09-003089PL Department Of Financial Services vs. Richard Palmer Eberhardt Status: Closed Recommended Order on Tuesday, April 27, 2010.

Summary: Petitioner proved by clear and convincing evidence that both Respondents violated certain provisions of the Florida Insurance Code; Respondents failed to do due diligence prior to selling the victims unauthorized annunity. Recommend revocation.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, )

)

Petitioner, )

)

vs. ) Case No. 09-3088PL

)

NANCY L. EBERHARDT, )

)

Respondent. )

)

DEPARTMENT OF FINANCIAL SERVICES, )

)

)

Petitioner, )

)

vs. )

) Case No. 09-3089PL

RICHARD PALMER EBERHARDT, )

)

Respondent. )

)

RECOMMENDED ORDER

These consolidated matters came on for final hearing before

Daniel M. Kilbride, the designated Administrative Law Judge of

the Division of Administrative Hearings on February 17, 2010, in

Ft. Myers, Florida.

APPEARANCES

For Petitioner: Philip M. Payne, Esquire

Department of Financial Services

624 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: Nicholas J. Taldone, Esquire

2536 Countryside Boulevard,

First Floor East

Clearwater, Florida 33763

STATEMENT OF THE ISSUES

Whether Respondents directly or indirectly represented or

aided an unauthorized insurer, an insurance or annuity product;

whether Respondents knew or reasonably should have known that

the annuity contracts with the unauthorized insurer violated

Section 626.901, Florida Statutes; whether Respondents knowingly

placed before the public a statement, assertion, or

representation with respect to the business of insurance that

was untrue, deceptive, or misleading; whether Respondents

knowingly caused to be made, published, disseminated,

circulated, delivered, or placed before the public any false

material statement; whether Respondents demonstrated a lack of

fitness and trustworthiness to engage in the business of

insurance; whether Respondents engaged in unfair or deceptive

practices or otherwise showed themselves to be a source of

injury or loss to the public; and whether Respondents otherwise

acted in violation of the Florida Insurance Code provisions as

specifically detailed in Petitioner’s Amended Administrative

Complaint, and, if so, what penalty, if any, should be imposed

on Richard P. Eberhardt’s insurance agent license and/or Nancy

L. Eberhardt’s license.

PRELIMINARY STATEMENT

In separate two-count Amended Administrative Complaints,

forwarded to the Division of Administrative Hearings (DOAH) on

June 8, 2009, Petitioner, the Department of Financial Services,

charged Respondents, Nancy L. Eberhardt and Richard Palmer

Eberhardt, with having violated certain provisions of the

Florida Insurance Code (FIC).

Each of the Respondents requested a formal administrative

hearing before DOAH, and this matter was referred to DOAH on

June 9, 2009. Respondents’ respective cases were consolidated

for purposes of a final hearing pursuant to DOAH’s Order of

Consolidation, dated June 30, 2009, and discovery ensued.

This matter was continued twice at the request of the

parties. Pursuant to the Order Re-Scheduling Hearing, issued on

December 11, 2009, a formal hearing was held on February 17,

2010, in Ft. Myers, Florida.

Petitioner called four witnesses to testify live: Rock

Roque, Ronald Lovejoy, Jacob Bisch, and Fay Ann Clark.

Affidavits and supporting documents of Petitioner employee

witnesses Elizabeth Timin and Lee Wheeler, along with Florida

Office of Insurance Regulation (OIR) employee Gary Mills, were

stipulated to in lieu of their live testimony. Petitioner

offered 21 exhibits, which were admitted in evidence.

PETITIONER’S EXHIBITS

VOLUME I :

EXHIBIT DESCRIPTION

Exhibit 1: A. Department’s Agent License Printouts and

License Applications documents related to

Richard Palmer Eberhardt, License ID#

E055503.

B. Department’s Agent License Printouts and

License Applications documents relative to

Nancy L. Eberhardt, License ID# E054669.

C. Florida Secretary of State corporate filed

for LLQ Consulting, LLC.

Exhibit 2: A. Tennessee Secretary of State filing for

National Foundation of America (NFOA).

B. NFOA corporate resolution dated 4/18/06.

Exhibit 3: State of Washington Office of Insurance

Commissioner Cease and Desist Order against NFOA,

Richard Olive, and Susan Olive, dated 9/18/06.

Exhibit 4: A. OIR IFO against NFOA, Richard Olive, and

Susan Olive, dated 4/13/07.

B. 1st DCA dismissal of NFOA appeal dated

7/24/07.

Exhibit 5: A. OIR certification that NFOA has no

Certificate of Authority (“COA”).

B. Secretary of State certification that NFOA

was not registered with the Division of

Corporations.

Exhibit 6: A. IRS letter, dated 5/17/07, to Texas

Department of Insurance that NFOA is not

classified as exempt under 501(c)(3) of the

Internal Revenue Code (“IRC”).

B. IRS letter, dated 2/6/08 to Tennessee

Receiver/Paul Eggers that NFOA does not

qualify as exempt under 501(c)(3) of the

IRC.

Exhibit 7: Verified Petition for Appointment of Receiver for

NFOA, from the Tennessee Department of Commerce

and Insurance (“DCI”), dated 5/23/07 (excluding

exhibits).

VOLUME II :

Exhibit 7:

Continued Exhibits for Verified Petition for Appointment of

Receiver for NFOA.

VOLUME III :

Exhibit 8: Verified Petition to Convert Rehabilitation to

Liquidation for NFOA, from the Tennessee DCI,

dated 8/2/07.

Exhibit 9: Final Order of Liquidation for NFOA, from the

Tennessee DCI, dated 9/11/07.

Exhibit 10: A. As to Florida consumer Jacob Bisch – NFOA

contract and related documents, including

Mr. Eberhardt’s business card.

