COM/I 89-006-PE
4-1004-2581-2
STATE OF MINNESOTA
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE MINNESOTA DEPARTMENT OF COMMERCE
In the Matter of the FINDINGS OF FACT,
Insurance Agent's License CONCLUSIONS AND
of Stephen M. Kiley RECOMMENDATION
The above-entitled matter came on for hearing before Admiristrative Law
Judge Peter C. Erickson on March 3, 1989 at the Office of Administrative
Hearings, Fifth Floor, Flour Exchange Building, 310 Fourth Avenue South,
Minneapolis, Minnesota. The final post-hearing memorandum was filed on
March 27, 1989, at which time the record closed.
Gregory P. Huwe, Assistant Attorney General, 1100 Bremer Tower, Seventh
Place and Minnesota Street, St. Paul, Minnesota 55101, appeared on behalf
of the Minnesota Department of Commerce. Respondent, Stephen M. Kiley,
2443 Harriet Avenue South, Minneapolis, Minnesota 55405, appeared pro se.
Notice is hereby given that, pursuant to Minn. Stat. 14.61 the final
decision of the Commissioner of Commerce shall not be made until this Report
has been made available to the parties to the proceeding for at least ten
days, and an opportunity has been afforded to each party adversely affected to
file exceptions and present argument to the Commissioner. Exceptions to this
Report, if any, shall be filed with Commissioner Michael A. Hatch, Department
of Commerce, Fifth Floor, Metro Square Building, Seventh and Robert Streets,
St. Paul, Minnesota 55101.
STATEMENT OF ISSUES
The issues to be determined in this proceeding are whether Respondent is
subject to disciplinary action pursuant to Minn. Stat. 60A.17, subds. 6 and
6c due to alleged violations of Minn. Stat. sec. 60A.17, subds. 6, 6c(a)(5),
6c(a)(9) and 17, and Minn. Rules pts. 2795.1000, 2795.1300 and 2795.1400.
Based upon all of the proceedings herein, the Administrative Law Judge
makes the following:
FINDINGS OF FACT
1. Stephen M. Kiley is a licensed insurance agent in the State of
Minnesota pursuant to Minn. Stat. 60A.17, with offices at 2443 Harriet
Avenue South, Minneapolis, Minnesota. Mr. Kiley became an agent with the
United American Insurance Company (UAIC) on March 27, 1987.
2. UAIC operates on a net basis and net premium system. Net basis means
that the agent's commission is taken out of the premium paid by the insure .
Net premium is the amount of premium due to UAIC after the agent's commission
has been deducted. However, before deducting his commission, an agent must
deposit the full amount of the premium into a business checking or savings
account.
3. In November of 1987, Mr. Kiley sent a check to UAIC for $3,327.30
with seven policy applications to cover the net premiums due UAIC. The check
was returned Marked non-sufficient funds.
4. Ms. Mildred Johnson applied for a UAIC Medicare Supplement policy on
December 3, 1987 through Stephen M. Kiley and paid him $748 in cash to cover
the premium. However, Ms. Johnson never received a policy from either Mr.
Kiley or UAIC. UAIC does not have any record of Ms. Johnson's application or
the premium being received. In late January, 1988, Linda Rosenau, Ms.
Johnson's granddaughter, contacted the Minnesota Department of Commerce for
assistance in this matter.
5. Mr. Kiley was terminated by UAIC on December 8, 1987. When Mr. Kiley
was terminated, he owed UAIC $10,712.95 from commission chargebacks where UAIC
made refunds on his behalf and cases where Mr. Kiley's net premium checks were
returned marked "non-sufficient funds".
6. On December 16, 1981, LAIC received a $1,310 check from Mr. Kiley.
Three insurance applications were received with the check but none of the
insurance applications were for Ms. Johnson.
7. On January 25, 1988, Mr. Kiley sent UAIC a cashier's check for $2,500,
making partial restitution for the November, 1987 "NSF" check. After receipt
of this payment, Mr. Kiley's balance with UAIC was a negative $12,711.69. The
balance represented refunds made on Mr. Kiley's behalf by UAIC and other net
premium checks returned Marked non-sufficient funds.
8. On February 2, 1988, the Department of Commerce contacted Mr. Kiley
regarding the Johnson matter. On February 26, 1988, Mr. Kiley responded,
stating that Ms. Johnson's application and premium had been forwarded to
UAIC. On March 17, 1988, Larry Hutchison, counsel for UAIC, sent an affidavit
to the Department of Commerce which listed the policies that were issued from
applications submitted to UAIC by agent Kiley. None of the applications were
for Ms. Johnson.
9. On February 4, 1988, UAIC reimbursed $748 to Ms. Johnson for the
premium collected by Mr. Kiley. At the time that UAIC refunded the premium,
it had not located an application for insurance or a premium submitted on
behalf of Ms. Johnson. UAIC contacted Mr. Kiley and asked him to send a
cashier's check making restitution of the funds. UAIC has never been
reimbursed this amount by Mr. Kiley. Under the terms of his contract, Mr.
Kiley's commissions were forfeited by the wrongful withholding of monies due
UAIC.
