06-002629 Union Labor Life Insurance Company vs. Office Of Insurance Regulation Status: Closed Recommended Order on Friday, August 3, 2007.

Summary: The evidence showed that Petitioner is entitled to a certificate of authority. The order includes a discussion of estoppel.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

UNION LABOR LIFE INSURANCE )

COMPANY , )

)

Petitioner , )

)

vs. ) Case No. 06 - 2629

)

OFFICE OF INSURANCE REGULATION , )

)

Respondent . )

)

RECOMMENDED ORDER

Pursuant to Notice, t his matter came on for hearing before

Diane Cleavinger, a duly - designated Administrative Law Judge of

the Division of Administrative Hearings, on April 10 - 13, 2007, in

Tallahassee, Florida.

APPEARANCES

For Petitioner : Robert Thomas Wright, Esquire

Coffey, Burlington, Wright, LLP

2699 South Bayshore Drive, Penthouse

Miami, Florida 33133

Jeffrey A. Mishkin, Esquire

Skadden, Arps, Slate, Meagher

a nd Flom , LLP

Four Times Square

New York, New York 10036

For Respondent: S. Marc Herskowitz, Esquire

Assistant General Counsel

Office of Insurance Regulation

612 Larson Building

200 Gaines Street

Tallahassee, Florida 32399 - 4206

STATEMENT OF THE ISSUE

Whether P etitioner , t he Unio n Labor Life Insurance Company

(U n ion Labor Life) , is entitled to a certificate of authority to

transact insurance in the State of Flo r ida.

PRELIMINARY STATEMENT

By letter dated April 17, 2006, R e spondent , Office of

Insurance Regulation (OIR) , notifie d Union Labor Life of its

disapproval of Union Labor Life’s application for a certificate

of authority to transact insurance in Florida. U n ion Labor Life

challenged OIR’s disapproval and filed a Petition for Formal

Hearing. The Petition was forwarded to the Division of

Admini s trative Hearings.

Prior to the hearing, OIR filed a m o tion in limine to

preclude consideration of an unexecuted consent order. At the

commencement of the hearing, the pa r ties presented oral argument

on the motion . The motion in limine was granted . To preserve

the issue for further review, Union Labor L ife made an offer of

proof regarding the unexecuted consent order .

At the hearing, Union Labor Life offered the testimony of

three witnesses: Mark Singleton, chairman and chief executive

o f ficer of Union Labor Life; Andrée St. Martin, an employee

benefits attorney and a principal in the Groom Law Group

Chartered, Washington, DC; and Teresa Valentine, Union Labor

Life’s vice president, general counsel and chief compl i ance

o fficer. Union Labor Life also offered the deposition testimony

of two witnesses: Jay Ri d der and William Kane, partners in Ernst

& Young LLP, Philadelphia, Pennsylvania. Additio n ally, Union

Labor Life offered 60 exhibits into evidence. OIR offered the

t estimony of Charles Robert Norris, the f i nancial administrator

in the OIR B ureau of Health and L ife F inancial O versight, and

offered 42 exhibits into evidence. Additionally, 13 joint

exhibits were submitted into evidence.

After the hearing, Petitione r submitted a Proposed

Recommended Order on May 15, 2007. Likewise, Respondent

submitted a Proposed Recommended Order on May 15, 2007.

FINDINGS OF FACT

1. Union Labor Life is a l i censed insurer legally domiciled

in the State of Maryland, with its pr incipal place of bus i ness in

the Distr ict of Columbia . It is a privately held company and

wholly owned subsidiary of ULLICO Inc. (ULLICO). It has been in

exi s tence since 1925.

2. Union Labor Life is in the business of providing

insurance protection , inves t ment products, and other financial

services to u n ions, union me m bers, and multi - employer pension,

health and we l fare, and other employee benefit funds.

3. Currently, Union Labor Life is authorized to engage in

the business of insu r ance in 49 states and the District of

Columbia . Florida is the only state that Union Labor Life is not

cu r rently authori zed to engage in the business of insurance.

4. Union Labor Life had engaged in the insurance business

in Florida under a certificate of au thority issued on May 24,

1954.

5 . Between the late 1990’s through 2001 , Union Labor Life

was run by a senior management group who engaged in an improper

course of self - dealing in the stock of Union Labor Life’s pa r ent

corporation, ULLICO. A lthough that course of conduct did not

harm Union Labor Life policyholders, it unjustly enriched certain

directors and senior officers of ULLICO at the expense of

U L LICO’s institutional shareholders, most of which are labor

unions and their affil i ated pension and employee benefit funds.

After the allegations against these officials arose , a battle for

control of the Company ensued , creating considerable tumult

within the company .

6 . By the end of 2001, i n part because of the self - dealing

enga ged in by cert ain officers and b oard members, Union Labor

Life no longer met the capital and surplus requirements contained

in Section 624.408, Florida Statutes. The Company’s financial

difficulties were reflected in the Quarte r ly Financial Statements

it filed with the Department of Insurance (Department), the

predecessor agency to OIR.

7 . On December 13, 2001, after reviewing the September 30,

2001, Quarterly Statement of Union Labor Life, the Department

informed the company that it was not in compliance with Flo rida’s

capital and surplus requirements. The Department notified Union

Labor Life that compliance must be achieved by the end of 2001.

8. Subsequently, during the same tumultuous time period ,

the Department and Union Labor Life attempted to resolve its

licensure and financial issues.

9. In April 2002, former Illinois Governor James R.

Thom p son’s law firm was retained by the ULLICO board of directors

to investigate the allegations of self - dealing and wrongdoing by

certain directors and senior of ficers. During the same time

period, some of the implicated d irectors and managers retained

another law firm to investigate the allegations made against

them.

1 0 . O n July 3 , 20 02, the company and the Department

entered into a C onsent O rder. The a greement stated that Union

Labor Life suffered from serious capital and surplus problems in

violation of Section 624.408, Florida Statutes, was out of

compliance with maximum insurance writing ratios in violation of

Section 624.4095, Florida Statutes, had investments in

subsidiaries in excess of statutory limits in violation of

Section 625.325, Florida Statutes, and had excessive investments

in individual mortgages in violation of Section 625.305, Florida

Statutes.