B. The Tennessee Receiver’s first distribution

refund of money to Mr. Bisch, including

Mr. Bisch’s payment of $45,221.45 to NFOA.

C. The Tennessee Receiver’s second distribution

refund of money to Mr. Bisch.

D. Mr. Bisch’s surrender charges.

E. The Eberhardts’ commission check.

Exhibit 11: A. As to Florida consumer Fay Ann Clark – FNOA

contract and related documents.

B. The Tennessee Receiver’s first distribution

refund of money to Ms. Clark, including

Ms. Clarks’s payment of $200.000.00 to NFOA.

C. The Tennessee Receiver’s second distribution

refund of money to Ms. Clark.

D. Eberhardt’s commission check.

Exhibit 12: A. Nancy Eberhardt/LLQ Consulting, LLC 2/10/06

letter to NFOA regarding payment of

commissions.

B. Tennessee Receiver’s 7/6/07 and 1/3/08

letters demanding disgorgement of the

Eberhardts’ commission.

Exhibit 13: Respondents’ July 30, 2009, response to

Petitioner’s discovery request.

Exhibit 14: Petitioner’s Agent License Printouts for Rock

Roque and Ronald Lovejoy.

Exhibit 15: Florida Department of Insurance (“DOI”) and

Department of Financial Services (“DFS”) Intercom

insurance agent newsletters.

VOLUME IV :

Exhibit 16: Respondent Richard Eberhardt’s deposition taken

by Petitioner on 10/27/09.

VOLUME V :

Exhibit 17: Respondent Nancy Eberhardt’s deposition taken by

Petitioner on 10/27/09.

Exhibit 18: Deposition of Richard Olive taken by both

Petitioner and Respondent on 11/17/09.

Exhibit 19: Florida Department of Agriculture and Consumer

Services certified affidavit regarding National

Foundation of America, dated 11/20/09.

Exhibit 20: Petitioner’s supplemental investigation, dated

11/18/09, relative to Respondents.

UNBOUND EXHIBIT :

Exhibit 21: Section 627.481, Florida Statutes, donor annuity

registration filings with the OIR for New Life

Corporation of America, National Community

Foundation, and New Life International.

Respondents each testified in their own behalf, and offered

seven exhibits into evidence. Respondents’ Exhibits marked for

identification, 1, 5, 6 and 7 were admitted; Exhibits 2, 3, and

4 were conditionally admitted. Following the hearing,

Respondents filed a Consolidated Memorandum in Support of

Admission of Respondent’s Exhibits 2, 3, and 4. Petitioner did

not file a response; upon review, it is found and determined

that Respondent’s proposed Exhibits 2, 3, and 4 are excluded on

the grounds that they are irrelevant and consist of

uncorroborated hearsay, which do not fall within an exception to

the hearsay rule as found in Chapter 90, Florida Statutes.

Code R. 28-106.213(3).

RESPONDENT’S EXHIBITS

VOLUME 1 :

Exhibit 1: 2006 Form 1099 for LLQ Consulting, LLC.

Exhibit 2: February 13 and 14, 2008, e-mail string between

and among State of Florida OIR and DFS regarding

“NFOA – Tennessee Receivership.”

Exhibit 3: February 14, 2008, e-mail from Annette Johnson to

Carl Rescke re: “New information on Richard

Olive.”

Exhibit 4: February 19, 2008, e-mail from Annette Johnson to

Ernie Ulrich re: “Information per your request.”

Exhibit 5: 26 page document marked as Exhibit 1 at the

deposition of Richard Olive.

Exhibit 6: IRS FORM 1023 Instructions.

Exhibit 7: Exerpt from IRS publication 557.

A Transcript of the final hearing was prepared and filed on

March 15, 2010, and both parties were afforded the opportunity

to file a proposed recommended order. Each party timely filed

its Proposed Recommended Orders, and they have been given

careful consideration in the preparation of this Recommended

Order.

Respondents raise the issue of Selective Bad Faith

Prosecution in its proposal. Such a defense is in equity. This

tribunal does not have equitable jurisdiction; it only has such

jurisdiction as is conferred by statute. See gererally Florida

Department of Revenue v. WHI Ltd Parthership , 754 So. 2d 205

(Fla 1st DCA 2000). However, such a defense is preserved,

should an appeal be taken following the issuance of a final

order, pursuant to Section 120.68, Florida Statutes.

FINDINGS OF FACT

General facts applicable to both Respondents

1. Respondent, Richard Eberhardt (RE), is currently

licensed in the State of Florida as a Life Including Variable

Annuity & Health Life, Life & Health, and Health insurance

agent. RE was initially licensed by Petitioner as a non-

resident insurance agent on May 6, 2004. Previously, RE was a

licensed insurance agent in Nebraska, Indiana, and Arizona.

2. Respondent, Nancy Eberhardt (NE), is currently licensed

in the State of Florida as a Life Including Variable Annuity,

Life Including Variable Annuity & Health, Life, Life & Health,

and Health insurance agent. NE was initially licensed by

Petitioner as a non-resident insurance agent on January 2, 2003,

and then as a resident agent on October 5, 2004. Previously, NE

was a licensed insurance agent in Arizona.

3. Petitioner has historically mailed, and subsequently

made available on line, the Intercom, an insurance agent

newsletter. The heading to the newsletter, reads in part:

“Publication for Agents and Adjusters from the State of Florida

Department of Financial Services.” These newsletters contained

warnings regarding unauthorized sales of insurance products, and

explanations as how an agent could verify whether or not an

insurer was authorized to do business in Florida. Petitioner’s

records evidence that the newsletters were distributed to

insurance agents from the July – October 1996 through December

2006 editions. Respondents became licensed Florida agents in

January 2003, and it is a reasonable assumption that they

received or had computer access to those publications.

