Opinion
DOCKET NO. A-1285-11T1
03-07-2013
STEVEN M. GOLDMAN, COMMISSIONER OF BANKING AND INSURANCE, Petitioner-Respondent, v. JOSE D. URIBE AND INTER-AMERICA INSURANCE AGENCY, L.L.C., Respondents-Appellants.
Clara S. Licata argued the cause for appellants. William B. Puskas, Jr., Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Mr. Puskas, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Graves and Guadagno.
On appeal from the New Jersey Department of Banking and Insurance, Docket No. E07-41.
Clara S. Licata argued the cause for appellants.
William B. Puskas, Jr., Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Mr. Puskas, on the brief). PER CURIAM
Jose D. Uribe and Inter-America Insurance Agency, LLC, (Inter-America) appeal from the October 6, 2011 final decision and order of the Commissioner of the Department of Banking and Insurance (Commissioner or the Department) revoking their insurance producer licenses and imposing fines and costs for violations of the New Jersey Insurance Producer Licensing Act of 2001 (IPLA(2001)). N.J.S.A. 17:22A-26 to -48. We affirm.
The original New Jersey Insurance Producer Licensing Act (IPLA), enacted in 1988, was repealed by the Legislature and replaced with the New Jersey Insurance Producer Licensing Act of 2001 (IPLA(2001)), N.J.S.A. 17:22A-26 to -48.
I.
The following facts are derived from the record on appeal. Inter-America was a retail insurance agency and a licensed New Jersey resident business entity insurance producer. Uribe was an owner, licensed active officer, and designated responsible licensed producer for Inter-America, as well as a licensed New Jersey resident individual insurance producer.
On May 14, 2007, the Commissioner commenced the administrative enforcement action at issue here by order to show cause, charging appellants with violations of the IPLA(2001), including selling insurance policies through an entity, American Transportation Insurance Company (ATIC), that was not authorized in New Jersey (count one); issuing false commercial automobile insurance identification cards and certificates of insurance purporting to provide automobile insurance coverage with ATIC (count two); soliciting or negotiating an insurance policy with Millenium Car Services for insurance coverage through an entity, Universal Insurance Exchange (UIE), that was not authorized in the State of New Jersey (count three); issuing false insurance identification cards and certificates purporting to provide coverage through Lancer Insurance Company (Lancer) (count four); and failing to provide complete and timely responses to inquiries by the Department of Banking and Insurance (count seven).
Counts five, six, and eight were subsequently withdrawn.
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Appellants sought an administrative hearing and the matter was transferred to the Office of Administrative Law. The parties stipulated to the facts and both moved for summary judgment. The administrative law judge (ALJ) denied appellants' motions and granted the Department's motion, in part, finding appellants violated N.J.S.A. 17:22A-40(a) as to five counts.
In a written opinion, the ALJ found that appellants sold five insurance policies through ATIC, who was not authorized in this State; issued five false commercial automobile insurance identification cards and certificates of insurance purporting to provide coverage by ATIC and two false cards and certificates purporting to provide coverage by Lancer; and failed to provide complete and timely responses to Department inquiries.
On February 17, 2011, the ALJ conducted a hearing on the issue of sanctions. Uribe testified that he was aware of the "White List," a record of all currently eligible surplus lines insurers licensed to do business in New Jersey. Uribe acknowledged that he had an obligation to check the list before issuing a policy with that insurer, and that he failed to do so. Uribe also testified that he paid more than $90,000 to investigate and settle claims arising out of automobile insurance claims that Inter-America placed with unlicensed carriers. Uribe claimed he received no "financial benefit" from referring his customers to ATIC and UIE, however he did acknowledge that he profited from having his customers use Inter-America for multiple types of insurance.
Following the hearing, the ALJ issued a decision finding that revocation of appellants' insurance producer licenses was appropriate. The ALJ characterized appellants' actions as "fraudulent" and found that they demonstrated "repetitive and egregious acts of incompetence, unworthiness and financial irresponsibility in the conduct of insurance business." The ALJ found no mitigating factors. In addition, the ALJ imposed fines totaling $92,500 and assessed $2,125 to cover the cost of the investigation.
Appellants filed exceptions to the decision with the Commissioner, requesting that the first four counts be merged and treated as a single violation. Appellants also objected to the amount of the fines and the license revocations. The Commissioner rendered a final decision and order adopting the decision of the ALJ in its entirety.
On appeal, appellants raise the following arguments for our consideration:
POINT I
THE COMMISSIONER AND THE ADMINISTRATIVE LAW JUDGE ERRED IN TREATING THE SOLICITATION OF INSURANCE AND THE ISSUANCE OF CERTIFICATES AND IDENTIFICATION CARDS AS SEPARATE COUNTS FOR PENALTY PURPOSES.
