09-002344PL Department Of Financial Services vs. Peter S. Tust Status: Closed Recommended Order on Tuesday, November 3, 2009.

Summary: Petitioner failed to establish by clear and convincing evidence that Respondent had misrepresented or failed to disclose material terms and conditions pertaining to annuities that he sold to several senior citizens.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, )

)

Petitioner, )

) Case No. 09-2344PL

vs. )

)

PETER S. TUST, )

)

Respondent. )

)

RECOMMENDED ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

September 1, 2009, at sites in Tallahassee and West Palm Beach,

Florida.

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Financial Services

612 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399-0333

For Respondent: Douglas J. Kress, Esquire

Schwed McGinley & Kahle

11376 North Jog Road, Suite 101

Palm Beach Gardens, Florida 33418

STATEMENT OF THE ISSUES

The primary issue in this case is whether Respondent

misrepresented or failed to disclose material terms and

conditions pertaining to annuities that he sold to several

senior citizens. If Respondent were found guilty of any

disciplinable offense, then the next issue would be whether

Petitioner should impose discipline for such violations as

Respondent may be found to have committed.

PRELIMINARY STATEMENT

On March 11, 2009, Petitioner Department of Financial

Services issued an Administrative Complaint against Respondent

Peter S. Tust, charging him with several disciplinable offenses

arising from two separate transactions in which he had sold

equity index annuities to senior consumers, allegedly inducing

them to make unsuitable or inappropriate investments through

fraud, misrepresentation, or nondisclosure of material terms and

conditions.

Mr. Tust timely exercised his right to be heard in a formal

administrative proceeding. On May 1, 2009, the Department

referred the matter to the Division of Administrative Hearings,

where the case was assigned to an Administrative Law Judge.

Thereafter, the Department sought, and on August 3, 2009, was

granted, leave to file an Amended Administrative Complaint,

which it did.

The final hearing took place as scheduled on September 1,

2009, with both parties present. The Department called three

witnesses: Elaine Gelch and Dora Indiviglia, alleged victims of

Mr. Tust's offenses; and David J. Nye, Ph.D., an expert in

finance and insurance. The Department also offered Petitioner's

Exhibits 1 through 12, which were received in evidence without

objection. Mr. Tust testified on his own behalf; presented the

testimony of David Paulukaitis, an expert in regulatory

compliance issues affecting agents, brokers, and dealers; and

offered Respondent's Exhibits 1 through 66, which were admitted

into evidence without objection.

The final hearing transcript was filed on September 18,

2009. Thereafter, each party timely submitted a Proposed

Recommended Order on or before October 12, 2009, in accordance

with the deadline established at the conclusion of the hearing,

as subsequently enlarged at the Department's request.

Unless otherwise indicated, citations to the Florida

Statutes refer to the 2009 Florida Statutes.

FINDINGS OF FACT

1. At all times relevant to this case, Respondent Peter S.

Tust ("Tust") held a valid license to transact business in

Florida as a life insurance agent, which authorized him to sell

products such as life and health insurance policies and fixed

and variable annuities. This case arises from two separate

transactions in which Tust sold an insurance product known as an

equity index annuity to (a) Dora Indiviglia and (b) Abraham and

Elaine Gelch.

2. Petitioner Department of Financial Services ("DFS" or

the "Department") is the state agency charged with administering

the provisions of the Florida Insurance Code, among other

responsibilities. The Department alleges that Tust fraudulently

induced Ms. Indiviglia and the Gelchs to purchase annuities that

were not suited to their respective financial needs. Because

Tust is a licensed insurance agent, he falls within the

Department's regulatory and disciplinary jurisdiction.

3. Broadly speaking, an annuity is a contractual

arrangement pursuant to which an insurance company, in exchange

for a premium (or purchase price), agrees to pay the owner or

his beneficiary a specified income for a period of time.

Annuities are generally classified as "fixed" or "variable."

Under a fixed annuity, the benefit is paid according to a

predetermined interest rate. With a variable annuity, the

premium is invested on the owner's behalf in, for example,

stocks or bonds, and the amount of the benefit, when paid,

reflects the performance of that investment, be it positive or

negative.

4. Fixed annuities can be either "immediate" or

"deferred." An immediate fixed annuity is one under which the

insurer begins paying the benefit upon purchase of the annuity.

Under a deferred annuity, in contrast, the premium is allowed to

grow over time, until the contract "matures" or is "annuitized"

and the insurer begins paying the benefit.

