Workman v. Ohio Dept. of Ins.

[Cite as Workman v. Ohio Dept. of Ins., 2012-Ohio-4809.]
COURT OF APPEALS
RICHLAND COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
VAN A. WORKMAN : Hon. Patricia A. Delaney, P.J.
: Hon. W. Scott Gwin, J.
Plaintiff-Appellant : Hon. William B. Hoffman, J.
:
-vs- :
: Case No. 2012-CA-21
OHIO DEPARTMENT OF :
INSURANCE :
: OPINION
Defendant-Appellee
CHARACTER OF PROCEEDING: Administrative appeal from the Richland
County Court of Common Pleas, Case No.
2011-CV-0972D
JUDGMENT: Affirmed
DATE OF JUDGMENT ENTRY: October 17, 2012
APPEARANCES:
For Plaintiff-Appellant For Defendant-Appellee
TIMOTHY FITZGERALD MIKE DEWINE
6th Floor, Bulkley Building SCOTT MYERS
1501 Euclid Avenue 30 East Broad Street, 26th Floor
Cleveland, OH 44115 Columbus, OH 43215
[Cite as Workman v. Ohio Dept. of Ins., 2012-Ohio-4809.]
Gwin, J.,
{¶1} Plaintiff Van A. Workman appeals a judgment of the Court of Common
Pleas of Richland County, Ohio, entered in favor of defendant-appellee Ohio
Department of Insurance on appellant’s administrative appeal from appellee’s
revocation of the appellant’s Ohio Insurance Agent License. Appellant assigns a single
error to the trial court:
{¶2} “THE TRIAL COURT ERRED AS A MATTER OF LAW AND ABUSED ITS
DISCRETION IN AFFIRMING THE ORDER OF THE OHIO DEPARTMENT OF
INSURANCE PERMANENTLY REVOKING PLAINTIFF-APPELLANT VAN A.
WORKMAN'S INSURANCE LICENCE WHERE (1) THERE WAS A COMPLETE LACK OF
RELIABLE, PROBATIVE, AND SUBSTANTIAL EVIDENCE ESTABLISHING A VIOLATION
BY PLAINTIFF-APPELLANT VAN A. WORKMAN OF R.C. §3905.14(B)(9) AND (2) THE
TRIAL COURT'S REFUSAL TO EXAMINE THE PERMANENT REVOCATION SANCTION
WAS NOT IN ACCORDANCE WITH LAW.”
{¶3} The record demonstrates appellant unsuccessfully pursued his appeal
through the administrative process and exhausted his administrative remedies. He then
appealed the matter to the Richland County Common Pleas Court.
{¶4} The Common Pleas Court correctly recited its standard of reviewing the
appeal pursuant to R.C. 119.12. The court found it must consider the entire record and
any additional evidence it may have admitted to determine whether the order is
supported by reliable, probative, and substantial evidence and is in accordance with
law.
{¶5} Our standard of review is also set forth in R.C. 119.12. The statute directs
us to review and determine the correctness of the judgment of the Court of Common
Richland County, Case No. 2012-CA-21 3
Pleas regarding whether the order of the agency is supported by any reliable, probative,
and substantial evidence in the entire record. In doing so we apply the abuse of
discretion standard. University of Cincinnati v. Conrad, 63 Ohio St. 2d 108, 407 N.E.
2d 1265, citing Rossford Exempted Village School District Board of Education v. State
Board of Education, 63 Ohio St. 3d 705, 707, 590 N.E. 2d 1240 (1992). The term
“abuse of discretion” implies that the court's attitude was unreasonable, arbitrary or
unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 450 N.E.2d 1140 (1983).
{¶6} The trial court discussed the facts in its judgment entry of February 17,
2012. The court found appellee Ohio Department of Insurance (“ODI”) licensed
Employer Benefit Services of Ohio, Inc. (“EBS”) as a third-party administrator in the
health insurance field. EBS’s business was primarily to administer benefits for
employers who had self-funded or partially self-funded health care plans. Its services
included processing claims, paying claims, and servicing customers. In addition, EBS
occasionally acted as a broker for clients looking for new or replacement stop-loss
insurance for the health insurance plans. Stop-loss insurance covers claims which
exceed the amount of self-insurance funds set aside by the employer to pay the medical
claims of its employees.
