ALJDEC decisions subject to certification as final

19A-135-INS · Department of Insurance · 2020-03-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of:

KATZ, STEVEN LAWRENCE,

Petitioner

No. 19A-135-INS

ADMINISTRATIVE LAW JUDGE DECISION

HEARING DATES: November 14, 2019; December 10, 2020; February 12, 2020.

APPEARANCES: Paul Giancola and Ryan Regula, attorneys for Steven Lawrence Katz, Petitioner. The Arizona Department of Insurance was represented by Assistant Attorney General Deian Ousounov.

ADMINISTRATIVE LAW JUDGE: Antara Nath Rivera.

_____________________________________________________________________

FINDINGS OF FACT

Steven Lawrence Katz (Petitioner) was a licensed physician and surgeon. In 1989, Petitioner attended Cornell University Sloan Kettering Medical College. Petitioner completed his postgraduate residency through the School of Medicine, University of California, San Francisco, Department of Obstetrics, Gynecology and Reproductive Sciences. In 1995, Petitioner served as the Director of the Oregon Health Sciences University In Vitro Fertilization Satellite Program in Eugene, Oregon. In 1996, Petitioner joined the California North Bay Fertility Associates as Co-Medical Director. In 1999, Petitioner opened his own practice, Fertility Associations of the Bay Area in San Francisco and Marin, California.

On or about June 15, 2000, Petitioner failed to disclose the mistaken transfer of three embryos intended for one of his patients into a second patient.

On or about March 28, 2005, the Medical Board of California revoked Petitioner’s medical license.

On or about August 12, 2010, the Medical Board of California denied Petitioner’s petition for reinstatement of his revoked license.

In July 2013, Petitioner filed a second petition, with the Medical Board of California, for reinstatement of his medical license.

On or about March 10, 2015, Mr. Katz’s medical license was reinstated and immediately revoked. However, the revocation was stayed until Petitioner successfully completed probation. Petitioner was placed on probation for five years and was required to abide by its terms and conditions.

On or about January 12, 2016, the California Department of Insurance provided Petitioner with a restricted insurance license. Petitioner’s California insurance license expired on or about July 16, 2019.

On or about July 14, 2017, Petitioner submitted an application to the Arizona Department of Insurance (Department) for a non-resident insurance producer license. Under the background questions, Petitioner answered “No” to question number 2, which provided as follows:

[H]ave you ever been named or involved as a party in an administrative proceeding, including FINRA sanction or arbitration proceeding regarding any professional or occupational license or registration? ‘Involved’ means having a license censured, suspended, revoked, canceled, terminated; or being assessed a fine, a cease and desist order, a prohibition order, a compliance order, placed on probation, sanctioned or surrendering a license to resolve an administrative action. ‘Involved’ also means being named as a party to an administrative or arbitration proceeding, which is related to a professional or occupations license, or registration. ‘Involved’ also means having a license, or registration application denied or the act of withdrawing an application to avoid denial.”

The Department issued Petitioner a non-resident insurance producer license with lines of authority in property and casualty insurance, under National Producer Number 17857540.

On or about December 18, 2018, the State of California, Office of Administrative Hearings, heard Petitioner’s medical license matter. The State of California Administrative Law Judge (CAALJ) found that cause existed to revoke Petitioner’s probation based on untruthful and deceptive conduct and issued an order revoking Petitioner’s medical license.

On or about January 24, 2019, the Medical Board of California adopted the CAALJ’s decision and revoked Petitioner’s medical license due to failure to comply with his probation terms. Petitioner failed to report this revocation to the Department within 30 days.

On or about August 21, 2019, Petitioner submitted his second application for a resident insurance producer license to the Department. In his application, Petitioner answered “Yes” to question number 2 and submitted documents from California that addressed his medical license.

On or about September 13, 2019, the Department denied Petitioner’s application for a resident insurance producer license.

On or about September 16, 2019, Petitioner timely appealed the Department’s denial.

On or about October 8, 2019, the Department issued a Notice of Hearing that alleging a violation of Arizona Revised Statute (A.R.S.) §§ 20-295(A)(1), 20-295(A)(2), 20-295(A)(8), 20-295(A)(9), 20-301(A), and 20- 287(A)(1).

The Department’s Notice of Hearing and Complaint also set an evidentiary hearing before the Office of Administrative Hearings (OAH), an independent state agency, on November 14, 2019, at 1:00 p.m.

On or about November 14, 2019, a hearing was held. The hearing was furthered and also conducted on December 10, 2019, and February 12, 2020.