5. The equity index annuities which Tust sold to Ms.

Indiviglia and the Gelchs are considered fixed deferred

annuities. An equity index annuity is a contract under which

the insurer agrees to pay a benefit based on a premium that

earns interest at a rate determined by the performance of a

designated market index such as the S&P 500. The premium is not

invested in the market for the owner's account (as would be the

case with a variable annuity). Rather, to explain the concept

in the simplest terms, the interest rate rises (or falls) in

relation to the index's performance, within predetermined

limits. (None of the annuities involved in this case permitted

the interest to fall below zero; that is, an owner's principal

was never at risk of being lost due to the market's

performance.) It is undisputed that the equity index annuities

which Tust sold to Ms. Indiviglia and the Gelchs were approved

for sale to senior investors by the Department.

6. Equity index annuities are typically long-term

investments. Owners of such annuities have limited access to

the funds invested and accumulating in their accounts, although

some equity index annuities permit yearly penalty-free

withdrawals at set percentages. The accrued interest is

generally not taxed until the funds are withdrawn or the benefit

is paid under annuity. Besides taxes, the purchaser may incur

substantial surrender penalties for canceling the contract and

receiving his funds ahead of a specified date.

7. Some equity index annuities identify a date——often many

years in the future——on which the insurer will "annuitize" the

contract if it has not done so already at the purchaser's

request. This date is sometimes called the "maturity date."

The benefit payable under the annuity is determined based on the

account's value as of the maturity date, and the payments to the

owner or beneficiary of the annuity begin at that time.

8. Under the annuities in question here, the purchaser was

not required to keep his or her funds invested until the

maturity date. Rather, subject to certain limitations not at

issue, the purchaser could elect to "annuitize" his or her

contract practically at any time and thereby begin receiving the

annuity payments. Therefore, in this case at least, the fact

that the maturity date was beyond a purchaser's expected

lifespan is not, of itself, compelling proof that the annuity

was an unsuitable investment for him or her.

9. The Indiviglia Transaction.

In February 2005, Ms. Indiviglia attended one of the

luncheon seminars that Tust routinely conducted in restaurants

near his place of business in Boca Raton, Florida. At these

seminars, Tust provided a meal and a sales presentation to his

invitees. Tust made clear to those in attendance that he was

selling equity index annuities and would recommend the purchase

of this sort of annuity to anyone interested for whom such an

investment would be suitable.

10. Ms. Indiviglia was interested and made an appointment

to meet with Tust. She was 65 years old at the time. As she

told Tust when they met on February 25, 2005, Ms. Indiviglia's

annual income was about $41,000, which she received from

pensions and Social Security. She had recently sold some

property and wanted to invest the proceeds, which amounted to

about $150,000.

11. Ms. Indiviglia had made financial investments before

meeting Tust. She had invested in the stock market beginning in

the late 1970s. Additionally, she had invested in a 401k

account when she worked for the investment bank J.P. Morgan, had

purchased mutual funds outside of the 401k, and had bought a

variable annuity through another broker in 2003 or 2004. Ms.

Indiviglia told Tust her goals were safety, growth, and future

income.

12. Upon meeting with Tust, Ms. Indiviglia agreed to

purchase an equity index annuity from Fidelity and Guaranty Life

Insurance Company ("F&G") for a premium of approximately

$149,000. By purchasing this particular product, Ms. Indiviglia

was eligible for, and received, a bonus of approximately

$15,000, which was added to her account. If she surrendered (or

canceled) this annuity during the first 14 years, however, Ms.

Indiviglia would pay a penalty, starting at 18% for a

cancellation during the first year and declining each year

thereafter until the fourteenth year, when the surrender penalty

would be 1%. The maturity (or annuity) date on Ms. Indiviglia's

annuity was April 22, 2030. (Because she would be 90 years old

by that time, the chances were good that Ms. Indiviglia would

surrender or annuitize the contract before the maturity date.)

13. In applying for the F&G annuity, Ms. Indiviglia

executed an Annuity Application, a Confirmation Statement, and a

Senior Annuity Suitability Acknowledgement. On page one of the

Senior Annuity Suitability Acknowledgement, Ms. Indiviglia

declined to answer certain questions related to her financial

needs and objectives by placing a check mark beside the

following statement: "No, I decline to answer the questions

below, but I believe a Fidelity and Guaranty Life or Americom

Life and Annuity annuity contract meets my needs for my

financial situation." Ms. Indiviglia placed her signature and

the date (3/8/2005) beneath this statement.