11 . The Consent Order , also, refer red to a Corrective

Action Plan submitted by the company on April 24, 2002, that

Union Labor Life believed would bring it back into compliance

with Sections 624.408 and 624.4095, Florida Statutes, by the end

of the third quarter of 2002. In the event the company was not

in compliance with the aforementioned statutes, Union Labor Life

agreed that it’s “Certificate of Authority shall be immediately

suspended in the State of Florida.”

12 . Paragra ph 9 of the Consent Order states :

ULLIC enters into th is agreement with the

DEPARTMENT and agrees that its Certificate

of Authority in this state as a foreign

insurer shall be suspended if the quarterly

report for September 30, 2002 does not show

compliance with the Florida Insurance Code.

. .

13 . The Consent Order also states:

Upon compliance with said section and

p ursuant to Section 624.421(4), F lorida

S tatutes, ULLIC shall submit documentary

evidence verifying its compliance with

Sections 624.408 and 624.4095, F lorida

Statutes, and requesting reinsta tement of

its Certificate of Authority.

14 . As required, in mid - November 2002, Union Labor Life

submitted its quarterly financial report for the period ending

September 30, 2002 . Although Union Labor Life had instituted

some of its corrective actio n plan , it had not cured all the

financial problems that led to the issuance of the Consent

Order. Therefore, by letter dated November 20, 2002, the

Department notified Union Labor Life that it remained in

violation of the Florida Insurance Code and in ac cordance with

the terms and conditions of the Consent Order, its Certificate

of Authority was suspended.

15 . As a result of the suspension of its Certificate of

Authority and per the terms of the Consent Order, Union Labor

Life agreed inter alia , t o immediately cease writing all new

direct business in Florida, immediately cease the assumption of

policies on Florida residents and issue no new insurance

policies in Florida. Policies that were already in force prior

to the suspension remained in force with Union Labor Life

administering, servicing and providing benefits as those

policies required. By the terms and conditions of the Consent

Order, Union Labor Life was also required to continue to file

all documents and information with the Department a nd comply

with all statutory requirements for foreign in surers licensed in

this State.

16 . Additionally, Union Labor Life was required to “send a

notice to all Florida agents alerting them that ULLIC can no

longer write new business in the state of F lorida” and to

provide the Department with a copy of the notice.

17 . Initially , Union Labor Life contested the suspension,

and through local Florida Counsel, Douglas Mang, Esquire, filed

a Motion to Stay Enforcement of Consent Order and Memorandum in

Support of Motion .

1 8 . Local counsel n egotiated with the D epartment in an

effort to resolve or delay the license suspension .

19 . Union Labor Life expected the time until it would

comply with the financial requirements of Florida to be in t he

near future. It, therefore, thought any suspension would be

short - lived . I n order to preserve its Florida sales agent force

and to avoid unnecessarily alarming its Florida polic y holders,

Union Labor Life w anted the suspension to be more like a

volunta ry cessation of business and to represent the suspension

to the public as a voluntary cess a tion in the company’s writing

of new business. T he D epartment also felt that Union Labor Life

would comply with the financial requirements of Florida in the

near fu ture and did not want to harm the company any further.

However, somewhat troublingly, the Department p ermitted Union

Labor Life to represent to the public that it had voluntarily

consented to cease writing new business in Florida. Somewhat

more troubling and i n addition, the Department agreed to post a

public comment on its computer system for the Depar t ment’s

consumer service personnel to read if the Department r e ceived an

inquiry about Union Labor Life from a member of the public. The

pu b lic comment st ated:

Effective November 22, 2002, the Company has

volunta r ily consented to cease writing new

business in Florida. The Company will

continue to renew existing policies as well

as service and maintain its existing

business in Flo r ida.

Although the same computer screen also showed the status of the

company’s certificate as suspended as of November 22, 2002,

whether that info r mation would be communicated to an inquiring

member of the public “would depend on wh o ever the operator was

that was receiving the calls.” There was no evidence that a

member of the public could access the suspension information on

their own over the internet. Similarly the letter sent to the

agents utilized language similar to the text quoted above. This

letter was also agreed to by the Department. The fact that the

D epartment felt these representation s were “spin” was not

communicated clearly to the corporate offices of Union Labor Life

and resulted in a situation where later corporate officials and

OIR personnel would disagree o n the nature of the suspension and

how that suspension should be represented in various filings made

with OIR .

20 . The report drafted for the accused officers and

directors was known as the ‘ULLICO Report of the Special

Committee to the Board of Di rectors” and was published on

March 25, 2003. The Board at the time approved the report, but

took no action regarding its findings. The report drafted by

Governor Thompson became known as the “Thompson Report” and was

published on May 8, 2003 . The repor t was submitted to the b oard.

That report details the self - dealing engaged in by certain board

members and senior management personnel and concludes that such

conduct was unethical. Following the publication of the Thompson

Report, a new slate of directo rs was elected to the board of

U L LICO and, within a short period of time, all of the then - senior

management of ULLICO and Union Labor Life had r e signed, retired

or been terminated. By mid - 2003, none of the directors or senior

officers who had participated in the improper conduct remained

employed at ULLICO or Union L a bor Life. The goal of the new

board and management was to save Union Labor Life after the

corp o rate wrongdoing and mismanagement of the former senior

manag e ment and turn Union Labor Life into “a model for co r porate

governance.” To this end, the new board adopted all of the

Thompson Report’s recommendations for changes in the company’s

corpora te governance. These changes were designed to increase

the independence and accountability of the boa rd of directors and

senior management, to improve the level of financial oversight

and transparency, and to improve the risk management and

compliance pe r formance of the company.

2 1 . In addition to the adoption of Governor Thom p son’s

recommendations, Union Labor Life has spent considerable funds to

comply with all relevant provisions of the Sa r banes - Oxley Act,

the purpose of which is corporate transparency and legal

compliance, even though, as a privately held company, U n ion Labor

Life is not required to comply with the Sarbanes - Oxley Act .

Union Labor Life has also launched a company - wide risk management

process that includes a revamped i n ternal audit and internal

control process, has impl e mented a new risk management oversight

function for the compan y, and has cr e ated a vice president

position in risk management who reports directly to the audit

co m mittee and the board of directors.

22 . Furthermore, since mid - 2003, Union Labor Life’s new

management has improved the company’s compliance activitie s by,

among other things, restructuring its i n ternal reporting

procedures so that all business unit compliance employees report

directly to the chief compliance officer (rather than to their

immediate supervisors) on compliance issues; requi r ing the chief

compliance officer to report four times a year directly to the

audit and corporate governance committees of the board of

dire c tors; taking corporate compliance into account in

determining every employee’s compensation; hiring three vice

presidents r e sponsi ble to ensure that the company’s third - party

administr a tors meet all compliance requirements; and implementing

a Risk Navigator software program to alert employees when

regulatory forms and reports are due.

2 3 . As indicated earlier, i nsurers, whether suspended or

having a subsisting Certificate of Authority, are required to

file Quarterly Financial Statements for each of the first three

quarters of the calendar year (March 31, June 30 and September

30) due 45 days after the close of the quarter. Furt her,

insurers, whether suspended or having a subsisting Certificate

of Authority, are required to file an Annual Statement

reflecting finances and other information at yea r end by March 1

with OIR . An Audited Financial Statement, prepared by an

independen t third party, is also required at year end and is due

no later than June 1 of the following year. These financial

statements, both annual and qua rterly, are sworn under oath and

filed with the regulatory authority of each state or territory

in which the insurer is authorized to transact business.

24 . Union Labor Life continued to file its quarterly and

annual reports. In 2003, it filed a report of Gross A nnual

Premium an E nrollment D ata for Health Coverages Issued to

Florida Residents . The report prompted Alicia Gibson, a staff

assistant with OIR, to inquire regarding the premium data

contained in the report. Around the same time because of the

new management and the new compliance process , an internal

whistleblower complaint was made by a complia nce off icer about

her supervisor to Ms. Valentine as the new chief compliance

officer . As a result , in mid - 2003 , an internal audit of the

direct ma r keting business unit was conducted. The company

discove red that it had issued 12 life insurance policies a fter

the date of the suspension of the Certificate of Authority and

that approximately 1200 Florida residents received certificates

of insurance after the date of the suspension of the Certificate

of Authority. Union Labor Life had, also, issued certifica tes

of insurance under a group life insurance policy on unapproved

forms in a number of states, i n cluding approximately 3,067 such

certificates in Florida. In addition, despite specific

instructions to the contrary, the company di s covered that it had

issu ed 691 accidental death and dismemberment policies in

Florida for a total combined annual premium of less than $332 as

part of a low - cost, lead generation program b e tween late 2002

and mid - 2003 while its certificate of authority had been

su s pended. All of these actions were in violation of the

Florida Insurance Code since the company may not have had a

c ertificate of a uthority, or used an unapproved form.

25 . The new management terminated the two vice presidents

who had been responsible for the infra ctions, put an immediate

hold on all direct marketing business, co n ducted a complete

audit and review of its third - party administrators, i s sued a

memorandum to remind all employees to cease and desist any

marketing or issuance of new policies in Florida, a nd cr e ated

additional controls to ensure that the viol a tions would not

reoccur. Union Labor Life, also , described the infra c tions that

had occurred in Florida and the remedial measures it had taken

to correct the problem , in a letter to OIR dated January 22,

2004 .

26 . In February 2004, represent a tives of Union Labor Life’s

new management team met with repr e sentatives of OIR to introduce

the m selves and to discuss the compliance problems the new

management had found. Following the meeting, Charles Rob ert

Norris, the f i nancial administrator in OIR’s B ureau of Health and

L ife F i nancial O versig ht wrote that the agency “apprec i ate[d] the

prompt actions taken when [Union Labor Life] b e came aware of the

problems that were discussed in the meeting.” Mr. Norr is also

instructed Union Labor Life to submit the una p proved forms to OIR

for approval. The forms were submitted promptly to OIR by U n ion

Labor Life.

27 . In September 2004, management for Union Labor Life

learned of a subpoena duces tecum from Mabel Capolongo, the

Regional Director for the Philadelphia Region of the U.S.

Department of Labor, Employee Benefits Security Administration,

dated June 16, 2003, to Union Labor Life seeking the production

of certain documents and informing the company of an

i nvestigation into the activities of Union Labor Life. The

purpose of the investigation is to determine whether any person

has violated Title I of the Employee Retirement Income Security

Act of 1974 (ERISA), 29 U.S.C. Section 1134(a)(1), U.S. Code with

reg ard to Separate Account J from January 1, 1998.

28 . By January 31, 2005, more than two years after the

suspension, Union Labor Life had cured its financial deficiencies

and the company was again in full compliance with Florida’s

statutory financial r equirements.

29 . On March 7, 2005, Teresa Valentine, then an in - house

attorney at Union Labor Life and currently Union Labor Life’s

general counsel and chief compliance officer, contacted OIR to

inform it that the company had brought its financial c ondition

into compliance with the Florida statutory requirements and to

inquire as to how to re - activate the company’s certificate of

authority. Paul Johns, a financial analyst supervisor with OIR’s

Bureau of Life and Health Financial Oversight, informed

Ms. Valentine that, because Union Labor Life’s certificate of

authority had been suspended for more than two years, Union Labor

Life had to file what Mr. Johns referred to as a “reactivatio n

application.” S he asked Mr. Johns what information OIR needed to

reactivate Union Labor Life’s certificate of authority.

Mr. Johns promised to sen d Ms. Valentine the application. At the

time, s he did not review any statutory or administrative rule

requirements for renewal or issuance of a new Certificate of

Authority .

