15-006122 Abacus Settlements, Llc, A New York Limited Liability Company vs. Office Of Insurance Regulation Status: Closed Settled and/or Dismissed prior to entry of RO/FO on Monday, September 12, 2016.

Summary: Petitioner proved that its application for a license as a viatical settlement provider in Florida should be approved.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ABACUS SETTLEMENTS, LLC, A NEW

YORK LIMITED LIABILITY COMPANY,

Petitioner,

vs. Case No. 15 - 6122

OFFICE OF INSURANCE REGULATION,

Respondent.

_______________________________/

RECOMMENDED ORDER

An administrative hearing was conducted in this case on

March 30 and 3 1, 2016, in Tallahassee , Florida, before James H.

Peterson, III, Administrative Law Judge with the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Brady J. Cobb, Esquire

Cobb Eddy, PLLC

642 Northeast Thi rd Avenue

Fort Lauderdale, Florida 33304

For Respondent: Clifford Timothy Gray, Esquire

Lacy K. End - Of - Horn, Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 4206

STATEMENT OF THE ISSUE

Whether the Florida Office of Insurance Regulation ( OIR or

Respondent) should approve the application submitted by Abacus

Settlements, LLC (Abacus or Petitioner) , for a license to

operate as a viatical settlement provider in Florida.

PRELIMINARY STATEMENT

Peti tioner submitted its application for a license as a

viatical settlement provider to OIR on February 26, 2015 ,

application ID N o. 935341 (Application ) , pursuant to section

626.9912 , Florida Statutes . 1/ On September 23, 2015, OIR

provided Abacus with a letter containing its preliminary

decision to deny the Application (the Denial Letter ). O n

October 14, 2015, Abacus timely filed a petition with OIR for a n

administrative hearing (the Petition ) challenging OIR Ós

preliminary decision to deny the Application as stated in the

Denial Letter.

On October 29 , 2015, OIR forwarded the Petition to the

Division of Administrative Hearings for the assignment of an

administrative law judge to conduct an administrative hearing.

The case was assigned to the undersigned and initially scheduled

for a hearing to begin on January 1 2, 2016. The f inal hearing

was thereafter twice continued and ultimately rescheduled for

March 30 and 31, 2016.

At the hearing, Abacus called Abacus member - manager , K. Scott

Kirby , and OIR employees , Jan Hamilton and Jan Davis , as witnesses .

Because of the order of proof, OIR essentially presented its case - in -

chief during the cross - examination of OIR employees , Ms. Hamilton and

Ms. Davis. Respondent also called Abacus member - manager , T. Sean

McNealy as a witness.

Joint Exhibits 1 through 1 4 were admitted into evidence,

along with the February 26 , 2016, deposition of AbacusÓs

d irector of o perations , Samantha Butcher , which was admitted into

evidence as Joint Exhibit 15 . PetitionerÓs E xhibits 1

through 12, including 6a and composite 11, were admitted into

evidence . In addition, Respondent 's E xhibits 1 through 11 , 13,

15, and Respondent's demonstrative E xhibits 19 and 20 were

admitted into evidence.

The proceedings were recorded and a transcript was ordered.

The parties were given 30 days from the date of the filing of

the transcript to subm it proposed recommended orders. A four -

volume Transcript of the proceedings was filed April 21, 2016.

The parties were subsequently granted an extension until June 3,

2016, within which to file proposed recommended orders.

Thereafter, the parties timely filed their respective Proposed

Recommended Orders, both of which have been considered in the

preparation of this Recommended Order.

FINDINGS OF FACT

1. On February 2, 2004, Abacus was formed a s a limited

liability company under the laws of the State of New York to

operate as a viatical settlement provider.

2. A viatical settlement provider is a licensed entity that

buys existing life insurance policies from policy owners i n a

regulated market. The life or viatical market, also known as the

secondary market, allows the c onsumer to sell their policy to

investors for a much greater value, often three to five times

their surrender value.

3. Presently, Abacus i s licensed to d o business in

30 states as a viatical settlement provider by each respective

stateÓs regulatory insurance agency .

4. Since AbacusÓs inception in 2004 through the present

date, there have never been any consumer complai nts filed

against Abacus. Since its inception through the present date,

Abacus has never had any regulatory complaints or administrative

actions taken against it by any of the states where it is

licensed to do business. From 2004 through the present date,

Abacus has purchased life insuranc e policies with an aggregate

face value of over $2 billion dollars and paid the owners of

those polic ies nearly $250 million do llars in compensation.

5. Of the 1,000 or so policies that Abacus has purchased

since its inception in 2004, none of those policies has ever

been the subject of any litigation filed by an insurance carrier

seeking rescission of the policy for fraud or other malfeasance.

6. Prior to the formation of Abacus, K. Scott Kirby , T.

Sean McNealy , and Matthew Ganovsky (the ÐPrincipal sÑ) owned and

operated Advanced Settlements, LLC (Advanced), which they

founded on December 19, 2000. Advanced was a viatical/life

settlement broker licensed to do busin ess in 35 states. The

Principals have been participants in the viatical

settlement/life insurance settlements industry since 1998, and

have served as board members of the industryÓs leading trade

association , the Life Insurance Settlement Association.

7. Advanced maintained a valid viatical settlement broker

license from OIR from 2000 through its dissolution in 2014. The

Principals maintained valid life insurance producer licenses

from OIR from 2000 through the present date, and those li censes

remain in good standing. T he Principals are still licensed as

life insurance prod ucers and hold viatical settlement broker

appointments with the State of Florida.

8. From AbacusÓs inception in 2004 through 2011, Abacus

was operated on a day - to - day basis by its CEO/COO Craig Seitel,

and the Principa ls were not involved in the day - to - da y business

of Abacus or in the companyÓs decisions regarding compliance or

policy acquisition parameters. Due to health concerns related

to Mr. SeitelÓs wife, Mr. Seitel left the company and the

Principals appointed Samantha Butcher in 2011 to manage the day -

to - day business of Abacus.