14. On the second page of the Senior Suitability

Acknowledgement, Ms. Indiviglia manifested her understanding of

several statements, including the following, which she checked:

This is not a short-term investment.

Cash withdrawals from or a complete

surrender of the contract are subject to

certain limitations and charges as described

in the contract.

Surrender charges/fees may be incurred

as a result of liquidating certain existing

accounts; however, I believe this

transaction to be in my best interest.

Ms. Indiviglia placed her signature and the date (3/8/2005)

below these statements.

15. Tust delivered the F&G annuity contract to Ms.

Indiviglia on May 16, 2005. Ms. Indiviglia executed a Delivery

Receipt acknowledging that she had received not only the annuity

contract, but also a contract summary. On the "Policy

Information" page of the contract, which is Page 1, in boldfaced

type, were the following provisions:

RIGHT TO CANCEL. If you decide not to keep

this policy, return it within 10 days after

you receive it. It may be returned to any

of our agents or it may be mailed to us.

The return of this policy will void it from

the beginning. Any premium paid will be

refunded within 10 days of our receipt of

this policy.

YOU HAVE PURCHASED AN ANNUITY POLICY.

CAREFULLY REVIEW THIS POLICY FOR

LIMITATIONS. CANCELLATION MAY RESULT IN A

SUBSTANTIAL PENALTY KNOWN AS A SURRENDER

CHARGE.

16. On Page 2 of the contract, the Annuity Date of April

22, 2030, was plainly disclosed, as was the "Surrender Factor"

for each policy year from first (18%) to the fourteenth (1%).

Three pages later, on Page 5, under the boldfaced heading,

" SURRENDERS ," appeared the following:

Surrender Charge

A surrender charge may be imposed on

withdrawals and at death. The surrender

charge equals the surrender factor for the

appropriate policy year, as shown on the

policy information page, multiplied by the

amount of the account value withdrawn. The

account value withdrawn consists of the

amount paid upon a surrender request, or

applied to an annuity option, and the

surrender charge thereon.

Waiver of Surrender Charges

The surrender charge will not apply to the

account value if payments are made under an

annuity option.

17. The Policy Information page clearly identified the

Riders and Endorsements to the contract, one of which was

entitled, "Partial Withdrawals Without Surrender Charges Rider."

That Rider, which was attached to the contract, provided as

follows:

After the first policy anniversary, a

portion of the account value withdrawn will

not be subject to a surrender charge. The

amount, which can be surrendered without a

surrender charge, is up to 10% of the

premiums paid, less any amounts previously

surrendered in the current policy year which

were not subject to the surrender charges.

Maximum Benefit: the total maximum amount,

which can be surrendered without a charge,

is 25% of the premiums paid. Once the

maximum amount has been surrendered without

charges, any additional surrenders will

incur a charge, unless additional premium is

paid.

18. Ms. Indiviglia held the F&G annuity into the third

policy year. In or around July 2007, she made a penalty-free

withdrawal of $12,000. Then, about a month later, she elected

to surrender the contract, incurring a 16% penalty for the early

withdrawal of her account balance. Although the evidence is not

clear as to precisely how Ms. Indiviglia fared, financially, in

this transaction, it is undisputed that, notwithstanding the

surrender penalty, she actually made money on the investment——at

least about $2,000 and perhaps as much as $14,000 or so.

19. The provisions of the F&G annuity which DFS alleges

Tust misrepresented or failed to disclose to Ms. Indiviglia were

clearly stated, unambiguously, in the contract itself. The

evidence fails to convince the undersigned to find, without

hesitancy, that Tust misrepresented or failed truthfully to

disclose to Ms. Indiviglia any of the F&G annuity contract's

material terms and conditions, knowingly made other false

representations of material fact about the product, or otherwise

made any false promises in connection with the investment.

20. Likewise, the evidence is insufficient to convince the

undersigned that the F&G annuity was an inappropriate investment

for Ms. Indiviglia, taking into account her stated financial

needs and goals, age, wealth, and relative sophistication as an

investor. To the contrary, viewing the evidence as a whole, the

undersigned determines that the F&G annuity fell squarely within

the range of reasonable investments for a person having Ms.

Indiviglia's investment profile.