30 . On March 8, 2005, Mr. Johns sent Ms. Valentine an email

that identified as its subject, “Reinstatement Of Expired Florida

Certificate of Authority – Union Labor Life Insurance Company.”

Mr. Johns wrote:

The information you requested for re -

ins tating a Flo r ida certificate of authority

that expired pursuant to Section 624.421,

Florida Statutes is detailed below. As we

discussed, we have sufficient financial

inform a tion on file to begin assessing

compliance with items (1) and (2) and will

follow - up with company contacts on any

outstanding issues once Carolyn Morgan

returns next week. For items (5) and (6),

it will be nece s sary to get information on

officers/directors and i n dividuals directly

or indirectly owning 10% or more of the

applicant and/o r the ultimate controlling

entity that are not on file with the Office.

In the meantime, please contact me with any

questions. Sincerely, Paul Johns

31 . The evidence showed that Union Labor Life was not

aware that its suspended certificate of auth ority would expire

after two years, and had not intended to permit its certificate

of authority to expire. However, the evidence also showed that

regardless of Union Labor Life ’s intent, it did not comply with

Florida’s financial requirements until Januar y 31, 2005, more

than two years after the certificate had been suspended. By

operation of law, Union Labor Life’s Certificate of Authority

h ad expired. See § 624.421(4) , Fla. Stat.

32 . On March 29, 2005, Mr. Johns informed U n ion Labor Life

that two of OIR’s financial examiners had reviewed U n ion Labor

Life’s financial statements and had agreed that the company was

in compliance with Florida’s statutory financial r e quirements.

On March 31, 2005, Union Labor Life submitted the inform a tion and

materia ls requested by Mr. Johns to reinstate Union L a bor Life’s

expired certificate of a u thority. The information and materials

were sent by ove r night mail, and the OIR r e ceived them on

April 1, 2005. No reinstatement fee or application fee was paid

by Union L abor Life.

33 . In the thirty - day period between April 1, 2005 , and

May 1, 2005, OIR did not request Union Labor Life to submit any

additional inform a tion or materials. On May 2, 2005, Carolyn

Morgan, an insurance e x aminer in OIR’s Bureau of L ife and H ealth

F inancial O versight, wrote to Union Labor Life, stating:

Paul [Johns] and I have completed our review

of your application and have forwarded our

recommendation to the next level of

management for review. Upon compl e tion of

management’s review, you r file will be

fo r warded to Legal Services with a copy of

our draft co n sent order where it will be

reviewed before sending to the company for

signature. (emphasis added)

34 . Around June 1, 2005, Union Labor Life filed its 2004

audited fina n cial s tatements with OIR. In the notes to those

statements, U n ion Labor Life disclosed that, “[i]n September

2004, the Company learned that the DOL [United States Department

of Labor] had initiated an investigation of The Union Labor Life

Insurance Company, wit h respect to the o p eration of The Union

Labor Life Insurance Company Pooled Sep a rate Accounts”; that, in

connection with that matter, the DOL had “requested documents

relating to fees paid by borrowers and pr o spective borrowers

from Separate Account J”; an d that Union Labor Life had “fully

co m plied with the DOL’s request.” The statement was the first

time OIR had learned of an investigation by the United States

Department of Labor and, on June 10, 2005, requested info r mation

about the DOL investigation .

35 . O n June 17, 2005, Union Labor Life responded in a

letter describing what it understood about the investigation and

providing OIR with the name and co n tact information of a DOL

investigator involved in the invest i gation. OIR contacted the

DOL. H owever, the DOL declined to provide any information about

the investigation to OIR.

36 . OIR did not approve or disapprove Union Labor Life’s

original March 2005 request for reinstatement of its expired

certificate of authority within 180 days of rece iving that

application. Instead, o n July 7, 2005, OIR informed Union Labor

Life that, “[d]ue to the on - going Department of Labor

investig a tion into Union Labor’s Sep a rate Account J, . . . Union

Labor’s Florida Certificate of Authority reinstatement has be en

placed on hold until further information can be obtained about

the ma t ter.” In response, Union Labor Life offered to have its

ERISA co unsel meet with OIR to explain the meaning of a DOL

investigation , and invited OIR to speak with its home regulator,

t he Maryland Insurance Administration, about the DOL

investig a tion. Union Labor Life had previously informed the

State of Maryland about the DOL investigation.

37 . Notwithstanding Mr. Johns and Ms. Morgan’s

communications b e tween Union Labor Life and OIR that indicated

the information and material the company had submitted, along

with other material on - file with OIR was being treat ed as an

application for reinstatement of Union Labor Life’s e x pired

certificate of authority, OIR, in a lette r dated Sept ember 16,

2005, eventually informed Union Labor Life that , after review of

its file , the company was required to complete a UCAA E x pansion

Application for a new certificate of authority in Flo r ida because

its ce r tificate of authority had expired pursuant t o Section

624.421(4), Florida Statutes .

38 . On September 23, 2005, Union Labor Life submitted a

UCAA Expansion Application to OIR.

39 . By letter dated September 29, 2005, Gwen Chick,

Admissions Coordinator for the Office, informed Ms. Valentine

that the application was not complete and that further

information was required no later than October 6, 2005, or the

application would be returned as incomplete.

40 . Union Labor Life submitted the information requested

by Ms. Chick and, along with the UCAA Expansion Application, a

copy of the corporate charter, articles of incorporation and

other charter documents certified by the Maryland Department of

Assessments and Taxation, a copy of the Bylaws certified by an

officer of the company and a certi ficate of compliance from the

Florida Secretary of State, all of which were required by

Section 624.413, Florida Statutes.

41. The application was determined to be co mplete as of

October 19, 2005 , and the 180 - day time limit for review of such

applica tions set forth in Section 120.80(9), Florida Statutes ,

began .