{¶7} Appellant was the primary agent of EBS and owned ninety percent of its
common stock. The Superintendent of Insurance found he and his corporation engaged
in two types of misconduct with regard to brokering stop-loss insurance. The
Superintendent found appellant had convinced his clients to purchase a product which
was not approved as stop-loss insurance and which did not adequately protect the
clients from financial loss. Secondly, the Superintendent found appellant modified the
Richland County, Case No. 2012-CA-21 4
insurance quotes from the stop-loss provider to his clients and the applications from his
clients back to the stop-loss provider without their knowledge or permission.
{¶8} The court set out the names of three clients which ODI found appellant’s
practices had injured: Brown Publishing, a newspaper publisher in Cincinnati employing
600 people; OMNI Manufacturing, a metal stamping company in Marysville, employing
110 people, and The Delaware County Board of Developmental Disabilities in
Delaware, Ohio.
{¶9} Appellant learned of a business in Texas called United Re. Although its
name implied it was in the reinsurance business, United Re was actually a trust and did
not insure risks. It accepted employer contributions, paid employee claims from the
employer funds and at the end of the year either returned any excess of contributions to
the employer or billed the employer for any short falls. The court found because of this,
the employer who participated in the trust still remained its own stop-loss insurer.
{¶10} The court found that at some point United Re added a type of stop-loss
insurance feature to its basic trust product. The company United Re chose to provide
stop-loss insurance to the trust was VADO, which was allegedly an insurer engaged in
real estate investment in the Grand Caymans and trading actively in Dubai. Neither
United Re nor VADO was licensed to sell insurance in Ohio.
{¶11} Appellant placed all three of the above clients with the United Re Trust
using VADO as reinsurer. All the clients eventually experienced problems with the
payment of their employees’ claims.
{¶12} When Brown Publishing experienced problems, appellant moved its
account from United Re to HCC Life, an insurance company that is approved by the
Richland County, Case No. 2012-CA-21 5
ODI. When an administrative employee of Brown Publishing was speaking with HCC
Life, the employee discovered appellant had been modifying the quoted rates in the
insurer’s quote to Brown Publishing, and then modifying the accepted rates in Brown
Publishing’s application to the insurer. HCC terminated its business relationship with
EBS and appellant.
{¶13} The ODI then investigated appellant and found that he, on behalf of EBS,
had modified quotes and acceptances between United Re and each of the three clients
listed above. In each case, appellant took low quotes from the insurer, added an
additional amount as a commission to EBS, and then relayed the higher rates to its
clients. When the client accepted the proposed rates and applied for coverage,
appellant changed the rates back to the original number before returning the application
to the insurer. The modifications in the premium rates ranged from a low of 52% to a
high of 213% of the original insurer’s quotes.
{¶14} The trial court found pursuant to R.C. 3905.14, the Superintendent of
Insurance may suspend or revoke an insurance agent’s license for fraudulent, coercive,
or dishonest practices, or if the agent demonstrates incompetence, untrustworthiness,
or financial irresponsibility, in the conduct of business in Ohio or elsewhere.
{¶15} The trial court found the Superintendent and her Hearing Officer
concluded appellant had violated R.C. 3905.14 by failing to use diligence in selecting
appropriate and adequate stop-loss insurance coverage for the partially self-funded
employer health insurance programs of OMNI, Delaware and Brown, and secondly
manipulating and altering the documents so as to conceal and deceive these clients so
Richland County, Case No. 2012-CA-21 6
they would not know the amount of commissions EBS was charging for the stop-loss
coverage portion of their partially self-funded health insurance programs.
{¶16} The Common Pleas Court found based upon the entire record that ODI’s
findings and the suspension of appellant’s license are supported by reliable, probative,
and substantial evidence, and are in accord with law. The court found the large EBS
commissions of 52% to 213%, on top of the underlying premium, suggest appellant’s
motive was to find an unconventional cheaper stop-loss product. Finding such a
product and concealing its actual cost from a client would allow EBS to charge such
large commissions without being found out either by its customers or its stop-loss
provider.
{¶17} The court also found the Superintendent’s conclusion that EBS’s conduct
violated R.C. 3959.14 was supported by sufficient evidence in the record. R.C. 3959.14
prohibits a third party administrator from failing to disclose in writing on an on-going
basis to the plan sponsor client all fixed plan costs and the name of all insurance
carriers providing coverage. The court found the record showed EBS did not tell the
three clients the actual cost of United Re’s stop-loss coverage or that the name of the
insurance carrier that provided overlay coverage for the United Re Trust stop-loss
program was VADO. The court affirmed the Superintendent of Insurance’s order
revoking appellant’s insurance license.