21. The Gelch Transaction.

In September 2006, Abraham Gelch, 73, and his wife Elaine,

68, attended one of Tust's luncheon seminars. Mr. Gelch was a

retired accountant; to that time he had been primarily

responsible for his family's financial decisions. Although Mrs.

Gelch denied being knowledgeable regarding investments when she

testified in this proceeding, she is well-educated, holding a

bachelor's degree and a master's degree, and was sufficiently

conversant at hearing regarding the subject annuities to

persuade the undersigned that she was and is able to comprehend

the particulars of the transaction in issue.

22. After the seminar, the Gelchs met with Tust to discuss

purchasing equity index annuities. At the time, they were

living on Social Security plus the returns on their investments.

The Gelchs had, in 2006, financial investments totaling nearly

$2 million, most of which wealth was held in a brokerage account

at Morgan Stanley. According to their U.S. income tax return,

which they gave to Tust, the Gelchs' adjusted gross income for

2005 was approximately $100,000, about $35,000 of which was

derived from investments, according to other information the

Gelchs provided Tust.

23. At the meeting with Tust, Mr. Gelch completed a

"financial goals and needs" form on which he ranked his

investment objectives in order of importance. He ranked the

items from 1 to 6, with "1" being the most important, as

follows:

Protecting my assets from losses 1

Growing my assets 2

Generating more income 3

Leaving money to my children/heirs 6

Replacing my pension income for my

spouse if I pass first 4

Protecting my assets from taxes

at death 5

Mr. Gelch placed his signature and the date (09/27/06) below

this enumeration of his priorities as an investor.

24. On the same form, Mr. Gelch expressed his agreement

with the statement, "It is important that my investments are

100% safe from this point forward," and he expressed

disagreement with the statement, "I am willing to take some risk

(and possible losses) with my investments." Mr. Gelch disclosed

on the form that he and his wife had suffered investment losses

of $300,000 between 2000 and 2002. In completing the statement,

"My greatest financial concern is _________," Mr. Gelch wrote:

"OUTLIVING MY INCOME."

25. Ultimately, Mr. and Mrs. Gelch agreed to purchase six

equity index annuities, two issued by Allianz Life Insurance

Company of North America ("Allianz"), and four by Midland

National Life Insurance Company ("Midland"), for premiums

totaling, in the aggregate, approximately $1.4 million. These

annuities were similar in concept to the F&G annuity that Ms.

Indiviglia had purchased, having interest rates pegged to market

indices, surrender charges for early termination, limitations on

penalty-free withdrawals, annuity dates some years in the

future, and strong protection against loss of principal. 1

26. With the Allianz annuities, surrender penalties

declined over ten years, from 15% in the first year down to

2.14% in the tenth policy year. After one year, the Gelchs

could withdraw up to 10% of the premium annually without

penalty, to a maximum (over the first 10 policy years) of 50% of

the premium paid. Under the Allianz annuities, the Gelchs could

begin making systematic withdrawals of credits——that is, they

could take distributions of interest earned on their accounts——

without penalty after the fifth policy year. The maturity dates

for the Allianz annuities were in 2016.

27. The Midland annuities, like the others, provided for

surrender penalties, which declined from 18% to 2% over fourteen

years. After the first year, the Gelchs could withdraw up to

10% of the "accumulation value" (premiums paid plus interest

earned) of each policy annually without penalty, up to the

entire value of the respective annuity. The maturity dates for

the Midland annuities fell in 2048 and 2053.

28. In connection with the applications for the Allianz

annuities, Mr. and Mrs. Gelch each completed the following

forms: Application for Annuity, Product Suitability Form, and

Statement of Understanding.

29. In the Product Suitability Form, the Gelchs identified

a net worth of more than $1 million and confirmed prior

investments in certificates of deposit, fixed annuities,

variable annuities, and stocks/bonds/mutual funds. In a section

entitled, "Accessing your money," the Gelchs indicated that they

intended to access the funds in "10 or more years" as a lump

sum.

30. Each Allianz Statement of Understanding is a five page

document that identifies the terms of the annuities, including

the surrender charges and the methods of calculating interest.

The Statements of Understanding do not guarantee a 6-9% return,

which is what Mrs. Gelch testified Tust had promised the

annuities afforded. Instead, for an indexed investment, each

document states, "At the end of each contract year, the capped

monthly returns are added together to calculate your indexed

interest for that year. If this sum is negative, the indexed

interest for that year will be zero."

