ALJDEC

00A-027-INS-res · Department of Insurance · 2000-10-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

On September 18, 2000, a hearing was held regarding the possible discipline of the Respondent’s life and disability insurance agent’s license. Assistant Attorney General Shelby L. Cuevas represented the Arizona Department of Insurance (the “Department” or the “State”). The Respondent failed to appear for this hearing. Evidence and testimony were presented. Based upon a review of the entire record, the following Findings of Fact, Conclusions of Law and Recommended Decision are made.

FINDINGS OF FACT 1. Marilyn Ruth Skepnek (the “Respondent”), dba Skepnek Insurance Agency, is the holder of a license to transact life and disability insurance as an agent in the State of Arizona. See State’s Exhibit 1. The Respondent’s license (Number 700624) is set to expire on May 31, 2001. The Respondent has never been licensed to transact property and casualty insurance in Arizona.

2. The Respondent’s husband, William J. Skepnek, was licensed to transact life and disability insurance as an agent in Arizona from 1972 to October of 1986. During this time period, William Skepnek was the owner and president of Skepnek & Associates, an Arizona corporation engaged in the insurance agency business. See State’s Exhibit 35.

3. On or about October 30, 1986, the Director ordered that William Skepnek’s life and disability agent’s license be revoked in In the Matter of William J. Skepnek, Docket No. 6146. See State’s Exhibit 35. The Maricopa County Superior Court upheld the Director’s Order, revoking William Skepnek’s license in William J. Skepnek v. S. David Childers, et al., CV 87-02216. See State’s Exhibit 36.

4. Arnold Sniegowski is the Supervisor for the Department’s Investigations Division. Mr. Sniegowski reviews all consumer complaints filed with the Department and assigns the cases to investigators. Mr. Sniegowski testified that the Skepnak name has been floating around the Department for about 15 years. Mr. Sniegowski testified that Mr. Skepnek’s insurance license was revoked in 1986. See State’s Exhibit 35. Mr. Sniegowski testified that the revocation resulted from the misappropriation of monies by Mr. Skepnek. Id.

5. Mr. Sniegowski testified that an unlicensed agent (i.e., Mr. Skepnek) can only perform routine office work for the Respondent. Mr. Sniegowski testified that an unlicensed agent cannot solicit insurance customers or conduct presentations to insurance customers.

6. Mr. Sniegowski testified that in 1995 the Department received several complaints from consumers (and other insurance agents and brokers) regarding the insurance activities of the Respondent and Mr. Skepnek. Mr. Sniegowski testified that the complaints pertained to the Respondent’s proposed alternative insurance plan (“Alternative Plan”) to workers’ compensation insurance. The “Alternative Plan” was a combination of insurance policies from different insurance companies designed as an alternative plan to workers’ compensation insurance.

7. Mr. Sniegowski testified that workers’ compensation insurance covers all “on the job” injuries with no limitations on medical expenses. Mr. Sniegowski testified that workers’ compensation covers a percentage of the injured employee’s lost wages. Mr. Sniegowski testified that workers’ compensation also protects the employer from being sued by the injured employee. Mr. Sniegowski testified that the Respondent’s Alternative Plan allowed an injured employee to file a lawsuit against an employer. Mr. Sniegowski testified that the Alternative Plan also did not cover all “on the job” injuries.

8. Mr. Sniegowski testified that a company named American Gooseneck complained to the Department about the Respondent’s Alternative Plan. Mr. Sniegowski testified that American Gooseneck signed up for insurance coverage under the Respondent’s Alternative Plan. Mr. Sniegowski testified that a worker was injured while working for American Gooseneck. Mr. Sniegowski testified that the employee filed a lawsuit against American Gooseneck. See State’s Exhibit 32. Mr. Sniegowski testified that the employee prevailed against American Gooseneck. See State’s Exhibit 34. The Maricopa County Superior Court awarded $250,000.00 to the employee. Id.

9. Mr. Sniegowski testified that the Respondent was American Gooseneck’s insurance agent. Mr. Sniegowski testified that American Gooseneck has filed a lawsuit against the Respondent and Mr. Skepnek. See State’s Exhibit 9. American Gooseneck alleged, among other things, that the Respondent failed to inform American Gooseneck that it could be sued by an injured employee under the Alternative Plan. Id. Mr. Sniegowski testified that he does not know if a judgment has been entered in the lawsuit filed by American Gooseneck against the Respondent and Mr. Skepnek.

10. Mr. Sniegowski testified that the Respondent’s customers complained to the Department that they rarely had the opportunity to speak with the Respondent. Mr. Sniegowski testified that these customers complained that they had to speak to Mr. Skepnek regarding important insurance issues. Mr. Sniegowski testified that the Respondent should have known that her husband’s insurance license had been revoked by the Department. Mr. Sniegowski testified that the Respondent never should have allowed Mr. Skepnek to solicit insurance customers or to deal directly with the customers outside of the office (e.g., presentations).

11. Mr. Sniegowski testified that the Department issued a circular letter in April of 1981 that warned life and disability insurance agents of the potential problems with substituting alternative insurance plans for workers’ compensation insurance. See State’s Exhibit 37. Mr. Sniegowski testified that this circular letter required agents to disclose, at a minimum, eight items of information to customers regarding alternative insurance plans. Id. These items included the requirement that the agent disclose that an employer can be sued by an employee under an alternative insurance plan. Id. Mr. Sniegowski testified that this circular letter is still in effect. Mr. Sniegowski testified that the circular letter was issued to ensure that insurance customers (e.g., employers and workers) have been properly informed when choosing alternative insurance plans.

12. Mr. Sniegowski testified that Mr. Skepnek usually conducted the presentations to insurance customers (i.e., employers and workers) on behalf of the Respondent. Mr. Sniegowski testified that Mr. Skepnek provided a Benefit Comparison Sheet to the prospective customers showing how the Respondent’s “Alternative Plan” compared to workers’ compensation insurance. See State’s Exhibit 24. Mr. Sniegowski testified that the Benefit Comparison Sheet did not comply with the Department’s circular letter. See State’s Exhibits 24 & 37.

13. Mr. Sniegowski testified that the Benefit Comparison Sheet did not substantially comply with any of the required disclosure items in the Department’s circular letter. See State’s Exhibit 37. Most notably, Mr. Sniegowski testified that the Benefit Comparison Sheet failed to disclose that an employer can be sued by an injured employee. Mr. Sniegowski testified that the Benefit Comparison Sheet is misleading to potential insurance customers.

14. Mr. Sniegowski testified that a company is usually required to submit a Certificate of Insurance (“Certificate”) to an employer to prove that the company has workers’ compensation insurance coverage in the event that one of its employees might be injured on the job. See State’s Exhibit 2a, 2b, 2c & 2d. The Certificate has a box for the company to list its insurance carrier for workers’ compensation insurance. Id. For example, Ex-Cel Roofing Company listed “Standard”, “Central Reserve Life” and “Pioneer” as providers of workers’ compensation insurance. See State’s Exhibit 2a. However, Mr. Sniegowski testified that these companies do not provide workers’ compensation insurance. See State’s Exhibits 3, 4 & 5.

15. Mr. Sniegowski acknowledged that the words “Alternative Plan to Workers Compensation” were written below the Certificate’s box for workers’ compensation. See State’s Exhibit 2a. However, Mr. Sniegowski testified that this could still mislead a potential employer into believing that Ex- Cel Roofing Company is covered by workers’ compensation insurance. Mr. Sniegowski testified that the Respondent signed the Ex-Cel Certificate as an authorized representative. Id.

16. The Respondent also signed the Certificates of Insurance for Payless Roofing, D&E Roofing and Cochise Electric, Inc. See State’s Exhibits 2b, 2c & 2d. Mr. Sniegowski testified that D&E Roofing and Cochise Electric, Inc. listed “National Accident” as a carrier for workers’ compensation insurance. See State’s Exhibits 2c & 2d. Mr. Sniegowski testified that National Accident is not an insurer but is only a life and health insurance “administrator”. See State’s Exhibit 7.

17. Mr. Sniegowski testified that the Department is requesting that the Respondent pay restitution to American Gooseneck, BDB, Standard Insurance Company and the Philadelphia Life Insurance Company (the latter three are discussed below). Mr. Sniegowski testified that the Department is not requesting a civil penalty in this matter because of the Respondent’s health and financial condition. Mr. Sniegowski testified that the Department is requesting that the Respondent’s life and disability insurance license be revoked.