9. Since 2011, Samantha Butc her has operated Abacus as the

director of o perations from the companyÓs Tennessee office.

10. On Feb ruary 26, 2015, Abacus filed the Application

with OIR for licensure as a viati cal settlement provider under

section 626.9912. The Applicat ion itself was in excess of

550 pages.

11. On March 6, 2015, OIR transmitted a letter to Abacus

detailing purported technical deficiencies in the Application.

12. On March 31, 2015, OIR transmitted a letter to Abacus

wherein OIR confirmed that the Application was formally received

and complete, and would be routed to the proper unit within OIR

for processing.

13. Jan Hamilton from OIR was tasked with reviewing the

Application. Ms. Ham ilton ha s reviewed approximately 50

viatical settlement provider applications in her 20 years of

experience at OIR , and has never reviewed an application that

was approved without additional requirements added through the

consent order process.

14. Upon b eing notified on March 31, 2015 , that Abacus had

filed the Application, the head of OIR Ós Life and Health

Division communicated with Ms. Hamilton via an email stating

"here we go." Ms. Hamilton sent a response noting that a

"strategy meeting" would be con vened am ongst OIR staff regarding

the Application.

15. According to Ms. HamiltonÓs notes , on March 31, 2015,

the Application was accepted and assigned to an examiner, and was

Ðunder review.Ñ On April 6, 2015, six days after the Application

was filed, Ms. HamiltonÓs notes state that the ÐApplication is

being prepared for denial due to lack of trustworthiness of

principals/owners of Applicant which cannot be cured.Ñ

16. Included within the Appl ication were the following:

(a) AbacusÓs proposed anti - frau d plan; (b) Abacus Plan of

Operations ; (c) Abacus Organ izational (Employee) Chart;

(d) Sworn Biographical Affidavits for each Principal and

employee required; ( e) Management Information Forms; (f) all

organization documents and bylaws of Abacus ; (g) all forms that

were to be used by Abacus in Florida ; (h) fingerprint cards for

each Principal and key employee ; (i) records retention policies

for Abacus ; and ( j ) a general description of how Abacus intended

to use life - expectancy providers.

17. Aba cus also made the required $100,000.00 deposit with

the Florida Department of Financial Services, Division of

Treasury, Bureau of Collateral Management.

18. AbacusÓs proposed forms were approved by OIR on

May 28, 2015, and AbacusÓs Anti - Fraud Plan was ap proved by the

Department of Financial Services on May 28, 2015.

19. Subsequent to OIR Ós acceptance of the Application, and

over a month after Ms. Hamilton notes reflecting that the

Application was being prepared for denial , OIR issu ed two

clarification letters to Abacus that sought additional

information or documents relative to the Application . The first

clarification letter was dated May 28, 2015 , and contained

60 additional requests for information or documents . The second

clari fication letter was dated June 29, 2015 , and contained

12 addi tional requests for information or documents. Abacus

responded to both clarification letters in a timely fashion.

20. After Abacus filed its Application, OIR sent out emails

to the various states where Abacus was already licensed as a

viatical/life settlement provider inquiring as to the standing of

AbacusÓs license, and whether any administrative action had been

taken against Abacus, among other things. Th ose states that

responded confirme d that no administrative fines or penalties had

been assessed against Abacus, and that Abacus was licensed in

good standing.

21. OIR thereafter asked Abacus to produce detailed

spreadsheets with information relative to each policy that Abacus

had purchas ed in its entire history of doing business,

nationwide, as well as the same information for Advanced, which

was no longer in business and was not the applicant for the

Application. OIR requested that the spreadsheets include, among

other things, the date of viatication, viator information,

insured information, and life insurance policy information.

Abacus provided the requested spreadsheets to OIR .

22. On June 29, 2015, the Principals of Abacus traveled to

Tallahassee, Florida , to meet with key ind ividuals at OIR ,

including Belinda Miller, Jan Hamilton, Janice Davis , and others

to discuss the status an d progress of the Application. At this

meeting and as part of the Application process, OIR requested

that Abacus undergo a pre - licensing examination by OIR's market

conduct examiner Janice Davis , who would travel to AbacusÓs

Tennessee offices to examine files. No one from Abacus was aware

that Jan Hamilton had noted over two months before that the

Application was going to be denied .

23. On June 30, 2015, Ms. Hamilton contacted the Illinois

Department of Insurance (the IDOI) to inquire about a market

conduct examination that the IDOI had conducted on Abacus in

February of 2015. On July 1, 2015, the IDOI contacted

Ms. Hamilton and advised her that their marke t conduct

examination had been concluded as to Abacus, and no issues were

discovered. Ms. Hamilton did not deem AbacusÓs positive market

conduct examination result to be Ðat the top of the list of most

important factorsÑ relative to t he Application. Ms. Ha milton

did not disclose or otherwise inform Janice Davis or anyone else

at OIR that Abacus had passed the IDOI market conduct

examination in February of 2015 without any issues . The first

time that Ms. Davis learned that Abacus had passed the IDOI

examination was at the final hearing in this case .

24. During the week of August 3 - 7, 2015, OIR se nt Ms. Davis

to AbacusÓs Tennessee office to conduct the pre - licensing

examination . During the examination, OIR was granted access to

Abacu sÓs and AdvancedÓs database of files and Ms. Davis was able

to view the Abacus and Advanced files that were available and in

the possession of Abacus or Advanced. Some of the files had been

routinely destroyed pursuant to the records retention policies

of Abacus and Advanced, respectively, which are governed by the

statutes of each state where each company conducted business.

25. In total, during the five - day examination at AbacusÓs

Tennessee offices and an additional seven days of examination

that occurred through granting Ms. Davis remote access to the

database, OIR was able to review 315 policy transactions from

Abacus, and 1,000 policy transactions for Advanced.

26. During the course of the pre - licensure examination, OIR

did not adhere or use the recognized National Association of

Insurance Commissioners audit methodology standards . Rather, OIR

utilized their Ðown standards.Ñ OIR stated that their standards

were grounded in section s 624.319 and 626.9922 , Florida Statutes .