42 . OIR held a hearing on March 17, 2006, relating to Union

Labor Life’s September 2005 UCAA Expansion Application . After

the hearing, o n April 17, 2006, OIR timely denied Union Labor

Li fe’s UCAA Expansion Application. Th e denial was based on, (i)

the outcome of the pending DOL investigation into Separate

Acc ount J is unclear ; (ii) prior to November 22, 2002, Union

Labor Life issued approximately 3,000 insurance policies in

Florida on un approved forms; (iii) between November 22, 2002, and

sometime in 2003, Union Labor Life wrote “hu n dreds” of new

policies despite the suspension of its certificate of authority;

(iv) on Schedule T of its 2005 annual statement, Union Labor Life

reported that it was licensed in Florida despite the exp i ration

of its certificate of a u thority pursuant to Section 624.421(4),

Florida Statutes; and (v) certain officers and d i rectors of Union

Labor Life failed to identify fines levied against Union Labor

Life in resp onse to Question 16c of their biographical

affidavits.

43 . OIR does not contest the managerial experience of the

current management of Union Labor Life. Mark Singleton, the

cu r rent chairman and chief executive officer of Union Labor Life

(and the current president and chief executive officer of

ULLICO), joined the company in August 2003 as Union Labor Life’s

senior vice president and chief financial officer and was

promoted to his current positions in August 2006. Mr. Singleton

has worked in the i nsurance industry for 24 years, initially as a

certified public accountant conce n trating on insurance companies

and their financial matters, and then as an insurance company

executive. Anne Bossi, the current president of Union Labor

Life, is a well - known health insurance indu s try leader with more

than 25 y ears of experience in the insurance industry. B e fore

joining Union Labor Life in 2005, Ms. Bossi ran divisions of two

of the largest insurance companies in the United States. Damon

Gasque, the current acting chief financial officer of Union Labor

Life, has 30 years of experience in the insurance industry,

having served as an off i cer at several insurance companies with a

focus on insurance a c counting and reporting. James Paul, Union

Labor Life’s senior vice president and chief of co r porate

operations, has more than 35 years of experience at various

insurance companies and Teresa Vale n tine, the co m pany’s general

counsel and chief compliance officer, has nearly 20 years of

legal experience, primarily in th e area of insurance regulation.

In short, Union Labor Life’s current senior management has

su f ficient insu r ance company managerial experience to qualify

Union Labor Life for a certificate of authority to transact

insu r ance in Florida.

44 . OIR also d oes not contest the competence of the current

management, officers and directors of Union Labor Life. Union

Labor Life’s chairman and chief executive officer testified at

length and without contradiction about the new management’s

successful efforts to tu rn Union Labor Life’s financial fortunes

around, dramatically reducing its loss ratio and its operating

expenses, while significantly i n creasing its capital reserves.

As a cons e quence of the new management’s efforts, A.M. Best, the

oldest and most widely recognized rating agency dedicated to the

insu r ance industry, has upgraded Union Labor Life’s rating twice

since 2003, from B - with a negative outlook to B with a stable

outlook.

45. The A.M. Best rating is signif i cant because it comes

from an ind ependent, widely re c ognized source in the insurance

industry and is based on both quantitative and qualitative review

of management’s pe r formance. A.M. Best conducts complete face -

to - face business reviews with management presentations and

di s cussions abo ut the company’s operations, stres s ing the quality

of management and its experience, its history of meeting

commi t ments and its ability to sustain the company’s current

perfor m ance. There is no doubt that Union L a bor Life’s current

management is sufficien tly competent to ent i tle Union Labor Life

to a ce r tificate of authority in Florida.

46 . Ultimately, the sole issue between the parties is

whether Union Labor Life’s current management, officers and

d i rectors are sufficiently trustworthy to transact i nsurance in

Florida based on the allegations contained in OIR’s denial letter

listed above and the alleged failure to comply with regulatory

requirements . The term “trustworthy” means “dependable,”

“reliable,” or “worthy of confidence.” Webster’s Third N ew

International Dictionary of the English L anguage Unabridged 2457

(1986).

47 . The o utcome of the DOL investigation into Union Labor

Life’s Separate Account J is indeed unclear. The co m pany’s ERISA

counsel , who is an expert in the field, testified that, based on

the que s tions the DOL has asked Union Labor Life and the

documents the DOL has r e quested, it appears that the DOL is

looking at the investment transactions and fee arrangements of

Separate Account J to d e termine whether they are consistent w ith

the complicated E R ISA rules that apply to such transactions and

fee arrangements. More importantly, the company’s ERISA counsel

testified that no conclusions about the ultimate reasons the DOL

is conducting this inquiry could be drawn from the fact th at

there is an investigation or that Union Labor Life is suspected

of violating ERISA or any other statute that may be under the

DOL’s jurisdiction. At least since September 2004, the DOL has

been gathering and evaluating information, but has made no

find ings or i n formed the company that the agency has d e termined

that Union Labor Life has eng aged in any improper conduct. T he

DOL has no deadline to com plete its investigation and any

assertion about the final outcome of the DOL inve s tigation , if

any, or its likely consequences , if any, for Union Labor Life

would be pure speculation. Speculation about the possible

outcome of an investigation in which no allegations of wrongdoing

have been made do not form a basis to find that the current

manag e ment, officers and directors of Union Labor Life are

untrus t worthy or that the company is ineligible for a certificate

of authority to transact insurance in Florida.

48 . As discussed above, the issuance of the policies in

Florida using unapproved forms prior to No vember 22, 2002, and

the issuance of policies in Florida while the company’s

ce r tificate of authority was suspended after N o vemb er 22, 2002,

was reported to OIR in January 2004 and addressed at a meeting

between Union Labor Life and OIR in February 2004. These

infractions occurred under the former management and do not

themselves reflect on the trustworthiness of the current

manag e ment, officers and directors. As noted above, when Union

Labor Life’s current management learned of these infractions, it

took steps to terminate the employment of the responsible

individuals, to report the infractions to the states in which

they had o c curred, including Florida, to fi le the unapproved

forms with OIR for a p proval, and to change the compliance

controls within the c ompany. Such self - policing and reporting by

a company demonstrates the honesty and forthrightness of the

current management and should be encouraged. On the other hand,

the policies were issued in violation of the Florida Insurance

Code. On balance, the evidence showed that these violations of

the Insurance Code were not indicative of the future or current

behavior of Union Labor Life. Therefore these violations should

not serve as a basis for denying a certificate of authority to

Union Labor Life.