18. Jim M. Smith is the president of Security Roofing and Construction Corp. (“Security Roofing”). Mr. Smith testified that he met Mr. Skepnek about 15 years ago. Mr. Smith testified that (sometime after 1996) Mr. Skepnek did a presentation for Security Roofing on the benefits of the Alternative Plan. Mr. Smith testified that Mr. Skepnek relied on the aforementioned “Benefits Comparison Sheet” to explain why the Alternative Plan was better than workers’ compensation insurance. See State’s Exhibit 24. Mr. Smith testified that Mr. Skepnek stated that the employer liability aspect of the Alternative Plan was “no big deal”. Mr. Smith testified that Mr. Skepnek told him that court cases confirmed that employers could not be sued under the Alternative Plan.

19. Mr. Smith testified that he also met with the Respondent. Mr. Smith testified that Security Roofing signed up for the Alternative Plan. Mr. Smith testified that Security Roofing’s employees had to waive the workers’ compensation insurance. Mr. Smith testified that he later found out from the Industrial Commission that his employees could sue him under the Alternative Plan.

20. Mr. Smith testified that Security Roofing initially had a good relationship with Mr. Skepnek and the Respondent. Mr. Smith testified that the Respondent would periodically send a billing statement to Security Roofing. Mr. Smith testified that Security Roofing made premium payments directly to the Respondent. Mr. Smith testified that the Respondent was supposed to send the premium payments to the insurance companies underwriting the Alternative Plan. However, Mr. Smith testified that the Respondent was always delinquent on billing Security Roofing. Mr. Smith testified that Security Roofing received some cancellation notices from the insurance companies.

21. Mr. Smith testified that the Respondent ultimately wrote a life and disability insurance policy for Security Roofing underwritten by Standard Insurance Company (“Standard”). Mr. Smith testified that he repeatedly requested copies of the insurance policies, including the Standard policy, that comprised the Alternative Plan. However, Mr. Smith testified that the Respondent refused to provide the copies of the insurance policies.

22. Mr. Smith testified that Security Roofing had approximately 6 to 8 employees when it obtained coverage under the Alternative Plan. Mr. Smith testified that the Respondent told him that Security Roofing needed 10 employees to qualify for the Standard Group Life Insurance Policy. See State’s Exhibit 38. However, Mr. Smith testified that he later learned from Standard that Security Roofing did not need 10 employees to qualify for the Standard insurance. Mr. Smith testified that he was angry that Security Roofing had to pay a much higher premium based on 10 employees when it should have been paying a much lower premium for its six employees.

23. Mr. Smith testified that Sherri Lynn Davis was never employed at Security Roofing. Mr. Smith testified that the Respondent added Sherri Lynn Davis to Security Roofing’s list of employees. See State’s Exhibit 29d. Mr. Smith testified that the Respondent added two other names (i.e., Judy Fugate and Sam Cotey) to Security Roofing’s list of employees. See State’s Exhibit 29a. Mr. Smith testified that Judy Fugate and Sam Cotey never worked for Security Roofing. Mr. Smith testified that the Respondent told him that sharing employees with other companies is very common in the industry. Mr. Smith testified that the Respondent promised that Security Roofing would receive a refund on premiums that it paid for workers (e.g., Judy Fugate and Sam Cotey) employed by another company.

24. On or about September 27, 1996, a short term disability claim (“Claim”) was submitted to Standard because of the pregnancy of Sherri Lynn Davis. See State’s Exhibit 29b. The Claim showed that Sherri Lynn Davis’ employer was Security Roofing. The Claim was not signed by Mr. Smith. The Claim’s signature line was filled in with the statement “Signature on File”. Id. Mr. Smith stated that he had no knowledge of this Claim. Mr. Smith testified that he never gave permission to the Respondent to submit this Claim to Standard.

25. Sherri Lynn Davis died in September of 1998. See State’s Exhibit 29e. A life insurance claim was submitted to Standard by the Respondent. A Proof of Death document was sent to Standard. See State’s Exhibit 29c. Mr. Smith testified that a group administrator was never assigned to Security Roofing. However, the Respondent signed as the Security Roofing’s group administrator on the Proof of Death document that was sent to Standard. Id. Mr. Smith testified that he never gave permission to the Respondent to sign the Proof of Death document as the Security Roofing’s group administrator. Mr. Smith testified that he never gave permission to the Respondent to submit a life insurance claim to Standard for Sherri Lynn Davis.