However , neither statutory citation contains audit or examination

standards or methodologies.

27. In accordance with section 626.9922, Abacus was

required to pay for all costs incurred by OIR for the pre -

licensure examination . Abacus paid OIR approximately $6,0 00.00

for the pre - licensure examination.

28. Subsequent to the pre - licensure examination, OIR ,

through Ms. Davis , prepared a summary memorandum (the

Memorandum) that outlined the results of the pre - licensure

examination. The findings in the Memorandum w ere also contained

within the Denial L etter and the findings in the Me morandum were

the basis for OIR's preliminary denial of the Application.

29. On September 23, 2015, OIR denied the Application and

issued the Denial Letter which delineated the grounds for denial

of the Application .

30. In both the Denial Letter and the Memorandum, two

grounds for denial were asserted, as well as additional Ðareas of

concern Ñ and related issue s for the principals of Abacus. T he

two grounds for denial were based on a total of eight of the

approximately 1,000 polices that Abacus has transacted since its

inception.

31. In its first ground for denial, the Denial Letter

states :

(1) As a result of the pre - licensure

examination, OIR finds that the Applicant

purchased policies that were obtained

fraudulently via either non - disclosure of

material facts or misstatements of material

facts. OIR further finds that Mr. Kirby,

part owner of the Applicant, previous co -

President of Advanced, and a licensed life

agent in Florida, acted as the viatical

settlement broker in some of these

transactions.

32. As justification for its first ground for denial, OIR

relied upon six policies identified in the pre - licensing

examination and the provisions of section 626.99275(1)(a) , which

states:

It is unlawful for any person: (a) To

knowingly enter into, broker, or otherwise

deal in a viatical settlement contract the

subject of which is a life insurance policy,

knowing that the policy was obtained by

presenting materially false information

concerning any fact material to the policy

or by concealing, for the purpose of

misleading another, information concerning

any fact materi al to the policy, where

viator or the viatorÓs agent intended to

defraud the policyÓs issuer. (Emphasis

added) .

33. In support of its first ground for denial, OIR did not

apply the "knowingly" or "knowing" standard recited in section

626.99275. Rather, in evaluating the policies in the pre -

licensure examination , OIR applied a Ðknew or should have knownÑ

standard. As Ms. Davis conceded at final hearing, section

626.99275 does not contain the language or words Ðknew or should

have know n . Ms. DavisÓs Ðcheat sheetÑ that she created to assist

in her preparation of the Memorandum and Denial Letter

references what Abacus Ðknew or should have known,Ñ instead of

relying on facts to support an allegation that Abacus knowingly

transacted a frau dulently obtained policy .

34. The policies that were allegedly fraudulently obtained

were all transacted by Abacus prior to 2012 and can be found at

RespondentÓs Exhibits 1.3 through 1.8, and the compliance

review . The ultimate decision to purchase those policies was

not made by the current principals of Abacus, but instead by a

former partner in Abacus , Craig Seitel , and the former general

counsel of Abacus , Ed Gonzalez. From 2012 through the date of

the pre - licensing examination, OIR did not identify a ny policies

purchased by Abacus that were problematic in regards to

potential fraudulent activity.

35. Abacus was not involved in the initial application,

underwriting, or issuance process for any of the six referenced

policies . Abacus only came into co ntact with the policies as a

viatical settlement provider interested in purchasing the

policies at least two years after they were issued.

36. During AbacusÓ s transaction of the six policies at

issue, AbacusÓs anti - fraud plan, similar to the one that was

approved by OIR as part of the Application, was , and still is ,

in place to specifically ensure that Abacus does not acquire any

policies that were fraudulently obtained.

37. The documents relative to the first policy, the

Marignoli policy, can be found at Respondent ' s Exhibit 1.3.

When asked to identify which documents within Respondent ' s

Exhibit 1.3 supported the first ground for denial, OIR responded

by referencing loan documents that were executed after the policy

was issued to the insured and that t herefore, Abacus Ðknew or

should have knownÑ that the policy was obtained fraudulently .

Abacus , however, purchased the policy almost four years after it

was initially issued by the insurance carrier . T he premium

financing was taken out by the insured after the policy was

issued and the insurance carrier accepted all premium payments

from both the insured and the lender. To date, the insurance

carrier has not made any claims that the policy was issued

fraudulently.

38. OIR ne ver talked to the insured and could not confirm

what the insured was thinking at the time the policy was applied

for or issued. While OIR asserts that there was Ðsuspected

fraudÑ regarding the M a rignoli policy, it did not provide

evidence or testimony that Abacus knowingly transa cted the

policy knowing it was obtained fraudulently.

39. The documents relative to the second policy, the Bakall

p olicy, which was a part of the first ground for denial, can be

found at Respondent Ó s Exhibit 1.4. OIR alleges that because the

insured entered into a loan for the payment of premiums on the

policy, Abacus transacted a policy that was fraudulently

obtained. T he Bakall insurance application , however, i ncluded a

statement by the insured that the trustee had the ability to

borrow money if necessary. The premium financing was undertaken

after the policy was issued, and no one from Abacus or Advanced

was involved in the issuance or subsequent financing of the

policy. The evidence did not establish that Abacus knowingly

transacted the policy knowing that it was fraudulently obtained .

Instead, at the final hearing, OIR, through Ms. Davis, asserted

that Abacus transacted this policy that they Ðknew or should have

knownÑ was fraudulently obtained. During her testimony,

Ms. Davis admi tted that the Bakall policy was reviewed by other

OIR licensed viatical settlement providers and /or brokers, and no

one else reported the Bakall policy as being fraudulently

obtained.

