, George Ca rswell, in his written

statement, indicated that the property in question was on

seven acres when his mother and father had insured the

property, but denies that he would have told Respondent or her

husband that the property being insured on this occasion was

limited to seven acres. Having considered George Carswell's

statement and Respondent's testimony, it is not accepted that

Respondent was told by George Carswell that the property upon

which the house was located was of five or less acres, making

it an eligible risk for underwriting purposes according to the

Homeowners' Program Manual.

52. On March 23, 2001, the application for insurance on

the George Carswell property was received by ASI, indicating

on its face that the property was bound effective Ma rch 14,

2001. No indication was made on the signature page concerning

whether the coverage was bound or not bound by checking the

appropriate box. In a subsequent submission of the

application to ASI faxed by the Morrow agency on April 6,

2001, the signa ture page indicated that the policy had not

been bound by a check mark in that box, while the lead page to

the application continued to say that the policy was bound

effective March 14, 2001. Respondent had checked the "not

bound" box with the resubmissio n of the application faxed

April 6, 2001.

53. According to the ASI Homeowners' Program Manual, an

agent could bind coverage for a maximum of $350,000.00,

assuming that the risk met other eligibility/underwriting

guidelines. As discussed, those guideline s were not met and

yet the application was prepared and signed by Respondent, a

person not appointed by ASI to write coverage, with some

indication that the policy was bound.

54. As a result of the application prepared and

submitted by Respondent, ASI iss ued the insurance as evidenced

by the homeowners' declaration page in which the dwelling was

insured for $775,000.00, effective March 7, 2001 through March

7, 2002. The ultimate decision to issue the policy made by

ASI has not been explained in this recor d. It is without

question that Respondent promoted the application leading to

the issuance of a policy to George Carswell.

55. On or about April 6, 2001, the George Carswell home

was destroyed by fire of undetermined origin. As a result of

the fire, ASI deemed it necessary to pay the mortgage balance

to Virginia Carswell in the amount of $225,268.49, constituted

of $212,485.00 in principal plus interest related to the

George Carswell mortgage and promissory note secured by the

home.

CONCLUSIONS OF LAW

5 6. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter

consistent with Sections 120.569 and 120.57(1), Florida

Statutes.

57. Petitioner must prove the allegations in the

Administrative Complaint by clear and c onvincing evidence.

Department of Banking and Finance v. Osborne Stern and

Company , 670 So. 2d 932 (Fla. 1996)

58. In turn, Respondent is accused of having violated

the following provisions within Chapter 626, Florida Statutes

(2001):

626.611 Ground s for compulsory refusal,

suspension, or revocation of agent's, title

agency's, solicitor's, adjuster's, customer

representative's, service representative's,

or managing general agent's, license or

appointment. -- The department shall deny an

application for , suspend, revoke, or refuse

to renew or continue the license or

appointment of any applicant, agent, title

agency, solicitor, adjuster, customer

representative, service representative, or

managing general agent, and it shall

suspend or revoke the eligibil ity to hold a

license or appointment of any such person,

if it finds that as to the applicant,

licensee, or appointee any one or more of

the following applicable grounds exist:

* * *

(5) Willful misrepresentation of any

insurance policy or annuity contract or

willful deception with regard to any such

policy or contract, done either in person

or by any form of dissemination of

information or advertising.

* * *

(7) Demonstrated lack of fitness or

trustworthiness to engage in the business

of i nsurance.

(8) Demonstrated lack of reasonably

adequate knowledge and technical competence

to engage in the transactions authorized by

the license or appointment.

(9) Fraudulent or dishonest practices in

the conduct of business under the license

or appo intment. . . .

626.621 Grounds for discretionary refusal,

suspension, or revocation of agent's,

solicitor's, adjuster's, customer

representative's, service representative's,

or managing general agent's, license or

appointment. -- The department may, in its

discretion, deny an application for,

suspend, revoke, or refuse to renew or

continue the license or appointment of any

applicant, agent, solicitor, adjuster,

customer representative, service

representative, a managing general agent,

and it may suspend or revoke the

eligibility to hold a license or

appointment of any such person, if it finds

that as to the applicant, licensee, or

appointee any one or more of the following

applicable grounds exist under

circumstances for which such denial,

suspension, revoca tion, or refusal is not

mandatory under s. 626.611:

* * *

(2) Violation of any provision of this

code or of any other law applicable to the

business of insurance in the course of

dealing under the license or appointment.