26. Paul D. Follett is an Investigator for Standard. Mr. Follet investigates cases of suspected fraud. Mr. Follett investigated the Security Roofing matter. Mr. Follett testified that Security Roofing was insured through Standard for short term disability and life insurance. Mr. Follett testified that Standard paid two claims involving Sherri Lynn Davis. Mr. Follett testified that Standard paid a $1,000.00 short term disability claim when Sherri Lynn Davis became pregnant. See State’s Exhibit 29b. Mr. Follett testified that Standard also paid a $25,184.74 life insurance claim when Sherri Lynn Davis died. See State’s Exhibit 29c.

27. Investigator Paul Follett testified that he reviewed the death certificate of Sherri Lynn Davis. See State’s Exhibit 29e. Mr. Follett testified that the death certificate showed that the Respondent was the mother of Sherri Lynn Davis. Id. Mr. Follett testified that he became suspicious because the Respondent was the agent in the Security Roofing matter. Mr. Follett testified that he interviewed Mr. Jim Smith. Mr. Follett testified that he learned that Sherri Lynn Davis was never employed at Security Roofing.

28. Investigator Paul Follett testified that Standard investigated the Respondent to ascertain why Sherri Lynn Davis was placed on the list of employees for Security Roofing. See State’s Exhibit 29a. Mr. Follett testified that Standard received a letter, dated May 15, 1999, from the Respondent. See State’s Exhibit 29d. In this letter, the Respondent wrote that she was only trying to assist Mr. Smith, “a long standing client, whose Standard Policy was in danger of being cancelled because at that time his Group had fallen below the required ten persons.” Id.

29. The Respondent further wrote the following: We justified adding Sherri to his group to bring back the required ten

persons, based on the fact that she did work for Security indirectly in preparing their insurance bills, which were put together each month and submitted to our clients for payment. See copy of typical information sent to our clients each month to confirm their employee rosters in preparation for their company insurance billings.

See State’s Exhibit 29d.

30. Investigator Paul Follett testified that the Respondent should have known that Sherri Lynn Davis was not an employee of Security Roofing. Mr. Follett testified that Sherri Lynn Davis never should have been included on Security Roofing’s list of employees that the Respondent submitted to Standard. Mr. Follett testified that Standard never would have paid the two claims for Sherri Lynn Davis if Standard had known that she was never employed at Security Roofing.

31. Investigator Paul Follett testified that Standard has strict rules and policies (set forth in its insurance guidelines) on the criteria for being an employee of a company for insurance coverage purposes. Mr. Follett testified that Standard’s underwriting guidelines permit employees of subsidiaries, affiliates and branches under the parent organization to be insured under the parent organization’s group insurance contract. However, Mr. Follett testified that unaffiliated entities are not permitted under the guidelines to be insured under the same group insurance contract. Mr. Follett testified that the Respondent, as a licensed agent, should have known of these underwriting guidelines.

32. Jeanna Palmer Boren is the co-owner of a business formerly known as BDB Construction (“BDB”). Mrs. Boren testified that BDB was formed in 1997. Mrs. Boren testified that the Respondent and her husband conducted an informational meeting in early 1997 for Mrs. Boren and the BDB employees. Mrs. Boren testified that she thought that both the Respondent and Mr. Skepnek were licensed insurance agents. Mrs. Boren testified that she only received the aforementioned “Benefit Comparison Sheet” from the Respondent and her husband. See State’s Exhibit 24. Mrs. Boren testified that the Benefit Comparison Sheet showed how the Respondent’s “Alternative Plan” compared to worker’s compensation insurance. Mrs. Boren testified that the Respondent promised that the Alternative Plan would provide more coverage than workers’ compensation insurance, but at a lesser cost.

33. Mrs. Boren testified that William Skepnek promised that the “Alternative Plan” would cover all job related medical expenses including hernias. Mrs. Boren testified that Mid America Insurance and TrustMart were initially scheduled to provide coverage under the Alternative Plan. Mrs. Boren testified that Trustmart provided disability and death coverage. Mrs. Boren testified that Mid America Insurance provided coverage for the Trustmart deductible and the first week of disability coverage. Mrs. Boren testified that Provident eventually replaced Mid America Insurance. Mrs. Boren testified that the insurance companies were constantly changing. However, Mrs. Boren testified that the Respondent assured her that BDB’s coverage never changed. Mrs. Boren testified that the Respondent told her that the insurance companies (e.g., United Security, Illinois Mutual, National Accident Insurance, Standard Insurance Company) were constantly changing because she wanted BDB to pay the lowest possible premium.