40. The documents relative to the third policy as part of

the first ground for denial , the Cord p olicy, can be found at

Respondent Ó s Exhibit 1.5. Again, OIR asserts that because the

premiums for the policy were financed, the policy was

fraudulently obtained . However, the documents within

Respondent Ó s Exhibit 1.5 reveal that the policy application was

completed on January 21, 2010, th e policy was issued on

February 5, 2010, and the loan documents were signed 40 days

later on March 22, 2010. OIR was unable to identify any

statutes or regulations that prohibit or otherwise make it

illegal to have non - recourse premium financing for life

insurance policies, or to finance the premiums of a life

insurance policy after the policy is issued. When asked for

proof that the insured had an arrangement, a plan , or a

conspiracy to sell his policy at the time it was issued, OIR did

not produce any evidence to meet the "knowingly" and "knowing"

requirements of section 626.99275 , and instead stated that there

was Ðreason to suspec t.Ñ

41. The documents relative to the fourth policy as part of

the first ground for denial , the Mezey p olicy, can be found at

Respondent Ó s Exhibit 1.6. As it pertains to the Mezey p olicy,

OIR argues that the insured Ó s use of premium financing after the

issuance of the policy demonstrates that the policy was

fraudulently obtained. The original application for the Mezey

p olicy was completed in May of 2008, the premium financing at

issue was completed in October of 2008 , and the insurance

carrier issued an endorsement to the policy after the lender had

paid the first premium saying the policy was effective. The

loan was not secured by the insurance policy . Rather , the

insured utilized the value of her securities accoun t to obtain a

loan to pay for the premiums of the policy. The evidence did

not establish that Abacus knowingly transacted the Mezey policy

knowing that it was fraudulently obtained.

42. The documents relative to the fifth and six policies,

the Davis p olicies , which were a part of the first ground for

denial , can be found at Respondent ' s Exhibits 1.7 and 1.8. With

regard to the Davis policies, OIR argues that the insured Ó s use

of premium financing after the issuance of the policy

demonstrates that the policy was fraudulently obtained. The

Davis p olicies were issued by the insurance carrier on

O ctober 21, 2008 , the first premi um was paid by the policy

owner, and the policy owner decided to obtain premium financing

for the policies on November 20, 2009. OIR did not speak to the

original policy owner and produced no evidence or proof outside

of the documents contained within Respondent Ó s Exhibits 1.7 and

1.8 with regard to the Davis p olicies. The evidence was

insufficient to establish that Abacus knowingly transacted these

policies , or any of the other four policies at issue for the

first ground for denial, knowing they were fraudulently

obtained .

43. As to OIR Ós second ground for denial, the Denial Letter

state s :

(2) As a result of t he pre - licensure

examination, the Office finds that the

Applicant viaticated policies from Florida

viators without being licensed as a viatical

settlement provider in Florida. Mr. Kirby

acted as the viatical settlement broker in

some of these transactions.

44. OIRÓs second ground for denial alleges violations of

section 626.9912(1) which provides:

A person may not perform the functions of a

viatical settlement provider as def ined in

this act or enter into or solicit a viatical

settlement contract without first having

obtained a license from OIR .

45. OIR alleges that Abacus transacted two viatical

settlements with residents of Florida without having obtained a

license from OIR . Ms. Davis identified the two policies at

issue during her pre - licensure examination, and alleged that

ÐAbacus knew or should have known that each of these policies

was owned by a Florida resident, and they continued to process

and subsequently purchase the policy in violation of Florida

Statute.Ñ

46. In making her allegation that Abacus transacted two

viatical settlements with Florida residents, Ms. Davis did not

review the Florida S tatutes for direction as to how to legally

determine a vi atorÓs residency , nor did she consult with legal

counsel from OIR for assistance or a determination as to how to

legally determine the residency of a viator.

47. The first policy referenced in the second ground for

denial is the Wyatt policy. The Wyatt policy w as presented to

both Advanced and Abacus over a four - year period of time.

Abacus reviewed the file and all documents submitted to it by

the viator, and determined , with the assistance of its

compliance team and counsel , that the transaction was an

Illinois transaction because Ms. Wyatt appeared to reside

permanently in Illinois. In support of this conclusion, Abacus

relied upon the following information: (a) the viatical

settlement application completed by Wyatt in 2014 listed her

address as being in Lake Forest, Illinois ; (b) the same Illinois

address was listed on related transaction forms ; (c) the

compliance packet completed by WyattÓs broker/agent who

submitted the policy to Abacus listed WyattÓs state of residence

a s being Illinois; (d) the policy was issued to Wyatt in

Illinois on December 15, 1999 ; (e) although Wyatt maintained a

house in Florida, her agent confirmed it was a vacation home and

that Wyatt resided in Illinois at the address she listed on the

contract forms ; (f) the contract forms were notarized by a

no tary in Illinois and were forms approved by the Illinois

Department of Insurance ; (g) the majority of the medical records

for Ms. Wyatt were located in Illinois ; and (h) it was only

after the transaction documents were signed that Abacus learned

of WyattÓs intent to relocate f rom Illinois to Florida. The

aforementioned information was provided to Abacus during the

transaction and Abacus determined, based upon a totality of the

circumstances, that Wyatt was a resident of Illinois and not a

resident of Florida .

48. In addition to the foregoing, other factors show that

Ms. WyattÓs permanent residence was Illinois at the time of the

transaction . Ms. Wyatt did not provide , or otherwise have , a

Florida drive rÓs license, voter Ó s registration card , or vehicle

tag, and , to Abacus's knowledge, had not filed a formal

declaration of domicile in Florida.

49. To show Ms. Wyatt was a resident of Florida , OIR

pointed to insurance verification forms in AbacusÓs files filled

out by Mr. Kirby whil e brokering the Wyatt transaction for

Advanced. The forms listed Ms. WyattÓs a ddress as Wellington,

Florida. It was also evident, however, that , over the course of

the transaction, Advanced and Abacus were aware that Ms. Wyatt

had a vacation home in Florida and that she was planning to

eventually transition to Florida.

50. In addition, in an expanded scope of the pre - licensure

examination that gather ed information that was not in AbacusÓs

files , OIR obtained evidence that Ms. Wyatt claimed homestead

exemption in Florida in tax years 2013 and 2014. There was no

evidence showing that Abacus was aware of the claimed homestead

exemption .

51. While OIR presented evidence indicative of Florida

resid ency, that evidence , when considered in light of evidence

in support of Illinois residency in Abacus' s files, does not

demonstrate by a preponderance of the evidence that Ms. Wyatt

was a resident of Florida at the time of the transaction.

Rather, the evidence shows that the Wyatt policy transaction

involved a n Illinois viator who was ÐtransitioningÑ to Florida

residency .

52. The second policy referenced in the second gr ound for

denial was the Martin p o licy . When t he Martin policy was

presented to Abacus for purchase , the compliance team at Abacus,

as well as their legal counsel, determined that the policy was

not a Florida transaction. In support of this conclusion, Abacus

relied upon the following : (a) MartinÓs medical records were

located in Ohio ; (b) the name affidavit executed by Martin listed

her address as being in Ravenna, Ohio ; (c) while the name

affidavit and other related forms were notarized in Florida, th at

occurred because Martin was on a trip visiting her son who lives

in Florid a when she signed the documents; (d) all forms utilized

for the transaction were on forms approved by t he Ohio Department

of Insurance; (e) the viatical settlement purchase agreem ent

listed MartinÓs address as Ravenna, Ohio; (f) transaction

documents , including records releases and a durable power of

attorney for Martin , listed her ad dress as being in Ravenna,

Ohio; (g) MartinÓs driverÓs license at the time of the

transaction was issued by the S tate of Ohio ; (h) a google search

of MartinÓs name includes a result of her address being in

Ravenna, Ohio ; (i) in the transaction disbursement form , Martin

requested that the proceeds from the sale of the policy be paid

to her Key Bank account in Rootstown, Ohio ; (j) the voided check

provided by Martin along with the transaction disbursement form

listed her address as being in Ravenna, Ohio ; (k) the funds for

the transaction were wired to a Key Bank account in Cleveland,

Ohio , in accord ance with the bank wiring information provided by

Martin ; and (l) the policy was issued a nd delivered to Martin in

Ohio. Abacus relied upon the aforementioned information that it

was provided during the transaction to determine that Martin was

a resident of Ohio and not a resident of Florida, and completed

the transaction with Martin as an Ohio transaction based upon a

totality of the circumstances.

53. In further support of the Abacus' s determination that

Ms. Martin was not a resident of Florida, the evidence showed

that Ms. Martin did not provide or otherwise have a Florida

driverÓs license and instead pr ovided an Ohio driverÓs license;

she did not have a Florida voter ' s r egistration card or vehicle

tag; and , to Abacus's knowledge, had not filed a for mal

declaration of domicile for Florida.

54. In an attempt to show that Ms. Martin was a Florida

resident at the time of the transaction, OIR relied on evidence

uncovered in an expanded investigation beyond the scope of the

audit of Abacus's files . While some evidence uncovered by OIR

was suggestive of Florida residency, considering the evidence

from AbacusÓs files relied upon by Abacus in determining that

Ms. Martin was a resident of Ohio, it is found that OIR failed

to prove by a preponderance of the evidence that Ms. Martin was

a resident of Florida at the time of the transaction.

55. In paragraph 3(a) - (d) of the Denial Letter , OIR

alleges that the pre - licen sure examination revea led certain

Ðareas of concern.Ñ These Ðareas of concernÑ were not listed as

the specific grounds for denial and did not reference any

statutory or regulatory violations.

56. Section 3(a) does not allege specific misconduct or

viola tions of law or regulations, but recites that Abacus

maintained a records retention policy and destroyed r ecords in

accordance therewith. In fact, OIR did not find any violations

of the policy or state laws by Abacus with regard to records

retention.

57. In paragraph 3(b) of the Denial Letter , OIR alleges

that the presence of blank signed annuity forms in a policy file

invalidated the attestation clause relative to the accuracy of

the annuity application. OIR , however, did not allege any

specific sta tutory or regulatory violations. Annuities are

often times used by viatical settlement providers to offset

premium costs once a policy is purchased, and there is nothing

illegal or nefarious about their use.

58. In paragraph 3(c), OIR , without specifici ty, asserts

that it found Ðinconsistencies between the level of control

actually exhibited by the members over the Applicant and

representations made to OIR regarding the same.Ñ T he testimony

of Scott Kirby, Sean McNealy , and Samantha Butcher (via

deposit ion) refutes this assertion , and shows that Samantha

Butcher operated the day - to - day business of Abacus.

59. Section 3(d) references an Assurance of Discontinuance

that was entered into between Advanced and the New York Office of

the Attorney General in 2010. While t he parent company of

Advance d entered into the Assurance of Discontinuance, it

contained no admission of liability or wr ongdoing, and from 2010

through its dissolution in December of 2014, Advanced and its

principals remained licensed and in good standing with OIR and

with the New York Department of Insurance as life agents and

viatical settlement brokers. Abacus remains l icensed and in good

standing as a viatical settlement provider in New York, and no

state has refused licensure to Abacus on the basis of the

Assurance of Discontinuance.

60. In paragraph 4 of the Denial Letter , OIR alleges that

a prior review of the history of the three owners of Abacus

revealed the following: (a) Letters of Guidance were sent by

the Department of Financial Services to Advanced and the

principals of Advanced in 2002 regarding possible fraudulent

ac tivity that was not reported ; (b) an Order to Show C ause was

issued in 2007 to another viatical settlement provider that is

licensed in Florida by OIR , and Advanced was mentioned ;

(c) a letter of guidance was issued to Advanced and its

principals in 2007 ; and (d) the Assurance of Discontinuance was

entered into in 2010 with the New York Office of the Attorney

General.

61. As it pertains to the Letter of Guidance referenced in

paragraphs 4(a), OIR was made aware of facts via a letter from

the reporting comp any three months prior to the letter of

guidance being issued that demonstrated that Advanced and its

principals were unaware of the alleged fraudulent activity . The

evidence showed that Advanced did not have the documents in their

possession that reveale d the alleged fraud . Nevertheless, t he

Department of Financial Services elected to issue the Letter of

Guidance . Further, Letters of Guidance are non - probable cause

actions, and do not constitute formal regulatory action.