(3) Violation of any lawfu l order or rule

of the department.

* * *

(7) Willful overinsurance of any property

or health insurance risk.

626.9541 Unfair methods of competition and

unfair or deceptive acts or practices

defined. --

(1) UNFAIR METHODS OF COMPETITION AND

UNFA IR OR DECEPTIVE ACTS. -- The following

are defined as unfair methods of

competition and unfair or deceptive acts or

practices:

* * *

k) Misrepresentation in insurance

applications . --

1. Knowingly making a false or fraudulent

written or oral statem ent or representation

on, or relative to, an application or

negotiation for an insurance policy for the

purpose of obtaining a fee, commission,

money, or other benefit from any insurer,

agent, broker, or individual. . . .

59. As well, the Administrative Complaint contemplates

consideration of the following provisions of Chapter 626,

Florida Statutes (2001):

626.104 "Appointment" defined. -- An

"appointment" is authority given by an

insurer or employer to a licensee to

transact insurance or adjust claims on

behalf of an insurer or employer.

626.0428 Agency personnel powers, duties,

and limitations. --

* * *

(2) No employee of an agent or agency may

bind insurance coverage unless licensed and

appointed as a general lines agent or

customer represe ntative.

(3) No employee of an agent or agency may

initiate contact with any person for the

purpose of soliciting insurance unless

licensed and appointed as a general lines

agent, customer representative, or

solicitor.

626.112 License and appointmen t required;

agents, customer representatives,

solicitors, adjusters, insurance agencies,

service representatives, managing general

agents. --

(1)(a) No person may be, act as, or

advertise or hold himself or herself out to

be an insurance agent, customer

r epresentative, solicitor, or adjuster

unless he or she is currently licensed and

appointed.

626.441 License or appointment;

transferability. -- A license or appointment

issued under this part is valid only as to

the person named and is not transferable to

another person. No licensee or appointee

shall allow any other person to transact

insurance by utilizing the license or

appointment issued to such licensee or

appointee.

60. The facts found on clear and convincing evidence

prove that Respondent has vio lated the provisions of law cited

with the exception of Section 626.621(3), Florida Statutes.

Respondent had no appointment with ASI. Lacking authority,

she still prepared the application for insurance knowing it

contained false information. The informa tion was willfully

misrepresented and willfully deceived persons who would rely

upon the application for its accuracy. At the same time,

Respondent demonstrated a lack of knowledge and technical

competence when completing the application. Through the

app lication, Respondent willfully sought to over - insure the

property. Her acts were dishonest. Her acts were fraudulent.

Her acts demonstrated a lack of fitness or trustworthiness to

engage in the business of insurance, serving as a fiduciary

for both her customer George Carswell and ASI. See Natelson

v. Department of Insurance , 454 So. 2d 31 (Fla. 1st DCA 1984).

The purpose which Respondent had in mind for executing the

application can be inferred as being in the interest of

obtaining a commission for th e benefit of the Morrow insurance

agency of which she was a member.

61. Respondent is subject to the penalties described in

Rules 4 - 231.080, Florida Administrative Code, as influenced by

Rule 4 - 231.160, Florida Administrative Code, pertaining to

aggravat ing and mitigating factors. Any suspension may not

exceed two years. Section 626.641(1), Florida Statutes

(2002).

RECOMMENDATION

Based on the facts found and the conclusions of law

reached, it is

RECOMMENDED:

That a final order be entered finding t he violations

referred to and suspending Respondent's licenses in Life and

Health (2 - 18) and General Lines (2 - 24) for one year.

DONE AND ENTERED this 20th day of June, 2003, in

Tallahassee, Leon County, Florida.

CHARLES C. ADAMS

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 20th day of June, 2003.

COPIES FURNISHED:

David J. Busch, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

645A Larson Building

Tallahassee, Florida 32399 - 0333

David W. Collins, Esquire

Post Office Box 541

Monticello, Florida 32345

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Mark Casteel, General Counsel

Department of Financial Services

The Capitol, Lower Level 11

Tallahassee, Florida 32399 - 0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any

exceptions to this recommended order should be filed with the

agency that will issue the final order in this case.