ALJDEC

99A-184-INS · Department of Insurance · 1999-10-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

On October 7, 1999, a hearing was held on the Petitioner’s appeal of the Department’s denial of the Petitioner’s application for an insurance broker’s license. Assistant Attorney General Michael De La Cruz represented the Arizona Department of Insurance (the “Department”). Donald Gerald Schreck (the “Petitioner”) appeared on his own behalf. 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. On or about October 10, 1995, the Department issued a Notice of Hearing in the case of In the Matter of: National Insurance Tracking Services, Inc. and Donald Gerald Schreck, Docket No. 95A-198-INS. See State’s Exhibit 2.

2. On or about March 18, 1996, the Director issued an Order in Docket No. 95A-198-INS, revoking all insurance licenses held by the Petitioner and National Insurance Tracking Services, Inc. ("National Insurance"). See Department’s Exhibit 3. In the Order, the Director concluded that National Insurance and the Petitioner misappropriated and converted to their own use the amount of $27,256.95 in net premiums, in violation of A.R.S. §20- 316(A)(4). Id. The Director also concluded that the Petitioner’s conduct constituted “incompetence or a source of injury and loss to, or repeated complaint by, the public or any insurer,” in violation of A.R.S. §20- 316(A)(7). Id. The Director further concluded that the Petitioner’s conduct was a record of dishonesty in business or financial matters, in violation of A.R.S. §20-316(A)(1) together with A.R.S. §20-290(B)(2). Id.

3. On or about August 26, 1998, the Applicant filed an application for a property and casualty insurance broker’s license with the Department. See Department’s Exhibit 4. On or about September 14, 1998, the Department denied the Applicant’s 1998 application. See Department’s Exhibit 5.

4. On or about July 15, 1999, the Petitioner filed a second application for a property and casualty insurance broker’s license (the "1999 Application") with the Arizona Department of Insurance. See Department’s Exhibit 1.

5. Section V, Question B of the 1999 Application asked the following question: B. Have you EVER had any professional, vocational, business license or certification refused, denied, suspended, revoked or restricted, or a fine imposed by any public authority?

Id. The Petitioner answered "Yes" to this question. Id.

6. On or about August 9, 1999, the Department denied the Petitioner’s 1999 Application. See Department’s Exhibit 6. On or about August 16, 1999, the Department received the Petitioner’s request for a hearing regarding the Department’s denial of the Petitioner’s 1999 Application. See Department’s Exhibit 7.

7. At the hearing in this matter, the Petitioner testified that he is currently the president of National Insurance. National Insurance performs insurance compliance work (e.g., collects insurance certificates and maintains insurance databases) for banks, finance companies, leasing companies and corporations on a national basis. See Department’s Exhibit 1b. National Insurance tracks insurance policies on over 400,000 autos, loans and mortgages. Id. The Petitioner testified that business has been good for National Insurance. However, the Petitioner testified that the volume of National Insurance’s business is limited by the loss of his broker’s insurance license. The Petitioner testified that National Insurance would be more prosperous if it could provide insurance and collection/clerical services. The Petitioner testified that National Insurance can only provide the collection/clerical services without a broker’s license.

8. The Petitioner testified that he has been licensed in the insurance industry since 1971. The Petitioner testified that he experienced no problems or received no complaints during his career until the aforementioned incident resulting in the Director’s March 18, 1996 Order. The Petitioner testified that he does not disagree with the Director’s March 18, 1996 Order. The Petitioner admitted that he converted money received by National Insurance for his own personal use.

9. The Petitioner testified that he used the converted money to pay some of his daughter’s medical bills. The Petitioner’s daughter subsequently passed away leaving over 2 million dollars in medical bills. The Petitioner testified that all of his daughter’s medical bills have been paid in full. However, the Petitioner testified that he still owes $23,328.00 in restitution for the $27,256.98 in net premiums that were converted for his own personal use. The Petitioner testified that he is currently in the process of paying off the balance of the restitution still owing.

10. The Petitioner testified that he has led a productive life since the issuance of the Director’s March 18, 1996 Order. The Petitioner further testified that National Insurance has received no significant complaints since the issuance of the Director’s March 18, 1996 Order. The Petitioner testified that he has been a law abiding citizen since the Director’s Order was issued except for a domestic dispute that resulted in a misdemeanor conviction. The Petitioner testified that he has successfully attended counseling for the misdemeanor violation.

11. The Petitioner presented no character reference letters during the hearing in this matter. The Petitioner called no character witnesses on his behalf.

CONCLUSIONS OF LAW

1. The Petitioner 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 undersigned Administrative Law Judge concludes that the Director’s March 18, 1996 Order (revoking the Petitioner’s licenses) represents a “record of dishonesty on the part of the [Petitioner] in business or financial matters” within the meaning of A.R.S. §20-290(B)(2).

3. The undersigned Administrative Law Judge concludes that the Director’s March 18, 1996 Order represents a “record of misappropriation, conversion or irregular withholding by the [Petitioner] of monies belonging to policyholders, insurers, beneficiaries or others and received in the conduct of business in this state or elsewhere” within the meaning of A.R.S. §20-290(B)(3).

4. The undersigned Administrative Law Judge concludes that the Director’s March 18, 1996 Order represents a “record of conduct under an insurance license issued in this state or elsewhere showing the [Petitioner] to be incompetent or a source of injury and loss to, or repeated complaints by, the public or any insurer” within the meaning of A.R.S. §20-290(B)(4).

5. The undersigned Administrative Law Judge concludes that the Director’s March 18, 1996 Order (revoking the Petitioner’s licenses) is a “record of . . . revocation of an insurance license in any jurisdiction” within the meaning of A.R.S. §20-290(B)(5).

6. The undersigned Administrative Law Judge concludes that it appears that the Petitioner has led a productive life since the issuance of the Director’s March 18, 1996 Order. However, the undersigned Administrative Law Judge cannot ignore the seriousness of the Petitioner’s aforementioned improper conduct and behavior. This is not the type of case involving a youthful indiscretion. Nor is it the type of case involving behavior unrelated to the business of insurance. Rather, this case pertains to the inappropriate behavior of the Petitioner that strikes at the very heart of the insurance industry. It involves an en experienced broker who dishonestly manipulated an insurance transaction for his own personal financial gain. The undersigned Administrative Law Judge concludes that grounds do exist to deny the Petitioner’s 1999 Application pursuant to A.R.S. §20-290(B)(2), (B)(3),(B)(4), and (B)(5). RECOMMENDED DECISION

Based upon the foregoing, the undersigned Administrative Law Judge recommends that the Petitioner’s appeal be denied. The Department’s denial of the Petitioner’s 1999 Application should be upheld.

Done this day, October 25, 1999.

______________________________________ Casey J. Newcomb Administrative Law Judge

Original transmitted by mail this ____ day of October, 1999, to:

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

By ___________________________

-----------------------

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