62. The letter of guidance referenced in paragraph 4(c)

was guidance from OIR to Advanced and its principals, and

subsequent to both letters of guidance, Advanced and its

principals remained licensed and in good standing with the s tate

of Florida as life agent s.

63. As it pertains to items 4(b) and 4(d), these matters

pertain to Coventry First, LLC and not Abacus. OIR offered no

evidence of misconduct by Abacus with regar ds to either of these

issues.

CONCLUSIONS OF LAW

64. The Division of Administrative Hearings has

jurisdiction over the parties and subject matter of this

proceeding. See §§ 120.569, 120.57(1), Fla. Stat.

65. Petitioner bears the ultimate burden of proving its

entitlement to a license. Fl a . DepÓt of Transp. v. J.W.C. Co.,

Inc. , 396 So. 2d 778 (Fla. 1st DCA 1981). Petitioner must prove

by a preponderance of the evidence that it satisfied relevant

statutory criteria to be licensed as a viatical settlement

provider in Florida.

66. Ch apter 626, Part X, Florida Statutes , and rules

promulgated in accordance therewith, prescribe the requirements

for licensure and conduct of a viatical settlement provider and

the conduct of a viatical settlement broker.

67. In a licensing proceeding such as the instant case,

Abacus has the burden of proof to show, by a preponderance of

evidence, that it meets the requirements of the Viatical

Settlement Act for licensure. See M.H. v. DepÓt of Child. &

Fam. Servs. , 977 So. 2d 755, 761 Î 62 (Fla. 2 d DCA 2008). In

turn, i f OIR seeks to deny a license application on the basis of

a statutory violation, OIR has the burden of proof to show by a

preponderance of the evidence that the violation occurred . Id. ;

accord , Dep Ó t of Child. & Fam. Servs. v. Davis Fam. Day Care

Home , 160 So. 3d 854, 855 (Fla. 2015)

68. M ere suspicion or conjecture, absent proof of actual

violations, will not allow OIR to meet its burden. In

Comprehensive Medica l Access, Inc. v. Office of Insurance

Regulation , 983 So. 2d 45, 46 (Fla. 1st DCA 2008) , OIR posit ed

that it had no obligation other than to suggest a basis for

concern over petitionerÓs qualifications. The District Court of

Appeal refuted OIR Ós position, stating Ð[t]he issue at the

hearing was not whet her OIR had a good faith basis for suspicion,

but whether there was a competent substantial basis for denying

the application.Ñ Id. In that case, OIR Ós ground for denial

was a pending complaint in a federal civil suit that alleged

fraud against the applicantÓs owner, and the Court expressly

held that such a complaint or allegation did not rise to the

level of competent substantial evidence sufficient to deny the

application for licensure. Id. The Court went on to comment

Ð OIR should not have denied [petitionerÓs] application without

something more than a suspicion of wr ongdoing or

untrustworthiness.Ñ Id. at 4 7.

69. The licensure requirements codified in section

120.60(1) and (3), Florida Statutes, are applicable whenever an

entity applies for a vi atical settle ment provider license under

section 626, part X , Florida Statutes . Section 626.9912(3)

governs the items that must be included in a viatical settlement

provider application filed with OIR. Specifically, section

626.9912(3) requires an applic ant to submit an application that

includes:

(a) The applicantÓs full name, age,

residence address, and business address, and

all occupations engaged in by the applicant

during the 5 years preceding the date of the

application.

(b) A copy of the applicantÓs basic

organizational documents, if any, including

the articles of incorporation, articles of

association, partnership agreement, trust

agreement, or other similar documents,

together with all amendments to such

documents.

(c) Co pies of all bylaws, rules,

regulations, or similar documents regulating

the conduct of the applicantÓs internal

affairs.

(d) A list showing the name, business and

residence addresses, and official position

of each individual who is responsible for

conduct of the applicantÓs affairs,

including, but not limited to, any member of

the applicantÓs board of directors, board of

trustees, executive committee, or other

governing board or committee and any other

person or entity owning or having the right

to acquire 10 percent or more of the voting

securities of the applicant.

(e) With respect to each individual

identified under paragraph (d):

1. A sworn biographical statement on forms

adopted by the commission and supplied by

the office.

2. A set of fingerprints on forms

prescribed by the commission, certified by a

law enforcement officer, and accompanied by

the fingerprinting fee specified in

s. 624.501 .

3. Authority for release of information

relating to the investigation of the

individualÓs background.

(f) Al l applications, viatical settlement

contract forms, escrow forms, and other

related forms proposed to be used by the

applicant.

(g) A general description of the method the

viatical settlement provider will use in

determining life expectancies, including a

description of the applicantÓs intended

receipt of life expectancies, the

applicantÓs intended use of life expectancy

providers, and the written plan or plans of

policies and procedures used to determine

life expectancies.

(h) Such other information as t he

commission or office deems necessary to

determine that the applicant and the

individuals identified under paragraph (d)

are competent and trustworthy and can

lawfully and successfully act as a viatical

settlement provider.

70. Considering the above requirements in view of the

evidence, including the Application, exhibits, and the

credibility of the witnesses, it is found that Abacus met its

burden of proof and established by a preponderance of the

evidence that its Application s atisfied the requirements of

section 626.9912.

71. Since Abacus has met its burden, OIR then had the

burden to prove by a preponderance of the evidence that the

grounds for denial in the Denial Letter (a) in fact occurred,

and (b) violated a cited gover ning statute or regulation.

See M.H. v. DepÓt of Child. & Fam. Serv s . , supra .

72. With regard to the first ground for denial contained

within the Denial Letter , OIR failed to meet its burden to prove

by a preponderance of the evidence that Abacus knowingly

purchased policies that were obtained fraudulently via either

non - disclosure of material facts or misstatements of material

facts in violation of section 626.99275 .

73. S ection 627.404 , Florida Statute s , governs the

determination of whether a policy was obtained fraudulently, and

requires that an individual purchasing a life insurance policy

must have an insurable interest in the individual insured.