31. In connection with the applications for the Midland

annuities, the Gelchs were provided Annuity Disclosure

Statements, which identified the liquidity provisions and

contained the following declaration:

I understand that [this] annuity is a long-

term contract with substantial penalties for

early surrenders. A surrender charge is

assessed, as listed below on any amount

withdrawn, whether as a partial withdrawal

or full surrender, that is in excess of the

penalty-free amount applicable. The

surrender charges vary by product option and

decline as [shown in the table.]

(Emphasis in original; table in original not reproduced here.)

Mr. And Mrs. Gelch each signed and dated this declaration,

manifesting their understanding of the surrender charges, which

charges, as the disclosure form further explained, "allow the

company to invest long-term, and in turn, generally credit

higher yields."

32. In addition, on the respective disclosure forms that

the Gelchs signed, each of them specifically refused (by signing

or placing initials next to the word "Decline"), a 7-year

surrender charge option offering no bonus; and a 10-year

surrender charge option offering a 5% bonus. Instead, Mr. And

Mrs. Gelch each separately requested (by signing or placing

initials next to the word "Elect"), the 14-year surrender charge

option offering a 10% bonus.

33. Mr. Gelch also completed a Deferred Annuity

Suitability Form for Midland, which among other things included

the following:

4. An annuity is a long-term contract with

substantial penalties for early surrenders

and/or distributions.

In answering the following question, do not

include the funds used to purchase this

annuity contract, or any funds from

annuities already owned.

Do you have sufficient available cash,

liquid assets or other sources of income for

monthly living expenses and emergencies?

Yes No

(Emphasis in original; check mark handwritten on original.) Mr.

Gelch affixed his signature to the suitability form, immediately

below a declaration stating:

I acknowledge that I have read this Deferred

Annuity Suitability Form and believe this

annuity meets my needs and is suitable. To

the best of my knowledge and belief, the

information above is true and complete.

34. Mr. and Mrs. Gelch owned the Allianz and Midland

annuities for a little more than a year before surrendering them

in January of 2008. The surrender penalties for such early

terminations, which charges had been fully disclosed to the

Gelchs, were steep: 18% on the Midland annuities and 15% on the

Allianz annuities. Despite the surrender penalties, which

totaled approximately $200,000, the Gelchs' net loss on the

investments (owing to their decision to surrender the annuities

so soon after purchasing them) was only about $23,000, due to

the investment gains and the bonuses.

35. The provisions of the Allianz and Midland annuities

which DFS alleges Tust misrepresented or failed to disclose to

the Gelchs were clearly stated, unambiguously, in the written

disclosures provided to the Gelchs, not to mention in the

contracts themselves. The Gelchs, in turn, gave Tust (and

through him the issuing insurers) numerous objective

manifestations, in writing, of their understanding of these

material terms and conditions. The evidence fails, ultimately,

to convince the undersigned to find, without hesitancy, that

Tust misrepresented or failed truthfully to disclose to the

Gelchs any of the annuity contracts' material terms and

conditions, knowingly made other false representations of

material fact about the products, or otherwise made any false

promises in connection with the Gelchs' investments.

36. Likewise, the evidence is insufficient to convince the

undersigned that the Allianz and Midland annuities were

inappropriate investments for the Gelchs, taking into account

their stated financial needs and goals, respective ages, health,

wealth, and relative sophistication as investors. To the

contrary, viewing the evidence as a whole, the undersigned

determines that the annuities fell squarely within the range of

reasonable investments for persons having the Gelchs' investment

profile.

37. Ultimate Factual Determinations.

In view of the historical facts found above, the

undersigned has determined, based the appropriate standard of

proof (discussed below) as applied to the evidence adduced at

hearing, that Tust is not guilty of any of the following

offenses with which he was charged: (a) willfully

misrepresenting the terms of any annuity contract as proscribed

in Section 626.611(5), Florida Statutes; (b) demonstrating a

lack of fitness or trustworthiness to engage in the business of

insurance, which is punishable under Section 626.611(7), Florida

Statutes; (c) engaging in fraudulent or dishonest practices, a

disciplinable offense pursuant to Section 626.611(9), Florida

Statutes; (d) willfully failing to comply with, or of violating,

a provision of law, which is punishable under Section

626.611(13), Florida Statutes; violating any applicable

provision of law, which may subject the violator to discipline

under Section 626.621(2), Florida Statutes; (e) engaging in

unfair methods of competition or deceptive acts, as prohibited

in Section 626.9541, Florida Statutes; and (f) failing to

present accurately and completely every fact essential to a

client's decision, as required under Florida Administrative Code

Rule 69B-215.210.