Hearing Evidence

At the hearing, Petitioner acknowledged his medical errors. Petitioner further admitted to the allegations made by the Medical Board of California, including dishonesty, fraud, and failure to complete forty hours of practicing medicine a week as required by his probation. Petitioner was unable to find a job with another doctor. Even after he found a doctor he could work with, he lied about the hours he worked, and lied about practicing medicine. Petitioner recognized that his medical career was over and began a business career.

In 2015, Petitioner founded REI Protect, LLC, which was a medical malpractice insurance company for fertility physicians and in vitro fertilization laboratories. The Doctors Company of Napa, California underwrote the policies and Petitioner served as chief executive officer. As chief executive officer, Petitioner was responsible for business development and risk management.

Petitioner owned one company in Arizona and wanted to acquire three more companies that would require an insurance producer’s license. Petitioner applied for an insurance producer’s license because the license would allow him to solicit insurance business and protect doctors in his program. Petitioner would also be allowed to conduct pre underwriting risk assessments. Petitioner opined that he knew what information the insurance companies needed and which insurance certain doctors required because of his knowledge and expertise. There was a need for risk management in the in vitro fertilization market.

Petitioner had a valid residential producer’s insurance license from California since 2016. Petitioner and the Department engaged in a series of discussions concerning whether the Department would issue him an Arizona resident producer’s license. Based on those discussions, Petitioner filed a pre-determination letter where he detailed his past errors. The Department denied Petitioner’s application and informed Petitioner to file an application for resident producer insurance license application.

On or about July 16, 2019, Petitioner obtained a clearance letter from the California Department of Insurance, which attested that Petitioner complied with California’s examination, education, and qualification standards. Once Petitioner obtained his California clearance letter, his resident insurance producer license in that state became inactive. This “inactiveness” was necessary for Petitioner to obtain a resident insurance producer’s license in Arizona.

In his 2017, application for resident insurance producer license in Arizona, Petitioner answered “No” because he believed that the question was Arizona specific because it was on the State of Arizona’s website, and thus, did not apply to his California medical license. In support of his reasonable belief, Petitioner relied on the instructions on the Sircon website, which stated “[y]ou might have to enter information or answer background questions that are required specifically by one or another state....” Petitioner opined that this was unintentional.

Petitioner opined that he was not a danger to the public because his focus was to protect people. His company, REI Protect, LLC, did not sell insurance to the public, it obtained insurance for his peers.

Petitioner introduced letters of recommendation from fellow doctors who worked with Petitioner. The doctors all acknowledged that they were aware of Petitioner’s past medical errors. Each of them highly recommended Petitioner in the area of providing risk management and commended Petitioner for having high quality of integrity.

Petitioner presented the testimony of Paul Kopsky of PWK Consulting. Mr. Kopsky has known Petitioner since 2016. Mr. Kopsky described Petitioner as honest, forthcoming, and as having integrity. Mr. Kopsky believed that Petitioner’s mistakes would help others not make the same mistake. Petitioner was extremely knowledgeable and had identified issues and liabilities from an insurance standpoint. Petitioner was the type of person the industry needed to help other fertility doctors. Mr. Kopsky opined that even though Petitioner made mistakes, Petitioner was reputable and well respected in the medical field and should not be denied the opportunity to obtain a resident insurance producer’s license in the State of Arizona. Petitioner had the specialized education and experience that few have and on top of that his past mistakes place him in a unique position to advise others on how to not similarly fail.

Petitioner presented the testimony of Dr. Jeffrey Karp, president of the Village Fertility Pharmacy Group. Dr. Karp met Petitioner five years ago at a conference. Dr. Karp, also familiar with Petitioner’s background, testified that Petitioner was honest and forthcoming about his past mistakes. Dr. Karp described Petitioner as compassionate, straight forward, and truthful. Petitioner had a stellar reputation within the fertility medical and insurance community.

Petitioner presented the testimony of Robert J. Francis. Mr. Francis was the senior executive vice president and head of underwriting of ProAssurance. Mr. Francis testified that Petitioner would be working directly with his company. ProAssurance handled professional and commercial insurance coverage. Petitioner had the specialized knowledge required for his field. Petitioner helped develop a program for customized insurance that fit specialized doctors’ needs. Petitioner would solicit business and receive a commission. In order to do that role, Petitioner needed a producer’s insurance license. Petitioner had a reputation for truthfulness and honesty within the fertility insurance industry. Petitioner provided valuable risk management experience to customers based on his expertise. Mr. Francis opined that Petitioner was open and honest with his past and that Petitioner would make a great consultant if he had his license.