POINT II
THE EXTREME REMEDY OF REVOCATION WAS ARBITRARY AND CAPRICIOUS AND WAS NOT WARRANTED IN THIS CASE.
POINT III
THE IMPOSITION OF $92,500 IN FINES WAS INAPPROPRIATE BECAUSE THE FINES IMPOSED SHOULD BE MINIMAL AND GLOBAL BASED ON CONDUCT, RATHER THAN THE STATUTORY MAXIMUM FOR EACH COUNT.
II.
We begin with a recitation of the standard of review that applies to the issues before us on appeal. Our role in reviewing an administrative agency's final decision is limited. In re Taylor, 158 N.J. 644, 656 (1999). We will not reverse an agency's decision unless: (1) it was arbitrary, capricious, or unreasonable; (2) it violated express or implied legislative policies; (3) it offended the State or Federal Constitution; or (4) the findings on which it was based were not supported by substantial, credible evidence in the record. Ibid. In determining whether agency action is arbitrary, capricious, or unreasonable, a reviewing court must examine:
(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.
[In re Carter, 191 N.J. 474, 482-83 (2007) (quoting Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995)).]
Generally, we afford substantial deference to an agency's interpretation of a statute that it is charged with enforcing. R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 175 (1999). We are, however, "in no way bound by the agency's interpretation of a statute or its determination of a strictly legal issue." Taylor, supra, 158 N.J. at 658 (quoting Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973)).
We "'may not substitute [our] own judgment for the agency's, even though [we] might have reached a different result.'" In re Stallworth, 208 N.J. 182, 194 (2011) (quoting Carter, supra, 191 N.J. at 483). This deferential standard also applies the review of disciplinary actions. In re Herrmann, 192 N.J. 19, 28 (2007). "A reviewing court should alter a sanction imposed by an administrative agency only 'when necessary to bring the agency's action into conformity with its delegated authority. [An appellate court] has no power to act independently as an administrative tribunal or to substitute its judgment for that of the agency.'" Ibid. (quoting In re Polk, 90 N.J. 550, 578 (1982)). With these principles in mind, we review the arguments advanced on appeal.
III.
A.
Appellants claim that counts one through four allege thirteen separate grounds for liability which arise from the commission of only eight acts: five instances of placing insurance through ATIC, one instance of placing insurance through UIE, and two instances of issuing insurance cards on behalf of Lancer. The ALJ and the Commissioner found that the sale of insurance through an authorized insurer and the issuance of certificates and identification cards constituted separate acts in violation of the IPLA(2001).
Both parties cite Merin v. Maglaki, 126 N.J. 430 (1992), in support of their positions. In Merin, the defendant was charged with filing six separate falsified documents in support of his claim to collect $300,000 on accidental death benefits from two insurance policies on the life of his wife, who was, in fact, alive. Id. at 432-34. The Supreme Court construed the language of the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33, to determine whether the defendant could be held liable for each false statement submitted. Id. at 432-33. The Court concluded that each document constituted a separate false statement in respect of the fraudulent claim. Ibid. Holding that the IFPA created a violation for false statements, not false claims, id. at 435, the Court found that the defendant had submitted six false statements that were material to his fraudulent claim. Id. at 440. The Court in Merin found:
[E]ach knowing and material false statement enhances a fraudulent claim, making the danger of payment more likely. Insurers often require a claimant to file several documents as supporting proof of a claim for benefits. Claimants frequently must present a "proof of loss" in the form of a detailed factual statement or statements to justify claims for benefits. Each additional statement further supports the credibility of the claim. Therefore, a claimant who makes a fraudulent claim in an initial documentation may well have subsequent opportunities to rectify previous misrepresentations when the insurer calls for further proof of loss . . . . [T]he person who persists in asserting a fraudulent claim by continuing to submit material misrepresentations compounds the evil that the legislature seeks to eliminate
with the [IFPA]. Construction of the [IFPA] to penalize claims rather than component statements would produce the inequitable result of placing the State in the same position with respect to [the defendant] as it would be in with respect to a claimant who makes an initial false statement and then recants. Such a result fails to effectuate the legislature's intent that persons who file several false statements should be punished for each instance of prohibited conduct.
[Id. at 437.]
