Insurance agents, brokers and intermediaries may only sell insurance policies if they are licensed by the state. The licensing laws are designed to protect the public against unscrupulous agents and brokers. When the agent, broker or intermediary ignores orders of revocation and continues to sell insurance and deal with insurance clients, he or she faces the ire of the state regulator and the courts.
Michael Dermody was one such insurance intermediary. His license was revoked and he appealed an order affirming the decision of the Office of the Commissioner of Insurance (OCI). In Dermody v. Commissioner of Insurance, 2013AP1024 (Wis.App. 01/30/2014) [enhanced version available to lexis.com subscribers], the Wisconsin Court of Appeal was asked by Dermody to reinstate his license.
The Commissioner found that Michael violated various Wisconsin statutes which govern the conduct of insurance intermediaries. The Commissioner found that Michael violated the statutes by selling insurance policies to Lyle and Elayne Bolender after his insurance license had been revoked; by making false representations to Cynthia Marino; and by selling insurance policies to Stephen and Susan Tinus after his insurance license had been revoked. As a result, the Commissioner prohibited Michael from reapplying for his insurance license for five years, and ordered Michael to pay restitution and a forfeiture.
Michael argued that the Commissioner erred in basing the decision on credibility determinations and factual findings that were not supported by substantial evidence, and that a remand was required because there were various “material errors of procedure” that compromised the fairness of the proceedings.
Michael was a licensed insurance intermediary until December 2009. On November 3, 2009, OCI sent Michael an Order of Revocation advising Michael that his insurance license would be revoked in thirty-one days for failure to pay taxes if he did not take certain actions. OCI revoked Michael’s insurance license by letter dated December 4, 2009. Although failure to pay taxes is not a violation that involves moral turpitude, like theft or embezzlement, it was sufficient to revoke the license. Michael apparently ignored the order of revocation.
In April 2010, OCI issued a notice of hearing against Michael alleging a number of violations of Wisconsin statutes. The notice of hearing alleged that Michael: (1) sold insurance policies to Lyle and Elayne Bolender after his insurance license had been revoked; (2) mislead Cynthia Marino as to the accessibility of funds in her annuities; and (3) sold insurance policies to Stephen and Susan Tinus after his insurance license had been revoked.
The administrative law judge (ALJ) who presided at a factual hearing issued a proposed decision that included findings of fact and conclusions of law. In April 2012, the Commissioner issued a final decision that adopted, with minor revisions not pertinent to this appeal, the ALJ’s proposed decision. The Commissioner’s decision prohibited Michael from reapplying for an insurance license for five years, ordered Michael to pay restitution to Marino, and imposed a $15,000 forfeiture.
An agency’s findings of fact may be set aside only when a reasonable trier of fact could not have reached them from all the evidence before it, including the available inferences from that evidence. The ALJ recorded her observations regarding the witnesses in her proposed decision. Michael cites no authority in support of his argument that credibility determinations, like findings of fact, must be supported by substantial evidence. The court of appeal rejected Michael’s argument on the basis that in an appeal following an administrative agency decision, the appellate court does not pass upon the credibility of witnesses. In light of the Commissioner’s findings that the testimony was credible. Michael did not argue that their testimony, if accepted, does not establish the violations alleged. Accordingly, the court of appeal rejected Michael’s challenge based on the Commissioner’s credibility findings.
Michael argued that the fairness of the proceedings against him were impaired by material errors of procedure. Michael also argued that the Commissioner’s application of the “minimum burden of proof” instead of the “‘middle’ burden of proof” in his case constituted a material error of procedure that compromised the fairness of the proceedings. The Commissioner applied the burden of proof set forth in the Wisconsin Administrative Code which requires OCI to prove the case by a preponderance of the evidence. Wisconsin does not recognize a “minimum burden of proof” or “middle burden of proof” but only recognizes proof by a preponderance of evidence – that is – 50% + 1.
Michael also argues that OCI failed to provide him with notice of the allegation that he sold insurance policies to Stephen and Susan Tinus on December 30, 2009, and that this constituted a material error of procedure. Contrary to his allegation the appellate court found that the pleadings were properly amended in accordance with Wisconsin statutes.
When an appellate court reviews an administrative agency’s exercise of discretion, it examines whether the exercise of discretion was made based upon the relevant facts by applying a proper standard of law. The burden to demonstrate an erroneous exercise of discretion rests on the party claiming the exercise of discretion was improper.
Michael failed to demonstrate that the ALJ and the Commissioner erroneously exercised their discretion. The Commissioner agreed with the ALJ’s decision. The court of appeal concluded that the ALJ’s and the Commissioner’s exercise of discretion was based upon the relevant facts and the proper standard of law, and we defer to their discretionary decisions to deny Michael’s motion to reopen the record.
Insurance agents, brokers or intermediaries must maintain their licenses in good standing. That means they must not only pay their taxes but must also maintain their license, attend sufficient continuing education classes and must treat his clients fairly and in good faith. Michael failed in all respects and had the unmitigated gall to appeal the order revoking his license when the evidence was damning.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2014, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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