34. Mrs. Boren testified that she relied on the Benefit Comparison Sheet when she chose the Alternative Plan. Mrs. Boren testified that she believed that the Alternative Plan would cover all work related injuries, including hernias, based on the Respondent’s representations and the Benefit Comparison Sheet.

35. Mrs. Boren testified that she would periodically receive premium invoices from the Respondent. See State’s Exhibit 26d. Mrs. Boren testified that she would write out the premium checks to the various insurance companies that provided coverage under the Alternative Plan. See State’s Exhibit 26b. However, Mrs. Boren testified that she would send the checks to the Respondent. Mrs. Boren testified that the Respondent was supposed to send the premium checks to the insurance companies.

36. Mrs. Boren testified that all went well during her first year on the Respondent’s Alternative Plan. However, Mrs. Boren testified that the Respondent’s quality of service deteriorated shortly thereafter. Mrs. Boren testified that the Respondent would not return her phone calls or keep appointments with her. Mrs. Boren testified that Mr. Skepnek seemed “clueless”. Mrs. Boren testified that BDB was paying premiums on employees who had not worked for BDB for several months. Mrs. Boren testified that there were also significant delays in adding new employees to the insurance policies.

37. Mrs. Boren testified that she was required to complete an Application for Supplemental Accident Expense Policy whenever BDB hired a new employee so that the employee would be covered. See State’s Exhibit 19. Mrs. Boren testified that BDB hired Charles Hancock on or about February 12, 1998. Id. at page 2. Mrs. Boren testified that she faxed to the Respondent the Application for Supplemental Accident Expense Policy (regarding Mr. Hancock) on or about February 12, 1998. Mrs. Boren testified that she assumed that Mr. Hancock was covered in March of 1998 because she paid a premium for March of 1998 that included payment for Mr. Hancock.

38. On March 19, 1998, Mr. Hancock was injured while employed with BDB. Unfortunately, Mrs. Boren testified that the Respondent failed to forward Mr. Hancock’s name to Provident American Insurance Company (“Provident”), the insurance company that provided deductible coverage under the Alternative Plan. See State’s Exhibit 21. Mrs. Boren testified that BDB ultimately paid the $250.00 deductible for Mr. Hancock.

39. Mrs. Boren testified that she asked the Respondent why the $250.00 deductible was not covered by Provident. Mrs. Boren testified that the Respondent told her that BDB had failed to timely submit to the Respondent the Application for Supplemental Accident Expense Policy regarding Mr. Hancock. See State’s Exhibits 16 & 18. Mrs. Boren testified that she had submitted this document to the Respondent one month prior to Mr. Hancock’s injury. See State’s Exhibit 19. Mrs. Boren testified that the Respondent failed to timely submit this document to Provident. Mrs. Boren reiterated that BDB had been paying premiums on Mr. Hancock.

40. Mrs. Boren testified that she had the same problem with two other employees, Jarod Palmer and Gayle Perkins, who were injured while working for BDB. Mrs. Boren testified that BDB paid premiums on these two employees but the Respondent failed to forward their names to Provident. Mrs. Boren testified that BDB ultimately paid the $250.00 deductible for Jarod Palmer. Mrs. Boren testified that Gayle Perkins’ doctor sent BDB a medical bill regarding Gayle Perkins. Mrs. Boren testified that BDB could not afford to pay Gayle Perkins’ medical bill.

41. Mrs. Boren testified that the Respondent promised that hernias were covered under the Alternative Plan. However, Mrs. Boren testified that Jerrame Barrett suffered an hernia while employed with BDB in 1999. Mrs. Boren testified that she called the Respondent who assured her that hernias were covered under the Alternative Plan. Mrs. Boren testified that Mr. Barrett required over $4,000.00 in surgery to repair the hernia.

42. Mrs. Boren testified that the Respondent insisted on keeping the actual insurance policies provided by the insurance companies under the Alternative Plan. See State’s Exhibit 23. Mrs. Boren testified that she never directly spoke with an insurance company. Mrs. Boren testified that the Respondent always acted as a “middleman” between the insurance companies and BDB.