49 . On Schedule T - Premium and Annuity Considerations of its

2005 annual financial statement, Union Labor Life reported that

it was licensed in Florida. Schedule T requests that an insurer

state whether it is licensed in a State relative to the premiums

it receives. In this case , Union Labor Life believed it was

licensed, in so far as it was required to administer and service

policies that were in force.

50 . Union Labor Life’s chairman and chief executive officer

explained that the company comple ted Schedule T as it did in 2005

because the company was authorized to continue to accept renewal

premiums and additional deposits on its group a n nuity co n tracts

and had received more than $14 million in premiums in Florida in

2005. Indeed, until the issu e of the exact licensure status of

Union Labor Life arose in relation to suspension, expiration and

reinstatement, the parties themselves seem to at times refer to

Union Labor Life as licensed. For example, in August 2005, in a

memorandum regarding Union Labor Life’s reinstatement, Carolyn

Morgan, an OIR insurance examiner, wrote that “[t]he Company is

licensed in all 50 states and the Di s trict of Columbia.”

Mr. Norris test i fied that he thought that Union Labor Life’s

representation on Schedule T that the company was licensed in

Florida was inaccurate in 2002, 2003, 2004 and 2005 because the

company’s license had been suspended. Yet neither Mr. Norris nor

any other person at OIR who reviewed Union Labor Life’s a n nual

reports during those four years inform ed Union Labor Life of

OIR’s interpretation of Schedule T until April 17, 2006, when the

company’s response to Schedule T in its 2005 a n nual report was

raised. Union Labor Life’s initial response to the inquiry on

Schedule T in 2005 and earlier years was reasonable and do es not

constitute a basis on which to find Union Labor Life’s current

management, officers or directors untrustworthy or the company

ineligible for a certificate of authority in Flo r ida.

51. OIR also raised the issue of disclosure of Union Labor

Life’s licensure status in regards to the section in Union Labor

Life’s annual and quarterly statements entitled “General

Interrogatories.” Interrogatory 6.1 in the annual statement and

8.1 in the quarterly statement asks, “Has this reporting entity

had any Certificates of Authority, licenses or registrations . .

. . suspended or revoked by any governmental entity during the

reporting period. Interrogatory 6.2 in the annual statement and

8.2 in the quarterly statement asks, “If yes, give full

information.” Union Labor Life answered these interrogatories by

stating that “Union Labor L ife Insurance Company voluntarily

agreed to cease writing new business in Florida in November,

2002.” This statement is in line with the language that was

approv ed by OIR’s predecessor agency. There was no evidence that

Union Labor Life intended to mislead either OIR or any other

agency as to the status of its certificate of authority. By

approving this language, OIR’s predecessor laid the groundwork

for Union L abor Life’s confusion over the status of its

certificate of authority and the status of its license. Union

Labor Life used the language OIR’s predecessor had approved in

describing its licensure status and OIR cannot now complain about

Union Labor’s Life use of that language. Therefore, Un i on Labor

Life’s response to the General Interrogatories in its quarterly

and annual reports does not form a basis for denying Union Labor

Life a certificate of authority in Florida.

52 . The final issue raised by O IR in its denial letter

related to the responses to Question 16c of c ertain officers and

directors of Union Labor Life in their biographical affidavits

submitted with the application. Specifically, certain officers

did not identify fines levied against Un ion Labor Life in their

response s to Question 16c . Que s tion 16c asks the a f fiant:

To your knowledge has any company or entity

for which you were an officer or director,

trustee, investment committee member, key

management employee or contro l ling

stockhold er, had any of the following events

o c cur while you served in such capacity? If

yes, please indicate and give details. When

responding to que s tions (b) and (c) affiant

should also include any events within twelve

(12) months after his or her d e parture fr om

the entity.

* * *

c. Been placed on probation or had a fine

levied against it or against its permit,

license, or certif i cate of authority in any

civil, criminal, administr a tive, reg u latory,

or disciplinary action?

53 . The e vidence demonstrated that the question is vague as

to whether the information being sought is for the affiant’s

service prior to their current position or includes the affiant’s

current position. Officers and directors of Union Labor L ife

have differed in their interpretation of this question, depending

on the context in which they were completing the form. Union

Labor Life’s chairman and chief executive officer test i fied that,

when he completed his bi o graphical affidavit upon joining Union

Labor Life in 2003, he understood the question to be asking about

comp a nies at which he had previously served, not about Union

Labor Life. By contrast, Union L a bor Life’s general counsel and

chief compliance officer r e sponded to Question 16c in her updated

biographical affidavit as if the question asked for i n formation

about Union Labor Life. There was no evidence that any of these

officers intended to deceive OIR in their response to Question

16c. Given the variable interpretations that can be reasonably

given to Que stion 16c, failure of an officer to list fines that

occurred during the time they held their current position with

Union Labor Life does not reflect untrustworthiness of Union

Labor Life’s current management, violate any statute or render

Union Labor Life ineligible for a certificate of authority in

Florida.

54 . In sum, Union Labor Life’s current management is

qualified, competent and trustworthy. Union Labor Life has

demonstrated th at it is entitled to a certificate of authority in

Florida and the application should be granted.

CONCLUSIONS OF LAW

5 5 . The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

proceeding. § 120.57(1), Fla. Stat.

56. OIR is the agency responsible for ascerta ining whether

an applicant for a certificate of authority to transact

insurance meets the requirements of the Florida Statutes.

See § 624.401 , et seq. , Fl a. Stat.

57. Section 624.09, Florida Statutes defines an

“authorized insurer” as an insurer ho lding a subsisting

certificate of authority to transact insurance in Florida.

Transacting insurance includes administering and servicing

policies within Florida. See § 624.10, Fla. Stat.