4. Both Respondents are listed in Petitioner’s records as

being the owners of LLQ Consulting, LLC. Respondent NE is

listed as being the insurance agent-in-charge of LLQ Consulting,

LLC.

5. Pursuant to records on file with the Florida Secretary

of State, LLQ Consulting, LLC, is an Arizona-limited liability

company that is authorized to do business in Florida.

Respondent RE was originally listed as manager; however, since

April 22, 2005, Respondent NE has been listed as the manager.

6. At all times pertinent to the dates and occurrences

referred to herein, Respondents were licensed in Florida as

insurance agents.

7. Petitioner has jurisdiction over Respondents’ insurance

agent licenses and appointments, pursuant to statute.

National Foundation of America (NFOA)

8. The NFOA is a registered Tennessee corporation that was

formed on January 27, 2006, and headquartered in Franklin,

Tennessee.

9. Respondents assert that the difference between a

charitable gift annuity and a charitable installment bargain

sale is that a charitable gift annuity is under Internal Revenue

Code (IRC) Section 501(m) and the payout to the investor is

based on a mortality table of the donor’s expected life.

Therefore, it is a tax free exchange of an asset by a donor at

less than the asset’s fair market value to a charitable

organization in exchange for an annuity issued by the charitable

organization.

10. On the other hand, Respondents argue that an

installment bargain sale is under Section 453 of the IRC and 26

C.R.F. Sections 1.1011-2 of the IRC regulations. It is an

exchange of an asset owned by the donor at less than fair market

value to a charitable organization in exchange for an annuity.

The IRS allows the donor to deduct the difference between the

fair market value of the asset and the amount that the

charitable organization pays for the asset. The payout of the

annuity is for a specific term and not tied to a mortality

table.

11. Therefore, NCF did not consider the Charitable

Installment Purchase to be an insurance transaction or the sale

of an insurance product under state insurance laws.

12. Nevertheless, an NFOA Corporate Resolution, dated

April 16, 2006, provides for the corporate authority to

“liquidate stocks, bonds, and annuities . . . in connection with

charitable contributions or transactions. . . .” This same

resolution also provides for the corporate ability to “enter

into and execute planned giving or charitable contribution

transactions with donors, including executing any and all

documentation related to the acceptance or acquisition of a

donation, . . . given in exchange for a charitable gift

annuity. . . .“

13. On September 18, 2006, the State of Washington Office

of Insurance Commissioner issued an Order to Cease and Desist in

the matter of National Foundation of America, Richard K. Olive,

and Susan L. Olive , Order No. D06-245. The Order, among other

things, was based on NFOA’s having not been granted a

Certificate of Authority (COA) as an insurer in Washington and

having not been granted tax exempt status under Section

501(c)(3) of the IRC.

14. On April 13, 2007, the OIR issued an Immediate Final

Order (IFO) in the matter of National Foundation of America,

Richard K. Olive, Susan L. Olive, Breanna McIntyre, and Robert

G. DeWald , Case No. 89911-07, finding that the activities of

NFOA, et al ., constituted an immediate danger to the public

health, safety or welfare of Florida consumers. OIR further

found that, in concert, NFOA, et al ., were “soliciting,

misleading, coercing and enticing elderly Florida consumers to

transfer and convey legitimate income tax deferred annuities for

the benefit of themselves and their heirs to NFOA in exchange

for charitable term certain annuities”; and that NFOA, et al .,

had violated provisions of the FIC, including Sections 624.401

and 626.901, Florida Statutes.

15. NFOA has never held a license or COA to transact

insurance or annuity contracts in Florida, nor has NFOA ever

been registered pursuant to Section 627.481, Florida Statutes,

for purposes of donor annuity agreements. NFOA was never a

registered corporation with the Florida Department of State,

Division of Corporations.

16. New Life Corporation of America (“NLCA”) d/b/a

National Community Foundation (“NCF”) has been registered with

OIR as a Section 627.481, Florida Statutes, donor annuity

organization, since October 1997. NCLA subsequently changed its

name to New Life International (“NLI”), which continued to use

the d/b/a/ NCF. NLI is presently registered as a donor annuity

organization with OIR.

17. NFOA appealed OIR’s IFO to the First District Court of

Appeal of Florida (1st DCA). The 1st DCA dismissed NFOA’s

appeal on July 24, 2007. Therefore, NFOA operated as an

unauthorized insurer in Florida.

18. On May 17, 2007, the Internal Revenue Service (IRS)

sent a letter to the Texas Department of Insurance stating that

NFOA was not classified as an organization exempt from federal

income tax as an organization described in Section 501(c)(3) of

the IRC.

19. On May 23, 2007, the Tennessee Department of Commerce

and Insurance (DCI) filed a Verified Petition for Appointment of

Receiver for Purposes of Liquidation of National Foundation of

America; Immediate and Permanent Injunctive Relief; Request for

Expedited Hearing, in the matter of Newman v. National

Foundation of America, Richard K. Olive, Susan L. Olive, Breanna

MyIntyre, Kenny M. Marks, and Hunter Daniel , Chancery Court of

the State of Tennessee (“Chancery Court”), 20th Judicial

District, Davidson County, Case No.: 07-1163-IV. The Verified

Petition states at paragraph 30:

NFOA’s contracts reflect an express written

term that it is recognized by the IRS as a

charitable non-profit organization under

Section 501(c)(3) of the Internal Revenue

Code (Prosser, attachment 4), and NFOA

represents in multiple statements and

materials that the contract will entitle the

customers to potential generous tax

deductions related to that status. The IRS

states that it has granted NFOA no such

designation. The deceptive underpinning

related to NFOA’s supposed tax favored

treatment of its contracts permeates it

entire business model and sales pitch. This

misrepresentation has materially and

irreparably harmed and has the potential to

harm financially all its customers and the

intended beneficiaries of the contracts.