43. Mrs. Boren testified that BDB ultimately received a letter from BPI Risk Management, Inc. stating that the hernia surgery was not covered under the Alternative Plan. See State’s Exhibit 22. Mrs. Boren testified that Mr. Barrett was supposed to be covered under an insurance policy provided by the Philadelphia Life Insurance Company (“Philadelphia”). However, the Philadelphia Accident Insurance Policy stated that hernias were not covered under the Philadelphia Accident Insurance Policy. See State’s Exhibit 23 (Description of Benefits). Mrs. Boren testified that Philadelphia ultimately paid the $4,224.00 hernia bill after numerous communications between Philadelphia and BDB[1].

44. Mrs. Boren reiterated that the insurance companies under the Alternative Plan were always changing. Mrs. Boren testified that Standard Insurance Company (“Standard”) was one of the insurance companies providing coverage under the Alternative Plan. Mrs. Boren testified that BDB only had about six employees. Mrs. Boren testified that the Respondent told her that BDB did not have enough employees to qualify for Standard’s coverage (which required a minimum of 10 employees). Mrs. Boren testified that the Respondent told her that BDB would have to combine its employees with the employees of another company, A-1 Portable Welding (“A-1”), so as to meet the minimum number of employees required to qualify for group life and disability coverage through Standard.

45. Mrs. Boren testified that the Respondent prepared a letter, dated February 11, 1998, addressed to Standard stating that BDB was taking over the A-1’s Group Program effective January 1, 1998. See State’s Exhibit 14a. Mrs. Boren testified that BDB and A-1 had no business relationships. Mrs. Boren testified that the Respondent told her to sign this letter. Id. Mrs. Boren testified that she questioned the language in the letter. However, Mrs. Boren testified that Mr. Skepnek assured her that Standard approved of the language in the letter and that the letter was just a formality for obtaining insurance coverage from Standard. This letter was sent to Standard with BDB’s application and a check for a premium payment in the amount of $596.39. Id.

46. Mrs. Boren testified that the Respondent notified BDB that Standard had declined BDB’s application. However, Mrs. Boren testified that the Respondent directed BDB to provide a second premium check (to the Respondent) in the amount of $564.22 so that the Respondent could obtain coverage through Standard. Mrs. Boren testified that the second premium check was sent to the Respondent. Mrs. Boren testified that the Respondent informed her again that BDB was not approved by Standard.

47. Mrs. Boren testified that she asked the Respondent for the return of the two premium checks that the Respondent had sent to Standard. Mrs. Boren testified that she also wrote a letter to the Respondent asking for reimbursement of the two checks. See State’s Exhibit 10. Mrs. Boren testified that the Respondent kept stalling on the reimbursement of the checks.

48. Mrs. Boren testified that she finally called Standard to ask for the reimbursement of the two checks. Mrs. Boren testified that Standard informed her that Standard had applied the two premium checks to premium arrears owed by A-1. Mrs. Boren testified that Standard assumed that BDB was liable for A-1’s arrears because the aforementioned letter had stated that BDB had taken over the A-1 Group Program. See State’s Exhibit 14a. Mrs. Boren testified that she was furious. Mrs. Boren testified that the Respondent had told her that Standard had denied BDB’s application for insurance coverage. Mrs. Boren testified that Mr. Skepnek had told her that it was simply an oversight that she had not received reimbursement for the two premium checks.

49. The Respondent had knowledge that A-1 was in arrears regarding premium payments. See State’s Exhibit 14c. On May 26, 1998, Standard sent a letter to the Respondent stating that A-1 was in arrears in the amount of $2,527.90. Id. Standard also wrote that it had applied BDB’s second premium check (in the amount of $564.22) to A-1’s arrears. Id. Accordingly, the Respondent knew that she was converting BDB’s premium checks to pay off A-1’s arrears.

50. In or around August of 1999, Standard issued a refund to BDB in the amount of $1,160.61 for the two premium payments that were applied to the A- policies. Mrs. Boren testified that the Respondent and Mr. Skepnek provided no help in obtaining this refund from Standard.

51. Mrs. Boren testified that in July of 1998, the Respondent informed her that Standard would approve BDB’s application for insurance coverage if BDB combined its employees with the employees of Ex-Cel Roofing (“Ex-Cel). Mrs. Boren testified that BDB and Ex-Cel had no business relationships. Mrs. Boren testified that this application was approved by Standard. Mrs. Boren testified that Standard was not aware that BDB and Ex-Cel had combined employees to acquire insurance coverage. Mrs. Boren testified that Standard learned of this sharing arrangement between BDB and Ex-Cel when she called Standard about the reimbursement of the two premium checks. Mrs. Boren testified that Standard told her that employees of two unrelated companies could not be combined for the purpose of obtaining insurance.