38. Moreover, although Tust did not have the burden to

prove his innocence in any respect, the greater weight of the

evidence nevertheless persuades the undersigned to determine

that he did, in fact, fulfill the obligations he owed to Ms.

Indiviglia and the Gelchs under Section 627.4554, Florida

Statutes, which governs transactions involving sales of

annuities to senior consumers.

CONCLUSIONS OF LAW

39. The Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

Sections 120.569 and 120.57(1), Florida Statutes.

40. The Amended Administrative Complaint in this case

contains two counts. The Department alleges in both counts that

Tust violated the following statutory provisions: Sections

626.611(5), (7), (9), and (13); 626.621(2); 626.621(6);

626.9541(1)(a)1., and 626.9541(1)(e)l., Florida Statutes. It

has also been alleged that Tust violated Florida Administrative

Code Rule 69B-215.210.

41. Section 626.611, Florida Statutes (2005), provides in

pertinent part as follows:

The department shall . . . 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 misrepresentation of any

insurance policy or annuity contract or

willful deception with regard to any such

policy or contract, done either in person or

by any form of dissemination of information

or advertising.

* * *

(7) Demonstrated lack of fitness or

trustworthiness to engage in the business of

insurance.

* * *

(9) Fraudulent or dishonest practices in

the conduct of business under the license or

appointment.

* * *

(13) Willful failure to comply with, or

willful violation of, any proper order or

rule of the department or willful violation

of any provision of this code.

42. Section 626.621, Florida Statutes (2005), provides in

relevant part as follows:

The department may, in its discretion, . . .

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

appointee 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.

43. Section 626.9541, Florida Statutes (2005), defines

" unfair methods of competition and unfair or deceptive acts or

practices" in part as follows:

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.

44. Florida Administrative Code Rule 69B-215.210 provides

as follows:

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.

45. Being penal in nature, the foregoing statutes and rule

provisions "must be construed strictly, in favor of the one

against whom the penalty would be imposed." Munch v. Department

of Professional Regulation, Div. of Real Estate , 592 So. 2d

1136, 1143 (Fla. 1st DCA 1992).

46. A proceeding, such as this one, to suspend, revoke, or

impose other discipline upon a license is penal in nature.

State ex rel. Vining v. Florida Real Estate Commission , 281 So.

2d 487, 491 (Fla. 1973). Accordingly, to impose discipline, the

Department must prove the charges against Tust by clear and

convincing evidence. Department of Banking & Fin., Div. of Sec.

& Investor Protection v. Osborne Stern & Co. , 670 So. 2d 932,

933-34 (Fla. 1996)(citing Ferris v. Turlington , 510 So. 2d 292,

294-95 (Fla. 1987)); Nair v. Department of Business &

Professional Regulation, Bd. of Medicine , 654 So. 2d 205, 207

(Fla. 1st DCA 1995).

47. Regarding the standard of proof, in Slomowitz v.

Walker , 429 So. 2d 797, 800 (Fla. 4th DCA 1983), the court

developed a "workable definition of clear and convincing

evidence" and found that of necessity such a definition would

need to contain "both qualitative and quantitative standards."

The court held that:

clear and convincing evidence requires 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 explicit and the

witnesses must be lacking confusion as to

the facts 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.

Id. The Florida Supreme Court later adopted the Slomowitz

court's description of clear and convincing evidence. See In re

Davey , 645 So. 2d 398, 404 (Fla. 1994). The First District

Court of Appeal also has followed the Slomowitz test, adding the

interpretive comment that "[a]lthough this standard of proof may

be met where the evidence is in conflict, . . . it seems to

preclude evidence that is ambiguous." Westinghouse Elec. Corp.

v. Shuler Bros., Inc. , 590 So. 2d 986, 988 (Fla. 1st DCA 1991),

rev . denied , 599 So. 2d 1279 (Fla. 1992)(citation omitted).