Specifically, section 627.404 (1) provides:

Any individual of legal capacity may procure

or effect an insurance contract on his or her

own life or body for the benefit of any

person, but no person shall procure or cause

to be procured or effect an insurance

contract on t he life or body of another

individual unless the benefits under such

contract are payable to the individual

insured or his or her personal

representative, or to any person having, at

the time such contract was made, an insurable

interest in the individual insured. T he

insurable interest need not exist after the

inception date of coverage under the

contract.

74. In Pruco Life Insurance v. Brasner , 2011 U.S. Dist.

LEXIS 156297 , at 21 (S.D. Fla. November 14, 2011), the District

Court noted: "Florida courts have long held that insurable

interest is necessary to the validity of an insurance contract

and, if it is lacking, the policy is considered a wagering

contract and void ab initio as against public policy."

(Citations omitted) . The District Court further observed:

Florida law generally permits a life

insurance policy to be assigned to an entity

with no insurable interest in the life of

the insured, see Fla. Stat. § 627.404 (1) ,

but only if such assignments are made 'in

good faith , and not [as] sham assignments

made simply to circumvent the law's

prohibit ion "wagering contracts" . . . .

( Citations omitted) .

Id. at 22.

75. The District Court in Brasner explained that "[a]

policy is procured in bad faith if it is procured with the

intention that it will be assigned or otherwise transferred to a

person or entity with no insurable interest in the life of the

insured." Id. at 23.

76. In explaining that the opinion in Brasner is the

majority view, the Eleventh Circuit Court of Appeals in Pruco

Life Insurance Company v. Wells Fargo Bank, N.A. , 780 F.3d 1327,

1335 (11th Cir. 2015) , observed:

In ident i fying the applicable standard for

determining whether a policy has been

procured in bad faith, the [Brasner] [ 2/ ] court

held that bad faith is established if the

policy was obtained with the intent that it

would later be assigned to an entity or

person with no insurable interest in the

life of the insured. Such an intent could

be proven by evidence of: (1) a preexisting

agreement or understanding that the policy

would be assigned to one without an

insurable interest; (2) the payment of

premiums by someone other than the insured,

and partic ularly by the assignee ; and

(3) the lack of a risk of actual future

loss. The [ Brasner ] court's authority for

this test was derived from other federal

district court decisions.

77. The Eleventh Circuit also identified the minority view,

which rejects the void ab initio concept of the majority view

3 1

which would allow validity challenges arising after a policy's

contestability period , and postulates that , after the period of

contestability has expired , a life insurance policy cannot be

challenged. This view would give bin ding effect to the two - year

incontestable provision found in section 627.455 , even if is

later found that a policy was procured in bad faith. Pruco Life

Ins. Co. v. Wells Fargo Bank , 780 F.3d at 1333. Section 627.455

provides:

Incontestability. Ï Every insurance contract

shall provide that the policy shall be

incontestable after it has been in force

during the lifetime of the insured for a

period of 2 years from its date of issue

except for nonpayment of premiums and

except, at the option of the insurer, as to

provisions relative to benefits in event of

disability and as to provisions which grant

additional insurance specifically against

death by accident or accidental means.

78. The issue of whether the majority view or minority

view will prevail is no w before the Florida Supreme Court by way

of certified questions posited by the Eleventh Circuit in the

Wells Fargo Bank case. See Florida Supreme Court docket number

SC15 - 382.

79. Regardless of the outcome of whether the majority view

or minority view should prevail , it is concluded that the

factors identified as indicia of bad faith in Brasner court and

the Eleventh Circuit in Wells Fargo Bank are useful in analyzing

the six policies allegedly procured by fraud. Considering those

factor s in light of t he evidence and testimony adduced at the

final hearing reveals that (a) a pre - existing agreem ent to assign

any of the six referenced policies to someone without an

insurable interest did not exist, (b) the premiums in each policy

identified b y OIR were initially paid by the insured prior to

valid placement of premium financing, and (c) each loan

arrangement carried the risk of real, actual loss to the

insured/debtor.

80. Moreover, the evidence submitted by OIR was

insufficient to establish that Abacus entered into the subject

transactions knowing that the policies were obtained by

presenting materially false information as is required under

section 626.99275. In its preliminary determination, OIR

applied the incorrect legal standa rd to this ground for denial

by basing its allegations on a Ðknew or should have knownÑ

standard as opposed to the statutorily required ÐknowinglyÑ

standard as is stated in section 626.99275. Further, OIR failed

to meet its burden at the final hearing to prove by a

preponderance of the evidence that Abacus violated any governing

law or regulation. See M.H. v. Dep Ót of Child. & Fam. Serv s . ,

977 So. 2d at 761 Î 62 ; s ee also Comp. Med. Access, Inc. v. Off.

of Ins. Reg. , 983 So. 2d at 47 ( OIR should not have denied

application without something more than a suspicion of

wrongdoing or untrustworthiness).

81. With regard to the second ground for denial, OIR failed

to meet its burden to prove by a preponderance of the evidence

that Abacus viaticated policies from Florida viators without

being licensed as a viatical settlement provider in Florida in

violation of sections 626.991 1 and 626.991 2 .

82. S ection 626 .9911(12) states that:

ÐViatical settlement providerÑ means a

person who, in this state, from this state,

or with a resident of this state,

effectuates a viatical settlement contract.

Fla. Stat 626.9912(1) . A person may not

perform the functions of a viatical

settlement provider as defined in this act

or enter into or solicit a viatical

settlement contract without first having

obtained a license from OIR .

83. S ection 626.9912(4) provides that:

OIR may not issue a license to an entity

other than a natural person if it is not

satisfied that all officers, directors,

employees, stockholders, partners, and any

other persons who exercise or have the

ability to exercise effective control of the

entity or who have the ability to influence

the transaction of business by the entity

meet the standards of this act and have not

violated any provision of this act or rules

of the commission related to the business of

viatical settlement contracts.