52. Mrs. Boren testified that dealing with the Respondent was an emotional roller coaster. Mrs. Boren testified that there were constant delays and unwelcome surprises in dealing with the Respondent. Mrs. Boren testified that the injured employees threatened law suits against BDB. Mrs. Boren testified that BDB now has a Workers’ Compensation and Employers Liability Policy issued by the State Compensation Fund.

53. Inspector Paul Follett also investigated the BDB matter. Mr. Follett confirmed that Standard applied the two BDB premium payments to the delinquent A-1 account because of the aforementioned letter received from BDB stating that BDB had taken over the A-1 Group policy. See State’s Exhibit 14a. Mr. Follett testified that A-1 had a $2,000.00 deficit in premium arrears. Mr. Follett testified that BDB’s two premium checks were applied to the A-1 account because Standard thought that A-1 was affiliated with BDB.

54. Mr. Follett testified that Standard ultimately refunded the two premium payments (totaling $1,160.61) to BDB. Mr. Follett testified that it is unethical for two unrelated companies to combine their employees for the sole purpose of meeting minimum employee requirements so as to obtain insurance coverage. Mr. Follett suspected that fraud was involved in combining the employees of BDB and A-1.

CONCLUSIONS OF LAW 1. The Department has the burden of proof, and the standard of proof on all issues is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). A "preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not." Morris K. Udall, Arizona Law of Evidence, §5 (1960). It "is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not." Black's Law Dictionary, 1182 (6th ed. 1990).

2. The Director of the Department has the authority to discipline the holder of a life and disability insurance license. A.R.S. §20-316. The Director has the authority to suspend or revoke a life and disability insurance license if the Director finds one or more of the following: . . . 2. Wilful violation of, or wilful noncompliance with, any provision of this title, or any lawful rule or order of the director; 3. . . . 4. Misappropriation or conversion or illegal withholding of monies belonging to policyholders, insurers, beneficiaries or others and received in or during the conduct of business under the license or through its use; 5. . . . 6. . . . 7. Conduct of affairs under the license showing the licensee to be incompetent or a source of injury and loss to, or repeated complaint by, the public or any insurer. . . . See A.R.S. §20-316(A)(2),(4) & (7).

3. The undersigned Administrative Law Judge concludes that grounds exist to discipline the Respondent’s life and disability insurance license pursuant to A.R.S. §20-316(A)(2) because the Respondent violated A.R.S. §20- 442, A.R.S. §20-443(1) & (5), A.R.S. §20-444(A) and A.R.S. §20-463(A)(1)(a) & (c).

4. The undersigned Administrative Law Judge concludes that grounds exist to discipline the Respondent’s life and disability insurance license pursuant to A.R.S. §20-316(A)(4) because the Respondent converted BDB’s two premium payments to pay for A-1’s premium arrears. The Respondent also converted the insurance proceeds from Standard to the benefit of her daughter, Sherri Lynn Davis.

5. The undersigned Administrative Law Judge concludes that grounds exist to discipline the Respondent’s life and disability insurance license pursuant to A.R.S. §20-316(A)(7) because the Respondent’s unprofessional conduct caused (1) BDB to have to pay $500.00 in deductibles for Charles Hancock and Jarod Palmer; (2) Standard had to pay the two claims for Sherri Lynn Davis totaling $26,184,74; and (3) American Gooseneck was ordered to pay a $250,000.00 judgment.

6. Pursuant to A.R.S. §20-442, no licensee shall engage in this state in any trade practice which is determined to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. A.R.S. §20-442. The undersigned Administrative Law Judge concludes that the Respondent was deceptive and unfair when she lured customers away from workers’ compensation insurance to the Alternative Plan by making false statements to the customers and by using the misleading and deficient Benefits Comparison Sheet. The Respondent also misrepresented to BDB that all on the job injuries (including hernias) were covered under the Alternative Plan. The Respondent also misrepresented to Security Roofing that case law dictated that employers could not be sued by injured employees under the Alternative Plan.

7. Pursuant to A.R.S. §20-443(1) & (5), no licensee shall make, issue or circulate . . . any sales material or statement that: a. Misrepresents the terms of the policy issued or to be issued or the benefits or advantages promised or the dividends or share of the surplus to be received; and b. Makes a misrepresentation to any policyholder for the purpose of inducing or tending to induce such policyholder to lapse, forfeit, surrender, retain or convert any insurance policy. See A.R.S. §20-443(1) & (5).