58. Section 624.402(5 ) , Florida Statutes, provides that a

cer tificate of authority is not required for the continuation

and servicing of life and health policies and annuities that are

in force when the insurer has withdrawn from Florida and is no

longer transacting new insurance in Florida.

59 . A s an applican t, Union Labor Life has the burden of

proving by a prepo n derance of the evidence its entitlement to a

certificate of a u thority to transact insurance in Florida.

Florida Dept. of Transp. v. J.W.C. Co ., 396 So. 2d 778, 778 (Fla.

1st DCA 1981) . It bears thi s burden at each and every step of

the licensure proceedings. Dept. of Banking & F i n. v. Osborne

Stern & Co. , 670 So. 2d 932, 934 (Fla. 1996). Union Labor Life

must show by a pr e ponderance of the evidence that it meets all of

the relevant stat u tory crite ria to satisfy this burden. Id.

60 . As a creature of statute, OIR is limited by the

statutes over which it has authority and may not ignore those

statutes. Section 424.413, Florida Statutes, is the statute that

provides the requirements for applyin g for a new certificate of

authority. Rules 69O - 136.002 and 69O - 136.034 , Fla. Rule Admin.

Proc., implement Section 624.413 , Florida Statutes . In general,

the statutes and the rules require that an application for a

certificate of authority be file d on a form adopted by the

Financial Services Commission. The only form relevant to this

proceeding and adopted by the Commission is the UACC application

form that was filed by Union L abor Life in October 2005. The

UACC application requires a $ 1500.00 fee be fi led with the

application. See § 624.501, Fla. Stat. Neither the statute nor

the rules reference a “reactivation application.”

61 . However, Section 624.416, Florida Statu tes, entitled

“Continuance, exp iration, reinstatement and amendment of

certific ate of authority,” provides that a certificate of

authority shall continue in force until suspended, revoked or

terminated at the request of the insurer. Notification to the

insurer of the impending expiration of the certificate is

required. Subsection ( 3) provides that OIR may reinstate a

certificate of authority that the insurer has inadvertently

allowed to expire. A reinstatement fee of $50.00 is required to

be paid prior to reinstatement. See § 624.501, Fla. Stat.

A pparently it is this statutory se ction that Mr. Johns and other

OIR officials felt they were proceeding under prior to OIR’s

decision to put on hold Union Labor Life’s request for

reinstatement of its certificate of authority. The statute makes

clear that if the expired certificate of au thority cannot be

reinstated, the insurer must file an application for another

certificate of authority.

62 . In this case the evidence did not demonstrate that

Union Labor Life ’s certificate of authority expired through

inadvertence, but , unbeknownst to current management, expired

through the operation of Se ction 624.421, Florida Statutes, and

the consent order entered into by prior management. The consent

order provided that Union Labor Life’s certificate would be

suspended unless it complied with F lorida’s financial

requirements by a date certain. That date passed and the

certificate of authority was suspended with the later

mod ification that Union Labor Life had voluntarily ceased writing

business in Florida.

63 . Section 624.421, Florida s tatutes, provides for the

duration of the suspension period should the time for compliance

expire. At most , Union Labor Life ’s certificate of authority

expired two years after the time the specific event was to have

occurred. In other words, Union Labor Life’s certificate of

authority expired by operation of law in September or November of

2003. As indicated, Union Labor Life’s current management was

unaware of the expiration and thought the certificate of

authority remained , with Union Labor Life’s v olu ntary withdraw al

from writing new business in Florida.

64 . Ultimately, OIR, through its levels of review caught

it s mistake and advised Union Labor Life that it would be

required to file a UACC application for a new certificate of

authority

65. Union Labor Life argues that OIR is equitalby estopped

from denying that it is entitled to reinstatement under Section

624.416, Florida statutes.

66. Equitable estoppel will only be applied against the

State in exceptional circumstances. Depart ment of Revenue v.

Anderson , 403 So. 2d 397 (Fla. 1981). Further, the state may not

be estopped when the mistake is one of law . North American

Company v. Green, 120 So. 2d 603 (Fla. 1959). Estoppel may be

applied to misstatments of facts. North Americ an Comapany ,

supra. ; Council Bros., Inc. v. City of Tall a hassee, 634 So. 2d

264, 266 (Fla. 1st DCA 1994); Dolphin Outdoor Advert. v. Dept. of

Tran s p. , 582 So. 2d 709, 711 (Fla. 1st DCA 1991); Harris v.

State, Dept. of Admin. , 577 So. 2d 1363, 1367 & n.1 (F la. 1st DCA

1991); Warren v. Dept. of Admin. , 554 So. 2d 568, 571 (Fla. 5th

DCA 1989); City of Coral Springs v. Broward County , 387 So. 2d

389, 390 (Fla. 4th DCA 1980).

67 . The elements that must be established for the doctrine

of equitable esto p pe l to apply against a governmental agency are

set forth in Council Bros., Inc. v. City of Tallaha s see , 634 So.

2d 264 (Fla. 1st DCA 1994). In that case, the court held that

“[t]he elements which must be present for appl i cation of estoppel

are: (1) a repre sentation as to a mat e rial fact that is contrary

to a later - asserted position; (2) reliance on that

representation; and (3) a change in position detrimental to the

party claiming estoppel, caused by the representation and

reliance thereon.’” Id. at 266. See also Dolphin Outdoor

A d vert. v. Dept. of Tran s p . , 582 So. 2d at 710; Harris v. State,

Dept. of Admin. , 577 So. 2d at 1366; Warren v. Dept. of Admin. ,

554 So. 2d at 570.

68 . The evidence did not establish that OIR misrepresented

a fact to Union La bor Life, but misrepresented the law regarding

the application process. Indeed, the evidence indicates, OIR

personnel may have been as confused about the process as Union

Labor Life. However, OIR cannot act beyond its governing

statutes. Neither Mr. Joh ns, nor his Bureau, had the authority

to waive statutory requirements. Whatever his statements as to

what constituted a “reactivation application,” those statements

were of law. Accordingly, Mr. John’s initial misinformation

regarding reinstatement const itutes a mistake of law. T herefore ,

OIR is not estopped from requiring Union Labor Life to file a

UACC application for a new certificate of authority.