10. An insurance agent is required to keep a record of all transactions,
clients' deposit slips, a cash ledger, and the date and amount of deposits and
disbursements for each client. The agent must keep this information for six
years and make it available to the Department of Commerce upon request. Mr.
Kiley did not provide the Department of Commerce with documents that it
requested concerning this matter.
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11. Mr. Kiley does not keep separate records for new clients. Rather,
the only records Mr. Kiley maintains are monthly bank statements.
12. Mr. Kiley admitted that he did not deposit the $748 in cash that Ms.
Johnson gave him into a business checking or savings account, but rather, he
kept it to use for Christmas shopping.
Based on the foregoing Findings of Fact, the Administrative Law Judge
makes the following:
CONCLUSIONS
I.The Administrative Law Judge and the Minnesota Department of Commerce
have jurisdiction over this matter pursuant to Minn. Stat. sec. 60A.17, subd. 6d
and 14 .50.
2. The Notice of Hearing was proper in this matter and all substantive
and procedural requirements of law and rule have been complied with by the
Department.
3 . The Minnesota Department of Commerce has proved by a preponderance of
the evidence that Stephen M. Kiley violated Minn. Stat. 60A.17 subds. 6,
6c(a)(5), (9) and 17 and Minn. Rules pts. 2795.1000, 2795.1300 and 2795.1400.
4. Due to the violations found above, disciplinary action against
Respondent's license is warranted.
Based upon the foregoing Conclusions, the Administrative Law Judge makes
the following:
RECOMMENDATION
11 IS HEREBY RECOMMENDED that the Commissioner of Commerce take appropriate
disciplinary action against Respondent's insurance agent's license.
Dated this 4th day of March, 1989.
PETER C. ERICKSON
Administrative Law Judge
NOTICE
Pursuant to Minn. Stat. 14.62, subd. 1, the agency is required to nerve
its final decision upon each party and the Administrative Law Judge by first
class mail.
Reported: Taped. No Transcript Prepared.
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MEMORANDUM
Applicable Statutes and Rules
Section 60A.17, subd. 6. Persons who shall not be licensed
as agents
No person shall be licensed by the commissioner as an
insurance agent if the commissioner shall be satisfied that
the person is incompetent or unqualified to act as an
insurance agent, or that person does not in good faith
intend to carry on the business of insurance agent, or
intends to secure a license for the sole purpose of writing
insurance upon the agent's own life or property; or that
the person is untrustworthy or of bad moral character; or
that the person has unreasonably failed to pay over to any
insurer, agent or policyholder or member of any insurance
company or association entitled thereto, the whole or any
part of any premium or return premium, or monies or other
thing of value in the agent's hands, arising out of any
insurance transaction, and due or payable to or belonging
to any policyholder or other person, firm or corporation;
or that the person has willfully misrepresented to any
person, firm or corporation the terms or conditions of any
policy or contract of insurance of the financial standing
or condition or manner of doing business of any insurer or
agent; or that the person has deceived or defrauded, or
attempted to deceive or defraud, any person, firm, or
corporation in connection with any insurance transaction,
or that the person has urged or procured any person, firm
or corporation to lapse any policy or contract of insurance
in any company or association which is now or has been
licensed to do business in the state, to the damage of the
person, firm or corporation, or that the person has violated
any of the provisions of the laws of this state in any way
relating to insurance or the transaction or negotiation of
insurance, or insurance agents, or any lawful ruling of the
commissioner.
Subd. 6c. Revocation--or Suspension of License.
(a) The commissioner may by order suspend or revoke an
insurance agent's or agency's license issued to a natural
person or impose a civil penalty appropri ate to the of fense
not to exceed $5,000 upon that licensee or both, if, after
notice and hearing, the commissioner finds as to that
licensee any one or more of the following conditions:
5 improperly withholding, misappropriating, or converting
to the licensee's own use any money belonging to a policy-
holder, insurer, beneficiary, or other person, received by
the licensee in the course of the licensee's insurance
business;
(9) that the conduct of the agent's affairs under the
license, the licensee has used fraudulent, coercive, or
dishonest practices, or the licensee has been shown to be
incompetent, untrustworthy or financially irresponsible;
Subd. 6d. Show Cause orders.
If the commissioner determines that one of the conditions
listed in subdivision 6c exists, the commissioner may issue
an order requiring a licensee or an applicant for a license
to show cause why the license should not be revoked or the
application denied. The order must be calculated to give
reasonable notice of the time and place for hearing thereon,
and must state the reasons for the entry of the order. The
commissioner may by order summarily suspend a license pend-
ing final determination of an order to show cause. If a
license is suspended pending final determination of an order
to show cause, a hearing on the merits must be held within
30 days of the issuance of the order of suspension. All
hearings must be conducted in accordance with chapter 14.
After the hearing, the commissioner shall enter an order
making a disposition of that matter as the facts require.
If the licensee or applicant fails to appear at a hearing
of which that person has been duly notified, the person is
in default, and the proceeding may be determined against
that person upon consideration of the order to show cause,
the allegations of which may be deemed to be true. The
commissioner may adopt rules of procedure concerning all
proceedings conducted pursuant to this subdivision.