8. The undersigned Administrative Law Judge concludes that grounds exist to discipline the Respondent’s life and disability insurance license because the Respondent violated A.R.S. §20-443(1) & (5) when she lured customers away from workers’ compensation insurance to the Alternative Plan by making false statements to the customers and by using the misleading and deficient Benefits Comparison Sheet. The Respondent also misrepresented to BDB that all on the job injuries (including hernias) were covered under the Alternative Plan. The Respondent also misrepresented to Security Roofing that case law dictated that employers could not be sued by injured employees under the Alternative Plan.

9. A.R.S. §20-444(A) states the following: No licensee shall make, publish, disseminate, circulate or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, any advertisement, announcement, sales material or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading. See A.R.S. §20-444(A).

10. The undersigned Administrative Law Judge concludes that grounds exist to discipline the Respondent’s life and disability insurance license because the Respondent violated A.R.S. §20-444(A) when she lured customers away from workers’ compensation insurance to the Alternative Plan by making false statements to the customers and by using the misleading and deficient Benefits Comparison Sheet. The Respondent also misrepresented to BDB that all on the job injuries (including hernias) were covered under the Alternative Plan. The Respondent also misrepresented to Security Roofing that case law dictated that employers could not be sued by injured employees under the Alternative Plan.

11. It is a fraudulent practice and unlawful for a licensee to knowingly: Present, cause to be presented or prepare with the knowledge or belief that it will be presented an oral or written statement, including computer generated documents, to or by an . . . agent of an insurer, reinsurer or broker that contains untrue statements of material fact or that fails to state any material fact with the respect to any of the following: a. An application for the issuance or renewal of an insurance policy; or b. . . . c. A claim for payment or benefit pursuant to an insurance policy. See A.R.S. §2-463(A)(1)(a) & (c).

12. The undersigned Administrative Law Judge concludes that grounds exist to discipline the Respondent’s life and disability insurance license because the Respondent violated A.R.S. §20-463(A)(1)(a) & (c) when she submitted employee lists (for the purpose of obtaining insurance coverage) to Standard that included individuals (including her daughter, Sherri Lynn Davis) who were never employed by BDB or Security Roofing. The Respondent also fraudulently submitted two claims to Standard regarding Sherri Lynn Davis’ pregnancy and death. Ms. Davis never worked for Security Roofing. Standard paid approximately $26,184.74 on the two claims.

13. Grounds exist for the Director to revoke the Respondent’s life and disability insurance license. A.R.S. §20-316(A). Grounds also exist for the Director to order the Respondent to pay restitution and a civil penalty[2]. A.R.S. §20-316(C). The undersigned Administrative Law Judge concludes that the Respondent should pay restitution[3] to the following: a. BDB - $500.00; b. Standard - $26,184.74; c. Philadelphia - $4,224.00.

RECOMMENDED DECISION

Based upon the foregoing, the undersigned Administrative Law Judge recommends that the Respondent’s life and disability insurance license be revoked. The undersigned Administrative Law Judge further recommends that the Respondent pay restitution to the following entities: a. BDB - $500.00; b. Standard - $26,184.74; c. Philadelphia - $4,224.00. Done this day, October 27, 2000.

______________________________________ Casey J. Newcomb Administrative Law Judge

Original transmitted by mail this ____ day of October, 2000, to:

Charles R. Cohen Department of Insurance ATTN: Curvey Burton 2910 North 44th Street, Ste. 210 Phoenix, AZ 85018

By ___________________________

----------------------- [1] Investigator Paul Follett (of Standard Insurance Company) testified that Standard also paid part of the Barrett claim. However, Investigator Follett did not know the amount that was paid by Standard. [2] The undersigned Administrative Law Judge declines to recommend that the Respondent pay a civil penalty because of the testimony of Mr. Sniegowski and the State’s recommendation. [3] The undersigned Administrative Law Judge declines to recommend that the Respondent pay American Gooseneck any restitution because it is unclear how much American Gooseneck had to pay on the $250,000.00 judgment. It is also unclear if American Gooseneck prevailed in its lawsuit against the Respondent. Furthermore, it is unclear how much Standard, Pioneer Mutual Life Insurance Company and American Medical Security Insurance Company paid on the $250,000.00 judgment against American Gooseneck.

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826