84. S ection 626.99245 states that:

(1) A viatical settlement provider who from

this state enters into a viatical settlement

contract with a viator who is a resident of

another state that has enacted statutes or

adopted regulations governing viatical

settlement contracts shall be governed in

the effectuation of that viatical settlement

contract by the statutes and regulations of

the viator's state of residence. If the

state in which the viator is a resident has

not enacted statutes or regulations

governing viatical settlement a greements,

the provider shall give the viator notice

that neither Florida nor his or her state

regulates the transaction upon which he or

she is entering. For transactions in those

states, however, the viatical settlement

provider is to maintain all recor ds required

as if the transactions were executed in

Florida. The forms used in those states

need not be approved by OIR .

(2) This section does not affect the

requirement of ss. 626.9911(12) and

626.9912(1) that a viatical settlement

provider doing business from this state must

obtain a viatical settlement license from

OIR . As used in this subsection, the term

Ðdoing business from this stateÑ includes

effectuating viatical settlement contracts

fr om offices in this state, regardless of the

state of residence of the viator.

85. S ection 196.015 , Florida Statutes , provides some

additional guidance with regard to standards applicable to the

determination of a personÓs residency in the s tate of Florida.

As previously noted , Ms. Davis did not reference or utilize this

section in her review of the two policies at issue. Section

196.015 states as follows:

Intention to establish a permanent residence

in this state is a factual determination to

be m ade . . . although any one factor is not

conclusive of the establishment or

nonestablishment of permanent resident, the

following are relevant factors that may be

considered . . . in the determination as to

the intent of a person a homestead exemption

to e stablish permanent residence in this

state:

(1) A formal declaration of domicile by the

applicant recorded in the public records of

the county in which the exemption is being

sought.

(2) Evidence of the location where the

applicant's dependent children are

registered for school.

(3) The place of employment of the

applicant.

(4) The previous permanent residency by the

applicant in a state other than Florida or in

another country and the date non - Florida

residency was terminated.

(5) Proof of voter registration in this

state with the voter information card

address of the applicant, or other official

correspondence from the supervisor of

elections providing proof of voter

registration, matching the address of the

physical location where the exemption is

being sought.

(6) A valid Florida driver license issued

under s. 322.18 or a valid Florida

identification card issued under s. 322.051

and evidence of relinquishment of driver

licenses from any other states.

(7) Issuance of a Florida license tag on any

motor vehicle owned by the applicant.

(8) The address as listed on federal income

tax returns filed by the applicant.

(9) The location where the applicant's bank

statements and checking accounts are

registered.

(10) Proof of payment for utilities at the

property for which permanent residency is

being claimed.

86. The Florida Viatical Settlements Act (including section

626.9912) only applies to viatical transactions with resident s of

the state of Florida under section 626.99245(2). Am. United Life

Ins. Co. v. Martinez , 480 F.3d 1043, 1058 (11 th Cir. 2007).

87. OIR failed to prove by a preponderance of the evidence

that either Wyatt or Martin were resident s of the state of

Florida when they entered into a viatical settlement transaction

with Abacus. Therefore, OIR may not rely on section 6 2 6.9912(4)

to deny the Application . Further, without such proof, it is also

concluded that , in accordance with section 626.99245(1) , the

viatical settl ement statutes of Illinois govern the Wyattt

t ransaction, and the viatical s ettlement statutes of Ohio govern

the Martin transaction , and that OIR failed to prove the

violations alleged in its second ground for denial in the Denial

Letter .

88. As it pertains to the Ðareas of concernÑ denoted in

sections 3 and 4 of the Denial Letter , OIR failed to meet its

burden to prove by a preponderance of the evidence that the

alleged conduct or actions either occurred or violated a

governing law or statute. See M.H. v. Dep Ót of Child. & Fam.

Serv s . , supra . I n Comprehensive Medica l Access, Inc. , the First

District Court of Appeal squarely addressed OIR Ós attempt to use

similar conclusory concerns over the applicantÓs qualifications

and history and a pending civil complaint alleging fraud against

the applicantÓs owner. Id. In ruling that OIR Ós denial was

improper, the First District expressly held that a fraud

complaint or allegations regarding the applicantÓs qualifications

did not rise to the level of evidence that was sufficient to

deny the application for licensure. Id. Similarly, here, it is

concluded that OIR has failed to meet its burden to prove

allegations 3 and 4 of the Denial Letter .

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

RECOMMENDED that , consistent with the foregoing Findings

of Fact and Conclusions of Law, the Office of Insurance

Regulation enter a final order approving the Application and

granting Abacus Settlements, LLC , a viatical settlement

providerÓs license under section 626.9912 . J urisdiction to

adjudicate Abacus Settlements, LLCÓs , pending Motion for

AttorneyÓs Fees pursuant to section 57.015 , Florida Statutes ,

is hereby retained .

DONE AND ENTERED this 25th day of July, 2016, in

Tallahassee, Leon County, Florida.

S

JAMES H. PETERSON, III

Administrative Law Judge

Division of Administrative Hearings

The DeSotoBuilding

1230 Apalachee Parkway

Tallahassee, Florida32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 25th day of July, 2016 .

ENDNOTES

1 / All references to the Florida Statutes are to the current

version s because the law for determining applications is the

statute in effect at the time of final determination, as opposed

to the time of application . See L avernia v. DepÓt of ProfÓl

Reg. , B d . of Med. , 616 So. 2d 53 (Fla. 1st DCA 1993) .

2/ In its opinion, t he Eleventh Circuit refers to the Brasner

court as the "Berger court" because the case involved a policy

issued on the life of Arlene Berger. Pruco Life Ins. Co. v.

Wells Fargo Bank, N.A. , 780 F.3d at 1332.

COPIES FURNISHED :

Brady J. Cobb, Esquire

Cobb Eddy, PLLC

642 Northeast Third Avenue

Fort Lauderdale, Florida 33304

(eServed)

Clifford Timothy Gray, Esquire

Lacy K. End - Of - Horn, Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 4206

(eServed)

Kevin M. McCarty, Commissioner

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 0305

(eServed)

Anoush Brangaccio, General Counsel

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 0305

(eServed)

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.