Petitioner introduced the testimony of Vincent DiCianni of Affiliated Monitors, Inc., which is a company that provides independent monitoring on behalf of federal, state, and municipal agencies. Mr. DiCianni testified that his company agreed to provide monitoring services for the Department to alleviate any concerns of future misconduct by Petitioner. In particular, Mr. DiCianni testified that his company would perform a baseline assessment of Petitioner and then would monitor Petitioner to ensure his character for truthfulness persists. Should Petitioner exhibit any misconduct, Affiliated Monitors Inc. would immediately notify the Department so that appropriate actions may be taken. Mr. DiCianni acknowledged that if a regulatory agency did not approve the monitoring, Affiliated Monitors Inc. would not be able to help. In the event that Affiliated Monitors Inc. did assist Petitioner, without the Department’s approval, it would still be difficult due to the lack of guidelines.

The Department presented the testimony of Steven Fromholtz, the Department’s Assistant Director for Consumer Protection. Mr. Fromholtz testified that in 2017, Petitioner received his insurance license once his application was processed. The Department issued licenses if an applicant indicated that there was no evidence of past administrative actions. As the holder of an Arizona insurance license, Petitioner had a duty to disclose any prior administrative orders within 30 days from the decision date. An agent is deemed not compliant if he/she failed to report.

In Petitioner’s case, his license application was approved after he answered “No” to question 2. Mr. Fromholtz testified that the application on the Department’s website, was similar to that of the National Association of Insurance Commissioners. There is one application for all states. The Department’s application, or any other state licensing application, was not state specific when answering questions on the application. Thus, administrative actions include that of all states, not just Arizona.

Petitioner was not truthful when he applied in 2017. Additionally, Petitioner failed to disclose the revocation order of his medical license that occurred on or about January 24, 2019. Petitioner was a licensed insurance agent in Arizona at that time and had a duty to disclose. Petitioner’s actions are of a concern for the Department in the area of regulation.

With respect to the non-resident license application, an applicant must be truthful. A nonresident must have a valid license in its resident state. In this case, Petitioner was inactive in California because he was issued a restricted license in California. However, Mr. Fromholtz testified that the issuance of a restricted license does preclude the Department from changing their decision to grant Petitioner a license.

The Department’s concern was not focused on Petitioner’s actions in 2000. Petitioner’s actions that affected his truth and veracity was his dishonesty while on probation, his fraudulent billing, the lies he told the investigators, and his dishonesty on his 2017 application. The Department does not have restricted, provisional, or probationary licenses due to personnel. The Department denied Petitioner’s application because Petitioner could not be regulated based on his inability to be truthful in his application, his failure to disclose his medical license revocation, and his inability to successfully complete his probation in California. Regardless of the possibility of endless monitoring by Affiliated Monitor, Inc., Petitioner, the Department determined that Petitioner demonstrated that he could not be regulated.

CONCLUSIONS OF LAW

Pursuant to A.R.S. Title 32, Chapter 20, the Department has the authority and duty to regulate all persons engaged in the business of, or acting in the capacity of, a real estate broker or salesperson, and to enforce all statutes, rules, and regulations relating to real estate.

The Department bears the burden of proof to establish by a preponderance of the evidence, that it properly revoked Petitioner’s non-resident producer’s license.

Petitioner bears the burden of proof to establish that the Department improperly denied his application for his Arizona resident producer’s license.

The standard of proof on all issues is by a preponderance of the evidence. A preponderance of the evidence is:

The greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.

Black’s Law Dictionary 1373 (10th ed. 2014).

A.R.S. § 20-295(A) provides in pertinent part that:

The director may deny, suspend for not more than twelve months, revoke or refuse to renew an insurance producer's license or may impose a civil penalty in accordance with subsection F of this section or any combination of actions for any one or more of the following causes:

Providing incorrect, misleading, incomplete or materially untrue information in the license application.

Violating any provision of this title or any rule, subpoena or order of the director.

......

8. Using fraudulent, coercive or dishonest practices, or demonstrating incompetence, untrustworthiness or financial irresponsibility in the conduct of business in this state or elsewhere.

9. Having an insurance producer license, or its equivalent, denied, suspended or revoked in any state, province, district or territory.

A.R.S. § 20-301(A) provides in pertinent part that:

Within thirty days after the final disposition of the matter, an insurance producer shall report to the director any administrative action taken against the producer in another jurisdiction or by another governmental agency in this state. The report shall include a copy of the order, consent to order or other relevant dispositive document.