48. The Department did not charge Tust with violating any

of the provisions of Section 627.4554, Florida Statutes (2005),

which specifically governs annuity investments by seniors and

prescribes certain duties (and limitations on those duties) that

an agent owes to a senior consumer. This statute provides in

pertinent part as follows:

(1) PURPOSE; CONSTRUCTION.--

(a) The purpose of this section is to set

forth standards and procedures for

recommendations to senior consumers which

result in a transaction involving annuity

products to appropriately address the

insurance needs and financial objectives of

senior consumers at the time of the

transaction.

(b) Nothing in this section shall be

construed to create or imply a private cause

of action for a violation of this section.

(2) APPLICATION.--This section applies to

any recommendation to purchase or exchange

an annuity made to a senior consumer by an

insurance agent, or an insurer where no

agent is involved, that results in the

purchase or exchange recommended.

(3) DEFINITIONS.--For purposes of this

section:

(a) "Annuity" means a fixed annuity or

variable annuity that is individually

solicited, whether the product is classified

as an individual annuity or a group annuity.

(b) "Recommendation" means advice provided

by an insurance agent, or an insurer if no

insurance agent is involved, to an

individual senior consumer which results in

a purchase or exchange of an annuity in

accordance with that advice.

(c) "Senior consumer" means a person 65

years of age or older. In the event of a

joint purchase by more than one party, a

purchaser is considered to be a senior

consumer if any of the parties is age 65 or

older.

(4) DUTIES OF INSURERS AND INSURANCE

AGENTS.--

(a) In recommending to a senior consumer

the purchase of an annuity or the exchange

of an annuity that results in another

insurance transaction or series of insurance

transactions, an insurance agent, or an

insurer if no insurance agent is involved,

shall have reasonable grounds for believing

that the recommendation is suitable for the

senior consumer on the basis of the facts

disclosed by the senior consumer as to his

or her investments and other insurance

products and as to his or her financial

situation and needs.

(b) Before executing a purchase or exchange

of an annuity resulting from a

recommendation to a senior consumer, an

insurance agent, or an insurer if no

insurance agent is involved, shall make

reasonable efforts to obtain information

concerning the senior consumer's financial

status, tax status, and investment

objectives and such other information used

or considered to be reasonable by the

insurance agent, or the insurer if no agent

is involved, in making the recommendation.

(c)1. Except as provided under subparagraph

2., an insurance agent, or an insurer if no

insurance agent is involved, shall not have

any obligation to a senior consumer under

paragraph (a) related to any recommendation

if the senior consumer:

a. Refuses to provide relevant information

requested by the insurer or insurance agent;

b. Decides to enter into an insurance

transaction that is not based on a

recommendation of the insurer or insurance

agent; or

c. Fails to provide complete or accurate

information.

2. An insurer or insurance agent's

recommendation subject to subparagraph 1.

shall be reasonable under all the

circumstances actually known to the insurer

or insurance agent at the time of the

recommendation.

§ 627.4554, Fla. Stat. (2005).

49. The undersigned has determined, as a matter of

ultimate fact, that the Department failed to establish Tust's

guilt as to the violations alleged. In making these

determinations, the undersigned concluded that the plain

language of the applicable statutes and rules, being clear and

unambiguous, could be applied in a straightforward manner to the

historical events at hand without simultaneously examining

extrinsic evidence of legislative intent or resorting to

principles of interpretation. It is therefore unnecessary to

make additional legal conclusions concerning these violations.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Financial Services

enter a Final Order finding Peter S. Tust not guilty of the

charges that were brought against him in this proceeding.

DONE AND ENTERED this 3rd day of November, 2009, in

Tallahassee, Leon County, Florida.

___________________________________

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of November, 2009.

ENDNOTE

1 / None of the annuities at issue permitted negative returns (or

losses). To the contrary, each annuity provided for guaranteed

minimum returns, albeit at relatively low interest rates,

meaning that the contract would appreciate in value, even if the

market index it "followed" happened to decline. Principal could

not be lost, therefore, unless the issuing insurer were to

become so impaired as to be unable to meet its obligations to

policy holders. Although such an occurrence is obviously not

beyond the realm of possibility, the evidence adduced in this

case establishes that the risk of insurer insolvency vis-à-vis

the insurers in question was negligible.

COPIES FURNISHED :

James A. Bossart, Esquire

Department of Financial Services

612 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399-0333

Douglas J. Kress, Esquire

Schwed McGinley & Kahle

11376 North Jog Road, Suite 101

Palm Beach Gardens, Florida 33418

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 32399-0300

Tracey Beal, Agency Clerk

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

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.