These harms are as varied in nature and

degree as the circumstances of all those

individuals’ tax conditions, the assets

turned in to NFOA, and the extent to which

they have entrusted their money and keyed

their tax status and consequences to

reliance on such an organization.

20. On August 2, 2007, the Commissioner for the Tennessee

DCI, having determined that NFOA was insolvent with a financial

deficiency of at least $4,300,000.00, filed a Verified Petition

to Convert Rehabilitation by Entry of a Final Order of

Liquidation, Finding of Insolvency, and Injunction, in the

matter of Newman v. National Foundation of America, et al.

21. On September 11, 2007, pursuant to a Final Order of

Liquidation and Injunction entered in the matter of Newman v.

National Foundation of America, et al. , the Chancery Court

placed NFOA into receivership after finding that the continued

rehabilitation of NFOA would be hazardous, financially and

otherwise, and would present increased risk of loss to the

company’s creditors, policy holders, and the general public.

22. On February 6, 2008, the IRS sent a letter to the

court appointed Tennessee DCI Receiver (“Receiver”) for NFOA

stating that NFOA does not qualify for exemption from federal

income tax as an organization described in Section 501(c)(3) of

the IRC. The IRS, in determining that NFOA did not qualify for

tax exempt status, stated that the sale of NFOA annuity plans

has a “distinctive commercial hue” and concluded that NFOA was

primarily involved in the sale of annuity plans that “constitute

a trade or business without a charitable program commensurate in

scope with the business of selling these plans.” The IRS letter

also provides that consumers may not take deductions on their

income tax returns for contributions to NFOA.

Insurance Agent’s Duties

23. An insurance agent has a fiduciary duty to his or her

clients to ensure that an insurer is authorized or otherwise

approved by OIR as an insurer in Florida prior to the insurance

agent selling the insurer’s product to his client.

24. There are several methods by which an insurance agent

could verify whether or not an insurer was authorized or

otherwise approved (hereinafter “authorized”) as an insurer in

Florida by OIR. It is insufficient for an insurance agent to

depend on the assurances of the insurer itself or his or her

insurance business peers as to whether an insurer needs to be

authorized in Florida.

25. Respondents asserted that, prior to selling NFOA

annuities in 2006, they had performed due diligence in order to

determine whether or not NFOA was authorized in Florida.

Respondents testified that at the time they performed their due

diligence, they viewed a State of Florida website that seemingly

indicated that OIR does not regulate donor annuities.

26. Respondents’ testimony lacks credibility as to the

timing of Respondents’ claimed due diligence. The websites that

seemingly indicate that OIR does not regulate donor annuities

did not come into existence until September 12, 2008, for OIR

and January 16, 2009, for Petitioner, which would have been

several years after any due diligence that Respondents claim

that they performed. As further noted below, the sale of the

NFOA annuities to Mr. Bisch and Ms. Clark occurred in 2006, well

in advance of the September 2008 and January 2009 creation of

any websites that might seemingly indicate a lack of OIR

regulation of donor annuity organizations.

27. While the OIR 2008 and DFS 2009 websites may be

somewhat confusing, at all times relevant to these matters,

donor annuity organizations have been and continue to be

regulated by OIR pursuant to Section 627.481, Florida Statutes,

and Florida Administrative Code Rules 69O-202.001 and

69O-202.015.

28. Due to the importance of income tax considerations in

a consumer’s decision making process as to whether or not to

purchase an insurance product, insurance agents have a fiduciary

duty to their clients to verify the validity of any

representations that an insurer’s product has an IRC Section

501(c)(3) tax exempt status, prior to the insurance agent’s

selling the product to his or her clients. There are several

methods by which insurance agents could verify whether or not an

insurer has an IRS 501(c)(3) tax exempt status.

29. Respondents admitted, in their testimony, that they

had depended on the assurances of others and assumed that NFOA

did not need to be authorized as an insurer in Florida.

Respondents also admitted in their testimony that, but for the

different names, the NFOA paperwork was the same as that of NCF.

30. Respondent’s testimony is contradictory and lacks

credibility in that NCF was qualified and registered with OIR as

a donor annuity organization and NFOA was not. Nevertheless,

Respondents claim NFOA was not and did not need to be regulated

by OIR.

31. Respondents testified that they had verified with the

IRS that NFOA had applied for Section 501(c)(3) tax exempt

status. However, Respondents were aware that the tax exempt

status had not been granted to NFOA at any time relevant to this

proceeding.

32. Respondents knew income tax considerations were

materially important to their clients. However, none of the

NFOA materials nor any Florida consumer contracts signed or

provided by Respondents to their clients contain any disclaimer

language informing consumers that the Section 501(c)(3) tax

exempt status had been applied for but had yet to be granted by

the IRS.

33. Respondents received commissions totaling $22,062.80

for selling NFOA annuities to Florida consumers. Respondents

have failed to return any of these commissions to the Receiver

for NFOA in the state of Tennessee.

Count I: Consumer – Jacob Bisch

34. On February 20, 2006, Respondents solicited and

induced Jacob Bisch of Cape Coral, Florida, then aged 75, to

transfer or otherwise surrender ownership of his existing

annuity contract with Allianz Life Insurance Company in return

for an NFOA annuity. The NFOA agreement that the consumer

entered into was signed by Respondent RE. Bisch credibly

testified as to both Respondents’ involvement in the sale of the

NFOA annuity. NE wrote a letter asking that the commission for

this sale be issued in her name. The commission check was

ultimately paid to LLQ Consulting, LLC, a company owned by both

Respondents and which NE was registered as the insurance agent-

in-charge.

35. Respondents knew or reasonably should have known that

NFOA was not an authorized insurer in Florida.

36. Respondents, by use of the NFOA donor annuity

agreement, knowingly misrepresented to Bisch that NFOA was a

charitable non-profit organization under Section 501(c)(3) of

the IRC, even though Respondents knew or should have known that

NFOA did not hold tax exempt status with the IRS.

37. Bisch’s testimony was credible that tax considerations

were the prime consideration in the purchase of the NFOA annuity

from Respondents.

38. Based upon Respondents’ transaction of insurance,

Bisch presently anticipates losing approximately $26,320.04.

This amount includes a surrender penalty of $16,823.04 incurred

for transferring his original Allianz annuity to NFOA, and after

receiving partial refunds from the NFOA Receiver.

39. Based upon Respondents’ transaction of insurance with

Bisch, Respondents were paid a commission of $4,062.80 by NFOA.

Count II: Consumer – Fay Ann Clark

40. Culminating on May 8, 2006, Respondents solicitated

and induced Fay Ann Clark of Ft. Myers, Florida, then aged 70,

to write a check for $200,000.00 in return for an NFOA annuity.

The NFOA agreement that Clark entered into, and which was signed

by Respondent RE, was entered into less than three weeks after

Clark requested rescission of two NCF annuities that Respondents

had previously sold Clark. Proceeds from the rescission of the

NCF annuities enabled Clark to purchase the NFOA annuity. Prior

to the rescission of the NCF annuities, on or about October 21,

2005, Clark had surrendered two Allianz Life Insurance Company

annuities. Proceeds from the surrender of the Allianz annuities

were used to purchase the NCF annuities. Respondent NE signed

the NCF annuities agreement and was the advisor. Respondent NE,

by use of a check drawn on Respondents’ joint checking account,

refunded Respondents’ commission for the NCF sales to Clark.

Sales documentation and correspondence clearly and convincingly

evidence both Respondents’ involvement in Clark’s Allianz to NCF

and NCF to NFOA transactions.

41. Respondents knew or reasonably should have known that

NFOA was not an authorized insurer in Florida.

42. Respondents, by use of the NFOA donor annuity

agreement, knowingly misrepresented to Clark that NFOA was a

charitable non-profit organization under Section 501(c)(3) of

the IRC, even though Respondents knew NFOA was not tax exempt.

43. Based upon Respondents’ transaction of insurance,

Clark paid $200,000.00 for an NFOA annuity, paid $7,971.00 in

penalties to the IRS (U.Seasury), and presently anticipates

losing approximately $42,000.00. Clark has received a partial

refund from the NFOA Receiver.

44. Based upon Respondents’ transaction of insurance with

Clark, Respondents were paid a commission of $18,000.00 by NFOA.

45. Petitioner has proven by clear and convincing evidence

that Respondents directly or indirectly represented or aided an

unauthorized insurer to do business in Florida.

46. Petitioner has proven by clear and convincing evidence

that Respondents knew or reasonably should have known that the

annuity contracts they contracted with clients were with an

unauthorized insurer.

47. Petitioner has proven by clear and convincing evidence

that Respondents knowingly placed before the public a statement,

assertion, or representation with respect to the business or

insurance that was untrue, deceptive or misleading.

48. Petitioner has proven by clear and convincing evidence

that Respondents knowingly caused to be made, published,

disseminated, circulated, delivered, or placed before the public

a false material statement.

49. Petitioner has proven by clear and convincing evidence

that Respondents demonstrated a lack of fitness and

trustworthiness to engage in the business of insurance.

50. Petitioner has proven by clear and convincing evidence

that Respondents engaged in unfair and deceptive practices or

showed themselves to be a source of injury to the public.

51. Neither Respondent has had prior disciplinary charges

filed against them in Florida.

CONCLUSIONS OF LAW

52. DOAH has jurisdiction over the subject matter of, and

the parties to, this proceeding. §§ 120.569, and 120.57(1),

Fla. Stat., and Chapter 626, Fla. Stat.

53. Petitioner has the authority to license, enforce and

discipline insurance agents, pursuant to Section 626.016,

Florida Statutes (2005). 1

54. Because Petitioner seeks the suspension or revocation

of some, or all, of Respondents’ licenses, Petitioner has the

burden of proving by clear and convincing evidence that

Respondents committed the violations alleged in Petitioner’s

Amended Administrative Complaints. Department of Banking and

Finance v. Osborne Stern & Company , 670 So. 2d 932 (Fla. 1996).

55. “‘Clear and convincing’ evidence is an intermediate

standard of proof, more than the ‘preponderance of the evidence’

standard used in most civil cases, and less than the ‘beyond a

reasonable doubt’ standard used in criminal cases.” Smith v.

Department of Health and Rehabilitative Services , 522 So. 2d

956, 958 (Fla. 1st DCA 1988). Clear and convincing evidence

requires:

that the evidence must be found to be

credible; the fact to which the witnesses

testify must be precise and explicit and the

witnesses must be lacking in confusion as to

the fact in issue. The evidence must be of

such 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.

Smith , 522 So. 2d at 958 (quoting Slomowitz v. Walker , 429 So.

2d 797, 800 (Fla. 4th DCA 1983).

56. At all times material to the instant case, Section

626.901, Florida Statutes, provides as follows:

(1) No person shall, from offices or by

personnel or facilities located in this

state, or any other state or country,

directly or indirectly act as agent for, or

otherwise represent or aid on behalf of

another, any insurer not then authorized to

transact such insurance in this state in:

(a) The solicitation, negotiation,

procurement, or effectuation of insurance or

annuity contracts, or renewals thereof;

(b) The dissemination of information as to

coverage or rates;

(c) The forwarding of applications;

(d) The delivery of policies or contracts;

(e) The inspection of risks;

(f) The fixing of rates;

(g) The investigation or adjustment of

claims or losses; or

(h) The collection or forwarding of

premiums;

or in any other manner represent or assist

such an insurer in the transaction of

insurance with respect to subjects of

insurance resident, located, or to be

performed in this state. . . .

