Pants on Fire

Read Zalma's previous column, "Florida Supreme Court: Brokers Can Be Sued for Economic Loss Negligence"

When the client met Dyer, about 90 percent of her assets, $143,818.58, were in an existing annuity with Modern Woodmen of America, earning a base annual interest rate of 5.45 percent, with a minimum guaranteed interest rate of 4 percent, and an additional 0.25 percent interest on any amount over $100,000. Dyer initially applied for long-term care insurance for the client, but she was denied coverage.

After the customer complained to the insurance department, a disciplinary hearing was held before the Superintendent of Insurance. Dyer testified that he sought to implement a four-part plan to reinvest the client's assets to allow her to gift her assets to her grandchildren and qualify for Medicaid, a fairly popular means of defrauding the U.S. Government Medicaid law.

The Superintendent ignored the Medicaid scheme but looked at misconduct originated from a part of the claimed four-part plan: a tax-free exchange of $39,326.50 from the client's Modern Woodmen annuity to a single premium immediate annuity (SPIA) with Old Mutual Financial Life Insurance Co. The superintendent found that Dyer did not adequately explain the four-part plan to the client and never reviewed the terms of the SPIA with her.

Although Dyer testified that he believed the SPIA returned about a 2 percent to 3 percent interest rate, the Superintendent found that Dyer had told the client that the SPIA would return a 6 percent to 7 percent interest rate. In fact, the SPIA's fixed monthly payments of $648.23 for 5 years yielded a negative interest rate—with the client receiving $432.70 less than she had paid for the annuity at the end of the 5-year term. Dyer's company earned a $1,350 commission for this exchange.

Related: Read: "Agree to Disagree"

Dyer attempted to justify his recommendation of the SPIA, arguing that yield was irrelevant because the client's interests were in diversifying her assets from her existing annuity, in the event that Modern Woodmen became insolvent, and guaranteeing a stream of fixed payments that the client could use for living expenses. The Superintendent found that these explanations were "either grossly incompetent or fraudulent," noting that when investing in an annuity like the SPIA, "yield is one of the most important considerations."

During the ensuing investigation, Dyer failed to respond to questions by Old Mutual, instead providing what the representative of Old Mutual called a "dump of his documents that he supposedly collected in the course of selling this product."

The Superintendent found that Dyer's testimony was not credible and his conduct was "part of a pattern of deception designed to persuade Old Mutual to compensate [the client] so that Mr. Dyer would not be responsible for her losses."

After a 2-day hearing, the Super­intendent concluded that Dyer had committed all of the alleged violations of the identified provisions of the insurance code and issued a ­written decision revoking Dyer's licenses, ordering Dyer to pay $5,500 in civil penalties, and requiring Dyer to pay the client the full amount of commissions and fees that he received as a result of this transaction.

Dyer argued that the client's testimony "compels disbelief." However, he cited almost no evidence other than his own testimony, which directly conflicted with the testimony of his former client. The Superintendent at the hearing explicitly stated that "[the client's] testimony on the most important points was clear and consistent, it was corroborated by the written evidence and the credible portions of Mr. Dyer's own testimony…"

Because the Superintendent did not err in making credibility determinations and the Superintendent's factual findings are supported by competent evidence in the record, the Supreme Court, as it must when dealing with an appeal, deferred to the Superintendent's findings.

Because the evidence in the record supports the facts as found by the Superintendent, the Supreme Court determined that the Superintendent's choice of penalties is within the bounds of reasonableness and the applicable law. It is undisputed that the penalties were within the bounds prescribed by the relevant statutes.

Related: Read "Sam Goldwyn Was Right"

Here, the Superintendent made 11 separate findings that Dyer violated the statute which prohibits "[u]sing fraudulent, coercive or dishonest practices, or demonstrating incompetence, untrustworthiness or financial irresponsibility in the conduct of business in this State or elsewhere." Revocation of Dyer's license was lawful and reasonable in light of the facts and alternatives available to the Superintendent.

The statute also allows the Superintendent to impose civil penalties. The amount of the civil penalty imposed on Dyer is within the bounds prescribed by law, which allows the Superintendent to assess a penalty of up to $500 per violation.

The Superintendent's choice of the maximum penalties—$5,500 for 11 separate findings of violations of the insurance code—was clearly within the bounds of the law and is not unreasonable in light of the facts of this case. It is not sufficient for the purpose of establishing an abuse of discretion to demonstrate that, on the facts of the case, the decisionmaker could have made choices more acceptable to the appellant or even to a reviewing court.

Finally, the insurance code also allows the Superintendent to order a licensed insurance producer or ­consultant who commits violations of the insurance code for which civil penalties may be imposed to pay restitution to his victims.

Because the Superintendent did not err in interpreting the statute or making factual findings and did not abuse his discretion by imposing the penalties permitted in the statute, the Supreme Court affirmed the judgment. Dyer lost his license and was required to pay penalties and restitution.

Never lie to a client to gain a commission. When caught, admit your error, and make the client whole. Do not accuse the client of lying while simultaneously lying to the regulator. This lesson is so obvious one can only wonder what Dyer was thinking. After 30 years selling insurance he lost his business for a $1,350 commission.