Pursuant to N.J.S.A. 17:22A-45(c):
Any person violating any provision of this act shall be liable to a penalty not exceeding $5,000 for the first offense and not exceeding $10,000 for each subsequent offense . . . . In addition, the commissioner or the court, as the case may be, may order restitution of moneys owed any person and reimbursement of the costs of investigation and prosecution as appropriate.Here, the Commissioner held that each individual act was an offense violating IPLA(2001):
The individual acts of placing insurance with unauthorized insurers and issuing insurance identification cards purporting to provide coverage when no such policy had been issued, or on behalf of companies for whom they were not authorized to act as agents, each created a separate and distinct risk of harm not only to the purported insureds, but also to potential claimants against those insured.Merin supports the Commissioner's position that each instance of violative conduct may be deemed a separate individual violation.
B.
Appellants next argue that the sanction of revocation was arbitrary, capricious and unwarranted. The Commissioner is authorized to revoke an insurance producer license for any one or more violations of IPLA(2001). N.J.S.A. 17:22A-40(a). The test for reviewing administrative sanctions is "'whether such punishment is so disproportionate to the offense, in light of all the circumstances, as to be shocking to one's sense of fairness.'" In re Zahl, 186 N.J. 341, 354 (2006) (quoting In re Polk License Revocation, 90 N.J. 550, 578 (1982)).
In adopting the findings of the ALJ, the Commissioner found that appellants' "illegal acts collectively reflect a callous disregard for and indifference to the welfare of their clients and the insurance laws of New Jersey." We note that insurance producers are held to a fiduciary standard, and they must "maintain the high standard of conduct and the degree of fidelity" required by the statute. In re Parkwood Co., 98 N.J. Super. 263, 268 (App. Div. 1967). This fiduciary duty additionally extends to "other claimants for whose protection the insurance was procured." Carter Lincoln-Mercury, Inc. v. Emar Grp., Inc., 135 N.J. 182, 204 (1994).
We find ample evidence in the record to support the determination of the Commissioner that revocation was appropriate.
C.
Finally, appellants claim the fines imposed were excessive. We have noted that the Commissioner is authorized to issue a penalty for violations of N.J.S.A. 17:22A-40(a). Administrative penalties "must be tested for reasonableness as applied to the specific facts involved." In re Garay, 89 N.J. 104, 115 (1982). In an analysis of the civil penalties issued under the New Jersey Antitrust Act, N.J.S.A. 56:9-1 to -19, the Supreme Court outlined seven factors to be considered in their calculation of penalties: (1) the good or bad faith of respondent; (2) respondent's ability to pay; (3) amount of profits obtained from the illegal activity; (4) injury to the public; (5) duration of the conspiracy; (6) existence of criminal or treble damages actions; and (7) past violations. Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 137-39 (1987).
The ALJ and the Commissioner addressed each Kimmelman factor. The determination that appellants demonstrated bad faith was based on Uribe's admission that he made the illegal referrals in the hope of selling other insurance products to the referred clients.
The Commissioner agreed with the ALJ that appellants had the ability to pay and found no persuasive evidence to the contrary. "An agency decision carries a strong presumption of reasonableness" and "[t]he burden of proof rests upon the challenger." In re Reorganization of the Med. Inter-Ins. Exch. of N.J., 328 N.J. Super. 344, 345 (App. Div.) certif. denied, 165 N.J. 530 (2000). The determination of the Commissioner is entitled to this strong presumption and there is sufficient evidence in the record to support his finding.
The third Kimmelman factor weighs the amount of profit obtained through the illegal activity. The record reflects that no commissions were generated as a result of appellants' activity, however Uribe used the referrals to induce his clients to continue to use his services for other types of insurance.
The fourth Kimmelman factor addresses the impact on the public. The Commissioner adopted the finding of the ALJ that "the risk to the public from the use of unauthorized and non-admitted insurers was real and considerable."
The fifth factor is the duration of the crime. The Commissioner found that the activity occurred over the course of three years and was "not a case of an isolated incident of misconduct."
While the Commissioner found that factors six and seven did not apply, he noted the absence of these factors did not mitigate the seriousness of the infractions:
I agree with the ALJ's conclusions and analysis on each Kimmelman factor. The nature of their improper activity and their motivation in engaging in it demonstrates the [appellants'] bad faith. The violations occurred not through innocent mistakes, but rather because of a deliberate breach of trust and conscious disregard of their obligations. The [appellants] placed their clients at great financial risk. They did so repeatedly, over a prolonged period of time and, at least in part, in an effort to maintain their business relationships with existing clients in the hope that those clients would purchase other types of insurance from them. These factors, as established in the record, outweigh the absence of any criminal or treble damages civil actions against the [appellants] and of any prior administrative violations by them.There is ample evidence in the record to establish the Kimmelman factors weigh in favor of affirming the penalty.
Because the decision of the Commissioner is based on adequate credible factual findings in the record, and was not arbitrary and capricious, we affirm the Commissioner's decision to uphold the revocation of appellants' licenses and the penalties imposed.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION