09-001504PL Department Of Financial Services vs. Sarah C. Fuquay Status: Closed Recommended Order on Monday, August 10, 2009.

Summary: Petitioner failed to demonstrate that Respondent misrepresented the terms of the annuity sold a client. Recommend that the Administrative Complaint be dismissed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF )

FINANCIAL SERVICES, )

)

Petitioner, )

)

vs. ) Case No. 09-1504PL

)

SARAH C. FUQUAY, )

)

Respondent. )

)

RECOMMENDED ORDER

On June 9, 2009, a duly-noticed hearing was held in

Jacksonville, Florida, before Lisa Shearer Nelson, an

Administrative Law Judge appointed by the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399-0333

For Respondent: Daniel J. Koleos, Esquire

Koleos, Rosenberg & Doyle, P.A.

8211 W. Broward Boulevard, Suite PH-4

Fort Lauderdale, Florida 33324

STATEMENT OF THE ISSUE

The issue to be determined is whether Respondent committed the violations alleged in the Administrative Complaint, and if

so, what penalties should be imposed?

PRELIMINARY STATEMENT

On February 23, 2009, the Department of Financial Services

(DFS or the Department) filed an Administrative Complaint

alleging multiple violations of Sections 626.611, 626.621, and

626.9541, Florida Statutes (2006). 1/ Respondent disputed the

allegations in the Administrative Complaint and requested a

hearing pursuant to Section 120.57(1), Florida Statutes (2008).

On March 19, 2009, the matter was referred to the Division of

Administrative Hearings for assignment of an administrative law

judge.

On April 6, 2009, the case was noticed for hearing to be

conducted June 6, 2009, and the case proceeded as scheduled.

Petitioner presented the testimony of Frank Hemwey, and

Petitioner's Exhibits 1-4 were admitted into evidence.

Respondent testified on her own behalf and presented the

testimony of Keith Lozowski. Respondent's Exhibits A-F were also

admitted into evidence. A Transcript of the proceedings was

filed with the Division on June 26, 2009. On July 2, 2009,

Respondent requested that the time for submission of proposed

recommended orders be extended until July 16, 2009. Both parties

submitted Proposed Recommended Orders on that date and both

submissions are considered to be timely filed.

FINDINGS OF FACT

1. At all times relevant to this proceeding, Sarah Fuquay

(now known as Sarah Fowler) has been licensed as a life and

health insurance agent holding license number E082826.

2. The Department is the state agency with responsibility

for licensing and regulation of insurance licenses and

appointments.

3. At all times relevant to these proceedings, Respondent

was employed or affiliated with and appointed by Bankers Life &

Casualty Company (Bankers Life), working out of the company's

offices in Jacksonville, Florida. She is a captive agent,

meaning she works only for Bankers Life.

4. In 2006, Frank Hemwey was a resident of the Jacksonville

area and was approximately 84 years old. He was retired and was

looking to invest the proceeds from the sale of some real estate.

5. In November 2006, Mr. Hemwey received a postcard in the

mail which stated:

Important!

Are you like the majority of our clients and

notice a drastic reduction in your income due

to decreasing interest rates?

At Banker's Life and Casualty Company, we

offer an Alternative to a CD. Our Security

Builder Bonus Annuity (Policy LA-06T) has a

1st year

Interest rate of 7%, Available thru November

30, 2006. (Includes Cash, CD's, Money Market

IRA and Mutual Fund Rollovers)

You have to call me to believe it!

To take advantage of this limited time offer,

Call Frank Fowler, Licensed Agent

[904-400 3662]

6. Mr. Hemwey called the number provided. Respondent

responded to the inquiry and set up an appointment at

Mr. Hemwey's home for November 27, 2006.

7. During the meeting with Mr. Hemwey, Respondent filled

out a written assessment used by Bankers Life to collect

information about potential clients and to make recommendations

regarding appropriate investments. Information gathered included

information about the family's background and financial history,

current expenses and tax liabilities, estate planning options and

long term care needs.

8. During their conversation, Mr. Hemwey was totally

focused on the prospect of the seven percent return mentioned in

the postcard. Respondent explained to him that the product was

not a certificate of deposit; Bankers Life does not issue

certificates of deposit; and that the insurance company only

issues annuities. A brochure was provided to the Hemweys

describing the annuity product advertised. Respondent advised

Mr. Hemwey several times that the annuity was not a one-year

investment; that the seven percent interest rate applied only to

the first year; and that a lower guaranteed rate applied after

that point. However, because of his focus on the seven percent,

he paid little or no attention to what she told him. In his

words, "I don't remember . . . anything else because I wasn't

interested in anything else."

9. In the section called "Additional Information and

Follow-Up Notes," Respondent recorded, "Frank says they

understand annuities. Kept cutting me off says he knowsied

to get him to leave interest in to possibly cut down on taxes &

compound interest. Frank said they don't need the $, but might

as well take it. Setting up direct deposit of interest."

10. On or about November 28, 2006, Mr. Hemwey contacted

Respondent and indicated he wanted to purchase the product they

had discussed. Arrangements were made for him to execute the

necessary documents at the Bankers Life Jacksonville office.

11. On November 29, 2009, Respondent again met with

Mr. Hemwey. At that time, she reviewed the contents of the Fact

Finder with him, and he signed the attestation which stated:

To the best of my knowledge, the information

I have provided in this Fact Finder

represents an accurate picture of my current

situation and beliefs. . . . I understand

that any recommendations made by the agent

are based on these responses.

12. Despite this attestation, Mr. Hemwey had not divulged

that he and his wife already owned an annuity account. He did

include the interest from that account in his estimation of

current income, but did not feel that his having an annuity was

any of the company's business, as long as the interest received

was included in the estimated income.

13. Respondent also went over an Annuity Suitability

Questionnaire with Mr. Hemwey, which he signed. This document

included the following Owner's Statement:

To the best of my knowledge and belief, all

statements and answers on this form are true

and complete. The information on this

worksheet has been explained to me and I have

been provided a copy of an Annuity Buyer's

Guide. I believe that the proposed annuity

will meet my current financial planning

objectives. I understand that if I am not

satisfied with the policy once I receive it,

I may return it for a full refund according

to the terms of the policy. (Emphasis

added.)

14. Finally, Respondent went over the application with

Mr. Hemwey. The front page of the policy specifically identifies

Mr. Hemwey as an annuitant and contains the following notices:

THIRTY DAY RIGHT TO RETURN THIS POLICY

If the Owner is not satisfied with this

policy, he or she may return it to Us within

30 days after getting it. The Owner may

return it to Us by mail or to the agent who

sold it. We will then refund any premium

paid. This policy will then be void.

THIS POLICY AND THE DATE IT BEGINS

This policy is a legal contract between the

Owner and Us. It consists of this and the

following pages. READ THIS POLICY CAREFULLY.

See the POLICY GUIDE on page 1A of this

policy.

15. The policy, which Mr. Hemwey signed, repeatedly

indicated that it was an annuity contract and identified the rate

of return for the first year and succeeding years. For example,

on page seven Mr. Hemwey signed in the box marked "signature of

annuitant." At the top of that page, it reads, "I hereby apply

for an annuity. . . ." The page entitled "Schedule" identifies

Mr. Hemwey as the annuitant and states that the guaranteed period

is one year, with an interest rate of seven percent. After the

first year, the Schedule indicates that the minimum guaranteed

interest rate is 2.5 percent for the first ten policy years, and

three percent for policy years 11 and after. This page also

provides the withdrawal percentage applicable for withdrawal

charges, which are explained in detail on page four, following

the signature page. 2/

16. Respondent credibly testified that she explained the

terms and conditions related to the annuity to Mr. Hemwey in

conjunction with filling out the application and related

paperwork. Mr. Hemwey tendered $100,000 for the premium required

to purchase the annuity. He named his wife as a beneficiary to

the annuity.

17. The policy was delivered to Mr. Hemwey's home on or

about December 18, 2006. Although he signed a receipt for the

annuity, he does not remember the event. When the annuity

document was delivered, Respondent went over the contents of the

documents with Mr. Hemwey, specifically calling attention to the

30-day cancellation provision on page one and going over the

contract summary page with him. She also prepared an annuity

withdrawal request, which would enable Mr. Hemwey to receive the

interest on the annuity through systematic deposits in his

checking account.

18. Mr. Hemwey did not read the annuity contract documents

provided to him upon receipt. In October 2007, approximately ten

months into the annuity, he called Bankers Life to determine what

the next year's interest rate would be. When the company could

not provide that information immediately, he requested

instructions on canceling the contract. His intent was to move

the funds to another vehicle if he could obtain a better interest

rate.

19. Mr. Hemwey was advised that withdrawal of the annuity

funds would be subject to the withdrawal schedule specified in

the annuity contract, i.e., eight percent after the first year.

Mr. Hemwey was dissatisfied with this response. Respondent then

went to see him, reminded him of the terms of the annuity and

tried to see if there was anything that would satisfy him.