69 . As indicated, Union Labor Life did file a UACC

application. To be entitled to a certificate o f authority, an

applicant must demonstrate that it satisfies both the

quantit a tive financial requirements of the Florida Insurance Code

and the qualitative requirements of Section 624.404(3)(a),

Flo r ida Statutes, which provides in pertinent part , that OIR :

shall not grant or continue authority to

transact insurance in this state as to any

insurer the management, officers, or

directors of which are found by it to be

incompetent or u n trustworthy; or so lacking

in insu r ance company managerial experience

as to make the proposed operation hazardous

to the insurance - buying public; or so

lacking in insurance e x perience, ability,

and standing as to jeopardize the reasonable

promise of successful o p eration.

70 . In this case, the parties agreed that Union L a bor Life

satisfies Florida’s statutory financial requirements and is

financially qualified for a certificate of authority in Florida.

Thus, the primary issue for determination is whether Union Labor

Life’s current management, officers, or directors are

“i ncompetent or untrustworthy; or so lacking in i n surance company

managerial experience as to make the proposed operation hazardous

to the insurance - buying public.”

71 . The evidence demonst r ates that Union Labor Life’s

current management are both trus tworthy and competent

individuals. The reasons for OIR’ s denial were listed in it’s

denial letter. The denial was based on (i) the outcome of the

pending DOL investigation into Separate Account J is unclear;

(ii) prior to November 22, 2002, Union Labor L ife issued

approximately 3,000 insurance policies in Florida on unapproved

forms; (iii) between November 22, 2002, and sometime in 2003,

Union Labor Life wrote “hu n dreds” of new policies despite the

suspension of its certificate of authority; (iv) on Sched ule T of

its 2005 annual statement, Union Labor Life reported that it was

licensed in Florida despite the exp i ration of its certificate of

a u thority pursuant to Section 624.421(4), Florida Statutes; and

(v) certain officers and d i rectors of Union Labor Lif e failed to

identify fines levied against Union Labor Life in response to

Question 16c of their biographical affidavits.

72. Undermining, manipulating or subverting the regulatory

process shows a lack of trustworthiness to engage in the business

of insurance. Florida Department of Insurance and Treasurer v.

Bankers Insurance Company , 694 So . 2d 70 (Fla. 1 st DCA 1997).

However the evidence did not show that Union Labor Life’s current

management intentionally or materially misrepresented any facts

i n its UACC application and associated documents. As stated

earlier, Section T of the annual statement could reasonabl y be

interpreted to request confirm ation of whether the insurer had

author ity to collect the premiums in a particular state.

Moreover, in the General Interrogatories, Union Labor Life

reported that it had voluntarily withdrawn from writing business

in Florida and utilized the language OIR’s predecessor had

approved relevant to its license. The biographical information

supplied by Union Lab or Life’s management and key personnel

regarding fines levied against Union Labor life during their

tenure at Union Labor Life responded to a reasonable

interpretation of an otherwise vague Question 16c. None of these

alleged violations demonstrate untrus tworthiness or dishonesty on

the part of current management and do not constitute a basis for

denial of Union Labor Life’s application.

73. The issuance of policies during the time of its

suspension and on unauthorized forms occurred primarily in 200 2

and under the watch of Union Labor Life’s former management. The

actions of the former management are not reflective of the

current management’s character. Indeed , the current management

self - reported the policy infractions and self - corrected those

sam e infractions. Section 424.404(5), Florida Statutes, provides

that an insurer cannot be authorized to transact insurance in

Florida, for infractions within three years preceding its

application after it has been notified of such infractions and

failed to correct those violations. In this case the violations

were corrected and policies put in place to prevent a

reoccurrence of the same. Again, these past infractions do not

form a basis for denial of Union Labor Life’s application.

74 . Likewise, the DOL investigation cannot form a basis for

denial of Union Labor Life’s application. No allegations of

wrongdoing have been made against any of the current management

of Union Labor Life. Moreover, according to expert testimony, it

would be inappropriate to draw such a conclusion based on the

fact that DOL has an ongoing investigation. In Comprehensive

Medical Access, Inc. v. Office of Insurance Regulation , 2006 WL

3148809 (Fla. Div. Admin. Hrgs. November 1, 2006), the pendency

of a civil complaint was he ld to be sufficient grounds to give

rise to reasonable and serious concern regarding the fitness and

trustworthiness of the applicant. However, in that case, the

civil complaint contained specific allegations of wrongdoing.

The DOL investigation does not involve such specific allegations.

Therefore, the case is distinguishabl e from the case at issue

here.

75. In sum, t he experience, competence and trustworth i ness

of Union Labor Life’s current management, officers and d i rectors,

satisfies the qualit ative requirements of Section 624.404(3)(a)

for a certificate of authority. Accordingly, Union Labor Life

has met its burden of proving by a pr e ponderance of the evidence

its entitlement to a certificate of authority to transact

i n surance in the State of Florida.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED:

That a final order be entered granting Union Labor Life’s

application for a certificate of authority to transact insurance

in the Sta te of Florida.

DONE AND ENTERED this 3rd day of August , 2007 , in

Tallahassee, Leon County, Florida.

S

DIANE CLEAVINGER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkw ay

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 August , 2007 .

COPIES FURNISHED :

S. Marc Herskovitz, Esq uire

Office of Insurance Regulation

612 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399 - 0333

Jeffrey A. Mishkin, Esquire

Skadden, Arps, Slate, Meagher

and Flom , LLP

F our Times Square

New York, New York 10036

Robert Thomas Wright, Esq uire

Coffey, Burlington, Wright, LLP

2699 South Bayshore Drive, Penthouse

Miami, Florida 33133

Kevin M. McCarty, Commissioner

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 0305

Steve Parton, General Counsel

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 0305

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 Rec ommended Order should be filed with the agency that

will issue the Final Order in this case.