Subd. 17. Premiums.
All premiums or other monies received by an agent from an
insured or an applicant for insurance must be forthwith
deposited directly in a business checking, savings, or
other similar account maintained by the agent or agency,
unless the monies are forwarded directly to the designated
insurer.
Minn. Rule 2795.1000 HIGH STANDARDS OF COMMERCIAL HONOR.
Every agent must observe high standards of commercial honor
and just and equitable principles of trade in the conduct
of the agent's insurance business.
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Minn. Rule 2195.1300 RECEIPT OF CLIENT FUNDS
An ag ent who receives funds from a client in connection
with an insurance t ran sacti on receives and no ids those
funds in a fiduciary capacity.
An agent holding funds of a client must, each month,
provide to the client an itemized statement showing the
amount of money held.
Minn. Rule 2795.1400 MANDATORY FINANCIAL RECORDS.
Subpart 1. Type of records . Every agent and agency must
keep a record of all funds received f or or from clients ,
including cash, notes, savings certificates, uncashed or
uncollected checks , or other similar instruments . Insurers
represented by exclusive agents may compile and maintain
the financial records required by this part on their
agents' behalf. The records must set forth the date funds
were received, from whom received, the amount received, the
date of deposit of the funds into the business account of
the agent or agency, and the monthly balance of the account
in which the funds are deposited. Each agent and agency
must maintain a cash receipts journal and a cash disburse
ments journal, or similar records, in accordance with
generally accepted accounting principles.
Subpart 2. Separate Records . Each agent and agency must
keep a sepa rate record f or each client or transac ti on ,
ac counting for a I I funds whi ch have been deposited in the
agent's business account. These records must set forth the
in format i on su f f i c ient to i dent i fy the transac t i on and the
parties thereto. At a minimum, each record must set forth:
A. the date funds are deposited;
B. the amount deposited.
C. the date of each related disbursement;
D. the check number of each related disbursement;
E. the amount of each related disbursement; and
F. a description of each disbursement.
Subpart 3. Examination of Records. All records must be
maintained for at least six years, and must be available
for examination by the commissioner or a designee in
accordance with Minnesota Statutes, Section 60A.031.
DISCUSSION
Mildred Johnson applied for a UAIC Medicare Supplement policy in December
of 1987 and paid the agent, Stephen Kiley, $748 in cash to cover the cost of
the premium. Ms. Johnson never received a copy of her policy and UAIC never
received a copy of Ms. Johnson's application. Mr. Kiley admitted that he did
not deposit the $748 in cash. Rather, he kept the money to go Christmas
shopping. This act constitutes "improper misappropriating or converting to
the licensee's own use, any money belonging to an insurer", in violation of
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Minn. Stat. sec. 60A.17, subd. 6c(a)(5). In addition, Mr, Kiley has violated
Minn. Rules pt. 2795.1300 which requires that an agent who receives client
funds must hold them in a fiduciary capacity. By failing to deposit the $748
in cash received from Ms. Johnson into a business checking or savings account,
Mr. Kiley additionally violated Minn. Stat. 60A.17, subd. 17 which requires
that any premiums received by an agent from an applicant for insurance must be
deposited "directly" into a business checking or savings account.
The record in this matter shows clearly that Mr. Kiley failed to maintain
financial records as required by Minn. Rules pt. 2795.1400. An insurance
agent must keep records of all funds received from clients. These records
must set forth the dates and amounts of deposits or disbursements. Further,
Mr. Kiley did not comply with the Department of Commerce's request for
production of documents. At the hearing, the only evidence presented by Mr.
Kiley regarding financial record keeping was the fact that he kept monthly
bank statements.
During his tenure with UAIC, Mr. Kiley continuously maintained a negative
account balance due to checks returned marked non-sufficient funds or refunds
made to clients on his behalf. It is clear that given the status of his
accounts and the absence of adequate record keeping, Mr. Kiley has been shown
to be untrustworthy and financially irresponsible in violation of Minn. Stat.
60A.17, subd. 6c(a)(9). Due to his irresponsibility, Mr. Kiley has failed
to upheld the standards of commercial honor in violation of Minn. Rules
pt. 2795.1000.
Mr. Kiley testified quite candidly at the hearing that he felt the
Department of Commerce and United American Insurance Company were partly at
fault for not providing the information he needed regarding record keeping and
other financial responsibility requirements. The Judge points out that these
"requirements" are contained in the statutes and rules which regulate the
insurance industry and practice of insurance agents. The "requirements"
should have been learned by Mr. Kiley in an insurance agent's certification
course, industry updates issued by professiona I organ izati on s , and continuing
education. The Judge points out additionally that Mr. Kiley's shortcomings in
this case do not seem to be due to purposeful dishonesty. Rather, Mr. Kiley's
business practices fall far below the norm of what is required by the statutes
and rules. If Mr. Kiley would agree to re-educate himself so that the
accepted norms would be followed, the Judge is of the opinion that he could
maintain a satisfactory agency.
P. C. E.
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