Mr. Hemwey wanted to continue to earn seven percent.

20. Mr. Hemwey also spoke to Respondent's supervisor, Keith

Lozowski, about his confusion regarding the terms of the annuity.

He did not claim at that time that Respondent had made any

misrepresentation. He maintained that he wanted to continue to

receive the seven percent introductory interest rate.

Mr. Lozowski explained to Mr. Hemwey that he did not have the

authority to guarantee such a rate, and that his contract did not

provide for seven percent beyond the first year.

21. At hearing, Mr. Hemwey insisted that he did not know he

was purchasing an annuity. His testimony simply is not credible

in this regard. He responded to an advertisement for an annuity

and signed a document that indicated prominently its status as an

annuity. Simply put, Mr. Hemwey paid attention to the advertised

introductory interest rate and ignored everything else told or

provided to him. He received $7,000 in interest the first year;

$3,700 in interest the second year; and is receiving 3.6%

interest in the third year. His original investment of $100,000

remains in the annuity. No evidence was presented to indicate

that, had Mr. Hemwey been able to withdraw the original

investment, he could have received a higher return on his money

elsewhere.

22. Respondent did not misrepresent, either by commission

or omission, the characteristics of the annuity product that

Mr. Hemwey purchased. She did not pressure him to purchase the

product he chose.

CONCLUSIONS OF LAW

23. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties to this

action in accordance with Sections 120.569 and 120.57(1), Florida

Statutes (2008).

24. This disciplinary action by Petitioner is a penal

proceeding in which Petitioner seeks to suspend Respondent's

license as an insurance agent. Petitioner bears the burden of

proof to demonstrate the allegations in the Administrative

Complaint by clear and convincing evidence. Department of

Banking and Finance v. Osborne Sterne & Co. , 670 So. 2d 932 (Fla.

1996); Ferris v. Turlington , 510 So. 2d 292 (Fla. 1987).

25. Clear and convincing evidence:

[R]equires that the evidence must be found to

be credible; the facts to which the witnesses

testify must be distinctly remembered; the

testimony must be precise and lacking in

confusion as to the facts in issue. The

evidence must be of such a weight that it

produces in the mind of the trier of fact a

firm belief or conviction, without hesitancy,

as to the truth of the allegations sought to

be established.

In re Henson , 913 So. 2d 579, 590 (Fla. 2005), quoting Slomowitz

v. Walker , 429 So. 797, 800 (Fla. 4th DCA 1983).

26. The factual allegations in the Administrative Complaint

include the following:

7. On or about November, 2006, F.E.H. stated

to you, SARAH C. FUQUAY, that he desired to

put his money in a short term financial

contract of no more than one year duration

that would earn interest. You, SARAH C.

FUQUAY, stated to F.E.H. that you had such a

product and could sell to him a one year term

financial instrument that would yield 7%.

8. On or about November, 2006, you, SARAH C.

FUQUAY, fraudulently induced F.E.H. to

utilize the above-mentioned $100,000 to

purchase a Bankers Life Insurance Deferred

annuity.

9. In the process of inducing the sale and

purchase of the annuity, you, SARAH C.

FUQUAY, willfully misrepresented and/or

omitted material information regarding the

nature and sale of the annuity. The

misrepresentations, both by omission and

commission, include, but are not limited to,

the following:

(a) You, SARAH C. FUQUAY, failed to

disclose to F.E.H. that he was purchasing an

annuity with a ten year contract duration.

F.E.H. had no desire nor need to purchase a

ten year annuity. F.E.H. desired to purchase

and actually thought he was purchasing a

financial contract similar to a Certificate

of Deposit that would be of one year

duration. You, SARAH C. FUQUAY, sold the

annuity to F.E.H. without his knowledge or

informed consent. You, SARAH C. FUQUAY, were

aware of this fact.

(b) You, SARAH C. FUQUAY, represented

to F.E.H that the annuity he was purchasing

would pay an interest yield of 7%. In fact,

the annuity only had a 7% yield for the first

year only. Thereafter, the guaranteed

interest rate is only 2.5%. You, SARAH C.

FUQUAY, failed to disclose this fact to

F.E.H.

(c) You, SARAH C. FUQUAY, failed to

disclose to F.E.H. the annuity surrender

penalties; specifically, that he could not

withdraw any funds at all without paying a

surrender penalty of 8% for the first two

years of the policy and only gradually

declining to 0% on a declining scale over ten

years.

(d) You, SARAH C. FUQUAY, failed to

disclose to F.E.H. that he could not have

full penalty free access to his funds until

2016, the annual maturity date, when F.E.H.

would be 94 years old. It is actuarially

unlikely that F.E.H. will live to be 94 years

old; therefore, it is unlikely he can receive

a benefit from this annuity.

10. The misrepresentations and omissions

made by you, SARAH C. FUQUAY, described

herein were false and material misstatements

of fact. You, SARAH C. FUQUAY, were fully

aware of these facts.

11. The conduct and actions describe (sic)

herein constitute unfair and deceptive acts

or practices in violation of Section

626.9541, Florida Statutes.

12. F.E.H. justifiably relied on the

representations and information conveyed to

him by you, SARAH C. FUQUAY concerning the

annuity. The annuity would not have been

purchased but for these representations.

13. You, SARAH C. FUQUAY, have violated a

public trust in violation of Rule 69B-

215.210, Florida Administrative Code. As a

result, F.E.H. has suffered financial harm.

27. The Department failed to prove the foregoing

allegations by clear and convincing evidence. To the contrary,

the persuasive evidence presented indicates that Mr. Hemwey

responded to an advertisement specifically identifying an annuity

as the product advertised. Respondent told him repeatedly that

Bankers Life did not offer certificates of deposit and that the

financial instrument was an annuity. She described the features

of an annuity and left him a brochure regarding its

characteristics.

28. The persuasive evidence presented at hearing indicates

that Respondent advised Mr. Hemwey and Mr. Hemwey understood that

the introductory rate of seven percent was for one year only, and

a guaranteed but lesser interest rate would control subsequent

years. Respondent credibly testified that she went over the

features of the annuity with Mr. Hemwey, including the withdrawal

charges. Moreover, the allegations in paragraph 9(c) are not

consistent with the terms of the annuity document itself. See

endnote 2.

29. The more credible evidence demonstrated that while the

annuity would not mature for a ten-year period, Mr. Hemwey is

able to and does receive the interest on his investment during

the life of the contract, and may continue to do so until the

maturity date. There is no evidence presented that Mr. Hemwey

could have received a better return on investment elsewhere.

In short, the Department did not prove, much less by clear and

convincing evidence, that Respondent made any misrepresentation

or omission or that Mr. Hemwey suffered any financial harm. 3/

30. The Administrative Complaint alleges that Respondent's

conduct violated Subsections 626.611(5),(7), (9) and (13);

Statutes. The Department has indicated in its Proposed

Recommended Order that it is not pursuing the charge that

Respondent violated Section 626.611(9), Florida Statutes, because

a single act of misconduct cannot form the basis of a "fraudulent

or dishonest practices" charge, based upon Werner v. Department

of Insurance , 689 So. 1211 (Fla. 1st DCA 1997). Accordingly, no

further discussion of Subsection 626.611(9) is necessary.

31. Relevant portions of Section 626.611, Florida Statutes,

provide as follows:

626.611 Grounds for compulsory refusal,

suspension, or revocation of agent's, title

agency'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, adjuster, customer representative,

service representative, or managing general

agent, and it shall 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:

* * *

(5) Willful representation 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 a lack of fitness or

trustworthiness to engage in the business of

insurance.

* * *

(13) Willful failure to comply with, or

willful violation of, any proper order or

rule of the department or will violation of

any provision of this code.

32. Section 626.621, Florida Statutes, provides in

pertinent part:

626.621 Grounds for discretionary refusal,

suspension, or revocation of agent'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 . . . agent, . . . and it

may suspend or revoke the eligibility to hold

a license or appointment of any such person,

it if finds that as to the . . . licensee . .

. , any one or more of the following

applicable grounds exist under the

circumstances for which such denial,

suspension, revocation, 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.

* * *

(6) In the conduct of business under the

license or appointment, engaging in unfair

methods of competition or in unfair or

deceptive acts or practices, as prohibited

under part IX of this chapter, or having

otherwise shown himself or herself to be a

source of injury or loss to the public.

33. Section 626.9541(1), Florida Statutes, provides in

pertinent part:

(1) UNFAIR METHODS OF COMPETITION AND UNFAIR

OR DECEPTIVE ACTS.--The following are defined

as unfair methods of competition and unfair

or deceptive acts or practices:

(a) Misrepresentations and false advertising

of insurance policies . --Knowingly making,

issuing, circulating, or causing to be made,

issued, or circulated, any estimate,

illustration, circular, statement, sales

presentation, omission, or comparison which:

1. Misrepresents the benefits, advantages,

conditions, or terms of any insurance policy.

* * *

(e) False statements and entries.--

1. Knowingly:

a. Filing with any supervisory or other

public official,

b. Making, publishing, disseminating,

circulating,

c. Delivering to any person,

d. Placing before the public,

e. Causing, directly or indirectly, to be

made, published, disseminated, circulated,

delivered to any person, or placed before the

public, any false material statement.

34. Florida Administrative Code Rule 69B-215.210 provides:

The Business of Life Insurance is hereby

declared to be a public trust in which

service all agents of all companies have a

common obligation to work together in serving

the best interests of the insuring public, by

understanding and observing the laws

governing Life Insurance in letter and in

spirit by presenting accurately and

completely every fact essential to a client’s

decision, and by being fair in all relations

with colleagues and competitors always

placing the policyholder’s interests first.

35. For the reasons expressed in paragraphs 27-29, the

Department has not presented clear and convincing evidence to

support any violation Section 626.611 or 626.621, Florida

Statutes. There was no misrepresentation, willful or otherwise,

regarding the terms of the annuity contract. No evidence has

been presented to demonstrate that Respondent is unfit or

untrustworthy to engage in the business of insurance, and the

Department has not proven any failure to comply with or willful

violation of any provision of the Insurance Code or rule adopted

pursuant thereto, including those provisions defining unfair

methods of competition and unfair or deceptive acts or practices.

RECOMMENDATION

Upon consideration of the facts found and conclusions of law

reached, it is

RECOMMENDED:

That a final order be entered dismissing the Administrative

Complaint.

DONE AND ENTERED this 10th day of August, 2009, in

Tallahassee, Leon County, Florida.

S

LISA SHEARER NELSON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 10th day of August, 2009.

ENDNOTES

1/ Unless otherwise indicated, all references to the Florida

Statutes are to the 2006 codification in effect at the time of the

conduct alleged in the Administrative Complaint.

2/ With respect to withdrawals and partial withdrawals, the

annuity provides the following:

WITHDRAWAL CHARGE:

A Withdrawal Charge is an amount which may be charged

when any portion of the Cash Value is withdrawn from

this policy. It is equal to the amount withdrawn

multiplied by the Withdrawal Charge Percentage. The

Withdrawal Charge Percentage is shown in the Schedule.

PARTIAL WITHDRAWALS:

The Owner may take Partial Withdrawals of at least

$100. A Partial Withdrawal may be taken if the Cash

Value less the sum of the Partial Withdrawal and any

applicable Withdrawal Charge is not less than the

Minimum Cash Value shown in the Schedule. We will

allow Partial Withdrawals to be taken without a

Withdrawal Charge, if the Partial Withdrawals and any

Systematic Withdrawals in that Policy Year total no

more than 10% of the Cash Value at the time of the

first Partial Withdrawal or Systematic Withdrawal in

that Policy Year. Any amount withdrawn in excess of

this 10% will be subject to a Withdrawal Charge.

After the first Policy Year, if no Withdrawal is taken

in the previous Policy Year, We will allow Partial

Withdrawals to be taken without a Withdrawal Charge if

the Partial Withdrawals and any Systematic Withdrawals

in that Policy Year total no more than 20% of the Cash

Value at the time of the first Partial Withdrawal or

Systematic Withdrawal in that Policy Year. When 20% is

allowed, any amount withdrawn in excess of the 20% will

be subject to a Withdrawal Charge.

3/ The Department's only witness was Mr. Hemwey. His testimony

regarding the substance of the conversations with Respondent

simply does not rise to the level of clear and convincing

evidence. He did not remember how many times he spoke with her;

did not remember providing the information in the Fact Finder,

although he signed it; did not remember who he talked to on the

telephone regarding the annuity; did not remember how long he held

the funds from the sale of his real estate before seeking to place

it in the annuity; and did not recall what he and Respondent

discussed other than the fact that the first year, the annuity

would earn 7% interest. He candidly admitted that the interest

rate that first year was all he was interested in.

COPIES FURNISHED:

James A. Bossart, Esquire

Department of Financial Services

612 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399-0333

Daniel Koleos, Esquire

Koleos, Rosenberg & Doyle, P.A.

AmTrust Bank Building, Suite Penthouse 4

8211 West Broward Boulevard

Fort Lauderdale, Florida 33324

Tracey Beal, Agency Clerk

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

Benjamin Diamond, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0307

Alex Sink, Chief Financial Officer

Department of Financial Services

The Capitol, Plaza 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.