57. At all times material to the instant case, Subsection

626.901(2), Florida Statutes, provides as follows:

(2) If an unauthorized insurer fails to pay

in full or in part any claim or loss within

the provisions of any insurance contract

which is entered into in violation of this

section, any person who knew or reasonably

should have known that such contract was

entered into in violation of this section

and who solicited, negotiated, took

application for, or effectuated such

insurance contract is liable to the insured

for the full amount of the claim or loss not

paid.

Aon Risk Services, Inc. v. Quintec , 887 So. 2d 368, 371

(Fla. 3rd DCA 2004), provides “the only fair reading of the

statute [Section 626.901(2), Florida Statutes] is that the

broker/agent’s liability is limited to coverage ‘within the

provisions of the insurance contract.’” Pursuant to Section

626.901(2), Florida Statutes, Respondents’ liability for

consumers’ losses should exclude any surrender penalties

incurred in transferring the consumers’ original annuities to

NFOA. Nevertheless, pursuant to Subsection 626.621(6), Florida

Statutes, Respondents are still responsible for the consumers’

total losses, which include the amounts of the surrender

penalties.

58. At all times material to the instant case, Subsection

626.9541(1)(b)4., Florida Statutes, provides as follows:

(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:

* * *

(b) False information and advertising

generally.

Knowingly making, publishing, disseminating,

circulating, or placing before the public,

or causing, directly or indirectly, to be

made, published, disseminated, circulated,

or placed before the public.

* * *

4. In any other way,

an advertisement, announcement, or statement

containing any assertion, representation, or

statement with respect to the business of

insurance, which is untrue, deceptive, or

misleading.

59. At all times material to the instant case, Subsection

626.9541(1)(e)1.e., Florida Statutes, provides as follows:

(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:

* * *

(e) False statements and entries.

1. Knowingly:

* * *

e. Causing, directly, or indirectly, to be

made, published, disseminated, circulated,

delivered to any person, or placed before

the public, any false material statement.

60. At all times material to the instant case, Subsection

626.611(7), Florida Statutes, provides as follows:

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, 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:

* * *

(7) Demonstrated lack of fitness or

trustworthiness to engage in the business of

insurance.

61. At all times material to the instant case, Subsections

626.621(2) and (6), Florida Statutes, provide as follows:

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,

adjuster, customer representative, service

representative, or 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 appointment any one

or more of the following applicable grounds

exist under 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.

62. Florida Administrative Code Rule 69B-231.110(35)

states, in pertinent part:

If the licensee is found to have violated

any of the following provisions of the

Insurance Code, the following stated penalty

shall apply:

* * *

(35) Section 626.901(1), F.S. – suspension

6 months.

63. Florida Administrative Code Rule 69B-231.110(36)

states in pertinent part:

If the licensee is found to have violated

any of the following provisions of the

Insurance Code, the following stated penalty

shall apply:

* * *

(36) Section 626.901(2), F.S. – suspension

6 months.

64. Florida Administrative Code Rule 69B-231.100(2)

states in pertinent part:

If the licensee is found to have violated

Section 626.621(6), F.S., by engaging in

unfair methods of competition or in any

unfair or deceptive acts or practice as

defined in any of the following paragraph of

Section 626.9541(1), F.S., the following

stated penalty shall apply:

* * *

(2) Section 626.9541(1)(b), F.S. –

suspension 6 months.

65. Florida Administrative Code Rule 69B-231.100(5)

states in pertinent part:

If the licensee is found to have violated

Section 626.621(6), F.S., by engaging in

unfair methods of competition or in any

unfair or deceptive acts or practice as

defined in any of the following paragraph of

Section 626.9541(1), F.S., the following

stated penalty shall apply:

* * *

(5) Section 626.9541(1)(b), F.S. –

suspension 6 months; except that the penalty

for a violation of Section 626.9541(1)(e)1.,

F.S., shall be a suspension of 12 months.

66. Florida Administrative Code Rule 69B-231.080(7)

states in pertinent part:

If it is found that the licensee has

violated any of the following subsections of

Section 626.611, F.S., for which compulsory

suspension or revocation of license(s) and

appointment(s) is required, the following

stated penalty shall apply:

* * *

(7) Section 626.611(7), F.S. – suspension 6

months

67. Florida Administrative Code Rule 69B-231.090(2)

states in pertinent part:

If it is found that the licensee has

violated any of the following subsections of

Section 626.621, F.S., for which suspension

or revocation of license(s) and

appointment(s) is discretionary, the

following stated penalty shall apply:

* * *

(2) Section 626.621(2) F.S. – suspension 3

months.

68. Florida Administrative Code Rule 69B-231.090(6)

states in pertinent part:

If it is found that the licensee has

violated any of the following subsections of

Section 626.621, F.S., for which suspension

or revocation of license(s) and

appointment(s) is discretionary, the

following stated penalty shall apply:

* * *

(6) Section 626.621(6) F.S. – see Rule 69B-

231.100, F.A.C.

69. Petitioner has proven by clear and convincing evidence

that Respondents violated Subsection 626.901(1), Florida

Statutes, as charged in Counts I and II of Petitioner’s Amended

Administrative Complaints. “The language of the statute

[Section 626.901(1), Florida Statutes] clearly imposes an

absolute bar against representing an unauthorized insurer.”

Department of Financial Services v. DeWald , Case No. 09-3052PL

(DOAH 2009), paragraph 84, citing Beshore v. Department of

Financial Services , 928 So. 2d 411, 412 (Fla. 1st DCA 2006).