A.R.S. § 20-301(A)(1) provides in pertinent part that:

Unless the director denies a license pursuant to section 20-295, the director shall issue a nonresident person a nonresident insurance producer license if all of the following apply:

The person is currently licensed as a resident and in good standing in the person's home state.

The evidence established that Petitioner was a highly educated and highly revered physician. Despite Petitioner’s errors and setbacks, Petitioner had a great reputation among his peers as evidenced by numerous character witness testimonies and affidavits. ProAssurance wanted Petitioner to get his insurance producer’s license and would even vicariously assume liability for Petitioner in the event of any wrongdoing. With his insurance producer’s license, Petitioner wanted to educate the public with his past experience and protect his peers in the area of risk management. While Petitioner’s intentions are well warranted, his prior conduct cannot be ignored.

Petitioner argued that he believed that question number 2 was state specific. Petitioner acknowledged that he answered “No” to question number 2 in 2017 and then answered “Yes” in 2019. In the totality of the circumstances, Petitioner’s belief was unreasonable especially taking into consideration his level of education and medical expertise. Petitioner boasted about his knowledge and expertise in all other areas except for when it came to filling out the application in Arizona. The Department presented evidence that Petitioner’s answers were contradictory. Accordingly, the Department established by a preponderance of the evidence that it properly revoked Petitioner’s Arizona non-resident producer’s license for purposes of A.R.S. § 20-295(A)(1).

Petitioner acknowledged his past mistakes and conduct. As recently as 2018, there was evidence that Petitioner was dishonest and fraudulent while on probation. Petitioner was given a second chance to get his medical license back, yet he violated his probation when he failed to comply with the terms of probation. Additionally, there was evidence that Petitioner deliberately covered up his actions by being deceitful to his probation officer. Based on the evidence, Petitioner failed to establish that the Department improperly denied Petitioner’s application pursuant to A.R.S. § 20-295(A)(8).

It was commendable that Petitioner fully owned his mistakes and published them for the entire fertility community to see and sought to help others not repeat the mistakes of his past. Character witnesses testified that Petitioner’s character for truthfulness and honesty was superb within the highly specialized field of fertility insurance work. However, Petitioner’s inability to rehabilitate himself, after given the opportunity, spoke volumes.

Petitioner also argued that even if the Department had concerns about his character, he had taken measures to alleviate those concerns. His insurance work with ProAssurance did not require him to bind insureds, collect monies, or perform any underwriting. Additionally, Petitioner presented evidence that Affiliated Monitors, Inc., would monitor Petitioner to ensure his character for truthfulness. Should Petitioner exhibit any misconduct, Affiliated Monitors, Inc. would immediately notify the Department so appropriate action could be taken. Regardless of potential safety guards Petitioner introduced into evidence, Petitioner showed no signs of rehabilitation within the last year.

The Department showed that Petitioner was unable to be regulated by the Department. Merely acknowledging one’s mistakes, discussing those mistakes, and attempting to institute safeguards to protect oneself from making future mistakes does not rise to the level of rehabilitation. Thus, Petitioner failed to prove that the Department improperly denied his application.

Petitioner argued that the Department failed to meet its burden of persuasion concerning Petitioner not being licensed as a resident and in good standing in his previous home state according to A.R.S. § 20-287(A)(1). The evidence established that Petitioner’s clearance letter, from the California Department of Insurance, certified that Petitioner complied with the State’s “examination, education and qualification standards and was licensed in” the State of California. The evidence showed that Petitioner’s California resident insurance producer license only became inactive because he needed its release to obtain a resident insurance producer license in Arizona. Thus, the Department failed to prove a violation of A.R.S. § 20-287(A)(1).

Moreover, Petitioner failed to disclose, to the Department within thirty days, that his medical license was revoked by the Medical Board of California. Absent a stay for appeal, the Medical Board of California’s revocation was a final disposition unless overruled. Thus, Petitioner failed to establish that he never violated any rule, subpoena, or order pursuant to A.R.S. § 20-295(A)(2) because he failed to disclose his revocation to the Department.

Based on the foregoing, Petitioner’s appeal should be denied.

ORDER

IT IS ORDERED that Petitioner Steven Katz’s appeal be denied and the Department’s revocation be upheld.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order is five days after the date of that certification.

Done this day, March 23, 2020.

/s/ Antara Nath Rivera

Administrative Law Judge

Transmitted electronically to:

Keith A. Schraad, Director

Arizona Department of Insurance

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