70. In addition, Petitioner has proven by clear and

convincing evidence that Respondents have violated Subsections

626.901(2), 626.9541(1)(b)4., 626.9541(e)1.e., 626.611(7),

626.621(2), and 626.621(6), Florida Statutes. Department of

Financial Services v. DeWald , supra , Case No. 09-3052 (DOAH

2009), paragraph 85.

71. Respondents have a fiduciary duty to their clients and

to the insurer. Department of Financial Services v. DeWald ,

supra , Case No. 09-3052 (DOAH 2009), paragraph 86, citing

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

1984). “Insurance agents enjoy the benefit of public trust and

stand in a fiduciary relationship with their customers.”

Department of Financial Services v. Carll and Crain , Case

Nos. 06-2096PL and 06-2097PL (DOAH 2007), at paragraph 57,

citing Natelson , 454 So. 2d at 31, 32.

72. “A person acting in a fiduciary capacity generally has

a duty to make a full and fair disclosure of material facts to

the person reposing confidence in the fiduciary.” Department of

Financial Services v. Carll and Crain , paragraph 57 (citations

omitted).

73. As to each of their Florida clients, Respondents acted

“naively, if not irresponsibly” and worse when they aided NFOA,

both in NFOA’s unauthorized insurer context and in the

misrepresentation that NFOA was an IRS approved Section

501(c)(3) tax exempt entity. Department of Financial Services

v. DeWald , Case No. 09-3052PL (DOAH 2009), paragraph 87, citing

Department of Financial Services v. Keiffer , Case No. 03-2041PL

(DOAH 2004), paragraph 102.

74. Even if Respondents’ claim that NFOA is not regulated

by OIR were to be upheld, the disposition of these cases would

not change. “Courts have held that an insurance agent licensee

may demonstrate a lack of fitness or trustworthiness to engage

in the business of insurance by acts unrelated to the insurance

business.” Department of Financial Services v. Carll and Crain ,

Case Nos. 06-2096 and 06-2097 (DOAH 2007), paragraph 65, citing

Paisley v. Department of Insurance , 526 So. 2d 167 (Fla. 1st DCA

1988), and Natelson , 454 So. 2d at 32 (lack of fitness

demonstrated by felony convictions unrelated to insurance), with

Anna Michelle Mack v. Department of Financial Services , 914 So.

2d at 988-989, and Ganter v. Department of Insurance , 620 So. 2d

202 (Fla. 1st DCA 2993) (sale of auto club membership are

ancillary products).

75. Respondents knew or reasonably should have known that

NFOA was not an authorized insurer in Florida for purposes of

Subsection 626.901(2), Florida Statutes. Respondents were

experienced insurance agents of many years in Florida and other

states. Respondents professed verification of NFOA’s authority

to conduct the business of insurance in Florida and dependence

upon the biased hearsay assurances of others lacks credibility.

Respondents owed a duty to their clients to know whether or not

NFOA was an authorized insurer, and to govern their insurance

agent activities accordingly. Department of Financial Services

v. DeWald , Case No. 09-3052PL (DOAH 2009), paragraph 88, citing

Natelson , 454 So. 2d at 31, 32.

76. “Ascertaining the existence or nonexistence of a

certificate of authority, constitutes ‘due diligence’ incumbent

upon an agent before engaging in the sale of insurance from a

prospective insurance company.” Department of Financial

Services v. Keiffer , Case No. 03-2041PL (DOAH 2004), paragraphs

knowledge of those facts he could have discovered through

ordinary diligence.” Department of Financial Services v. Carll

and Crain , (DOAH 2007) paragraph 60, citing Ramel v. Chasebrook

Construction Company, Inc. , 135 So. 2d 876, 881 (Fla. 2nd DCA

1961).

77. Respondents knew that NFOA had not been granted tax

exempt status by the IRS and nevertheless knowingly

misrepresented the Section 502(c)(3) tax exempt status of NFOA

to their clients, in violation of Subsections 626.9541(1)(b)4.,

and 626.9541(1)(e)1.e., Florida Statutes. Respondents owed a

duty to their clients to disclose that NFOA did not have a

Section 501(c)(3) tax exempt status, or to at least qualify

their representations with a disclosure that NFOA’s tax exempt

status had been applied for but that a determination by the IRS

was pending. Department of Financial Services v. DeWald , Case

No. 09-3052PL (DOAH 2009), paragraph 89, citing Natelson , 424

So. 2d at 31, 32.

78. The plain meaning of the word “knowingly” does not

require knowledge of the unlawfulness of the act, only knowledge

of the occurrence of the act. A person acts “with knowledge”

when there is an “awareness, as of a fact or circumstance.”

Department of Financial Services v. DeWald , Case No. 09-3052PL

(DOAH 2009), paragraph 90, citing Mogavero v. State , 744 So. 2d

“the person committing the act need only have knowledge of the

facts; knowledge of the law itself is not required nor is it an

element of the offense.” BT Professional Services, Inc. v.

Dept. of Banking and Finance , Case No. 96-6136 (DOAH 1998) LEXIS

6266, citing United States v. International Minerals and

Chemical Corporation , 402 U.S. 558, 91 S. Ct. 1697, 29 L. Ed. 2d

178 (1971) [ Cf . Owens v. Samkle Automotive, Inc. , 425 F.3d 1318,

1321 (11th Cir. 2005)]; Boyce Motor Lines v. United States , 342

U.S. 337, 72 S. Ct. 329, 96 L. Ed. 2d 367 (1952), [ Cf .

Hutchinson Brothers Excavation Co., Inc. v. District of

Columbia , 278 A.2d 318, 322 (D.C. Cir. 1971)]; United States v.

Illinois Central Railroad Company , 303 U.S. 239, 58 S. Ct. 533,

82 L. Ed. 2d 773 (1938). “[E]ven in some criminal matters,

scienter is not always a requirement.” Beshore , 928 So. 2d, at

413.

79. “Making a statement that is false when one does not

have sufficient information to know whether the statement is

either true or false amounts to knowing misrepresentation that

rises to the level of fraudulent conduct. This is so because a

person is assumed to know whether he has insufficient knowledge

of the facts to assert the statement as true.” Department of

Financial Services v. DeWald , Case No. 09-3052PL (DOAH 2009),

paragraph 90, citing Jack Eckerd Corporation v. Smith , 558 So.

2d 1060, 1065 (Fla. 1st DCA 1990), citing Joiner v. McCullers ,

158 Fla. 562, 28 So. 2d 823 (1947) [ Cf . Parker v. State of

Florida Bd. of Regents ex rel. Florida State University , 724 So.

2d 163, 168 (Fla. 1st DCA 1998)]; Sauders Leasing System, Inc.

v. Gulf Cent. Distribution Center , Inc., 513 So. 2d 1303 (Fla.

2nd DCA 1987), review denied, 520 So. 2d 584 (Fla. 1988) [ Cf .

Gilchrist Timber Co. v. Natural Resource Planning Services,

Inc. , 127 F.3d 1390, 1395 (11th Cir. 1997)]; Miller v. Sullivan ,

475 So. 2d 1010 (Fla. 1st DCA 1985); Winn & Lovett Grocery Co.

v. Archer , 126 Fla. 308, 171 So. 214 (1936); Walsh v. Alfidi ,

448 So. 2d 1084 (Fla. 1st DCA), reh’g denied (1984).

80. Pursuant to the discussion of highest penalty per

count at Florida Administrative Code Rule 69B-231.040(1)(a), for

a violation of Subsection 626.901(2), Florida Statutes, the

stated penalty authorized by Florida Administrative Code Rule

69B-231.110(36) is a suspension of each individual Respondent’s

licensure for 12 months for each separate violation of

Subsection 626.901(2), Florida Statutes. Therefore, each

individual Respondent’s total penalty calculates to a 24-month

suspension even without further consideration of aggravating

factors, including the degree of financial injury to

Respondent’s clients; the elderly age of Respondents’ clients;

the financial commissions received by Respondents; and the

existence of secondary violations in Counts I and II of the

Amended Administrative Complaints. Fla. Admin. Code R. 69B-

231.040. In the event the final penalty exceeds a suspension of

24 months, the final penalty shall be revocation. Fla. Admin.

Code R. 69B-231.040(3)(d).

81. Florida Administrative Code Rule 69B-231.160(1)

states:

69B-231.106 – Aggravating/Mitigating

factors.

The Department shall consider the following

aggravating and mitigating factors and apply

them to the total penalty in reaching the

final penalty assessed against a licensee

under this rule chapter. After

consideration and application of these

factors, the Department shall, if warranted

by the Department’s consideration of the

factors, either decrease or increase the

penalty to any penalty authorized by law.

(1) For penalties other than those assessed

under Rule 69B-231.150, F.A.C.:

(a) Willfulness of Licensee’s conduct;

(b) Degree of Actual injury to victim;

(c) Degree of Potential injury to victim;

(d) Age of capacity of victim;

(e) Timely restitution;

(f) Motivation of licensee;

(g) Financial gain or loss to licensee;

(h) Cooperation with the Department;

(i) Vicarious or personal responsibility;

(j) Related criminal charge; disposition;

(k) Existence of secondary violations in

counts;

(l) Previous disciplinary order or prior

warning by the Department; and

(m) Other relevant factors.

82. As to the potential mitigation of discipline,

Respondents testified as to Respondent NE’s limited involvement

in the NFOA transactions. As found above, this testimony is

clearly and convincingly refuted by the evidence. RE and NE

were both very much involved in the NFOA transactions involving

Bisch and Clark.

83. The aggravating factors are the degree of financial

injury to Respondents’ clients, the elderly age of Respondents’

clients, the financial commissions received by Respondent, and

the existence of secondary violations in Counts I and II of the

Amended Administrative Complaints; they far outweigh any

mitigation of discipline.

RECOMMENDATION

Based upon the foregoing Finds of Facts and Conclusions of

Law, it is

RECOMMENDED that a final order be entered by the Department

of Financial Services:

(1) Finding that Respondents violated Subsections

626.611(7), 626.621(2), and 626.621(6), Florida Statutes, as

charged in Counts I and II of Petitioner’s Amended

Administrative Complaints;

(2) Revoking Respondent Richard Eberhardt’s, licenses and

appointments issued or granted under or pursuant to the Florida

Insurance Code;

(3) Revoking Respondent Nancy Eberhardt’s, licenses and

appointments issued or granted under or pursuant to the Florida

Insurance Code;

4. Providing that if either of the Respondents, subsequent

to revocation, makes an application to Petitioner for any

licensure, a new license will not be granted if the applicant

Respondent fails to prove that he or she has otherwise satisfied

the financial losses of his or her NFOA clients or if the

applicant Respondent otherwise fails to establish that he or she

is eligible for licensure.

DONE AND ENTERED this 27th day of April, 2010, in

Tallahassee, Leon County, Florida.

S

DANIEL M. KILBRIDE

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 27th day of April, 2010.

ENDNOTE

1/ All references to Florida Statutes are to Florida Statutes

(2005), unless otherwise indicated.

COPIES FURNISHED :

Nicholas J. Taldone, Esquire

2536 Countryside Boulevard, First Floor East

Clearwater, Florida 33763

Philip M. Payne, Esquire

Department of Financial Services

624 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399

Julie Jones, CP, FRP, Agency Clerk

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Benjamin Diamond, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0307

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.