{¶18} Appellant’s brief divides his assignment of error down into subparts. The
first is whether the trial court abused its discretion in affirming ODI’s finding that
appellant had violated R.C. 3905.14 by failing to use due diligence in selecting United
Re to provide stop-loss coverage for partially self-funded employer health insurance
Richland County, Case No. 2012-CA-21 7
programs of EBS clients because the ODI presented no reliable, probative, and
substantial evidence defining the legal standard of due diligence.
{¶19} Appellant argues both he and his employee Frank V. Flaugher both
testified about the investigation EBS conducted before selecting United Re to provide
coverage for its clients. The investigation included going to United Re’s offices in Texas
to personally meet with United Re’s officers. Appellant’s expert witness testified
companies like EBS are often not in a position to know which re-insurance carriers are
involved, although it is possible such companies could ask for the information. The
expert testified the re-insurer often changes.
{¶20} ODI responds appellant owed a fiduciary duty to his customers to exercise
good faith and reasonable diligence in seeking the coverage they needed. Damon’s
Missouri, Inc. v. Davis, 63 Ohio St. 3d 605, 590 N.E. 2d 254 (1992). ODI argues
appellant’s clients indicated stop-loss coverage was essential to continue their business
operations. Appellant represented to his clients he had secured stop-loss coverage,
but, initially United Re did not provide stop-loss insurance nor did VADO. ODI argues
any investigation EBI conducted came from sources with a financial interest in securing
its business. United Re paid in part for a trip to its headquarters to meet with company
officers. United Re selected a stop-loss carrier that was involved in off-shore and
middle-eastern enterprises and kept the identities of their shareholders confidential,
which ODI argues should have raised flags with any reasonable professional. Appellant
did not check to see if United Re and VADO are licensed to do business in Ohio and
they were in fact not licensed.
Richland County, Case No. 2012-CA-21 8
{¶21} We find the record contains probative and substantial evidence appellant
did not use any diligence in procuring the insurers. The court did not abuse its
discretion.
{¶22} Appellant’s second argument is that the trial court erred in affirming ODI’s
finding that he violated R.C. 3905.14 for concealing commissions from his clients.
Appellant argues Brown Publishing’s representative testified it was understood that EBS
would receive a commission. Appellant argues there is no duty to disclose the
commissions paid to an insurance agent, and for this reason, the trial court should not
have found appellant had acted fraudulently. ODI responds appellant was under no
duty to disclose commissions, but he altered documents both from United Re’s side of
the transaction and from his clients.
{¶23} The Superintendent of Insurance did not find misappropriation or fraud,
but found appellant’s actions demonstrated he was dishonest, incompetent,
untrustworthy, or irresponsible. While it is true the clients believed EBS would be
compensated for its efforts, the mere act of tampering with the contracts in an obvious
attempt to conceal how much of the quote was for the insurance premium and how
much represented EBS’s commission speaks for itself.
{¶24} Finally, appellant argues the trial court erred in affirming the permanent
revocation of his insurance license rather than suspending it for a definite period with
the right to reapply for reinstatement within 180 days. The trial court found it had no
authority to review the sanction ODI had imposed.
{¶25} In State Medical Board of Ohio v. Murray, 66 Ohio St. 3d 527, 538, 613
N.E. 2d 636, the Supreme Court found if the trial court determines the administrative
Richland County, Case No. 2012-CA-21 9
agency’s decision was supported by reliable, probative, and substantial evidence, then
the court should not reverse or modify the order unless the penalty imposed by the
agency was not in accord with law.
{¶26} We conclude the Court of Common Pleas did not abuse its discretion in
finding the administrative decision is supported by reliable, probative, and substantial
evidence and is in accord with law. We find the trial court properly declined to modify
the penalty imposed by ODI.
{¶27} The assignment of error is overruled.
{¶28} For the foregoing reasons, the judgment of the Court of Common Pleas of
Richland County, Ohio, is affirmed.
By Gwin, J.,
Delaney, P.J., and
Hoffman, J., concur
_________________________________
HON. W. SCOTT GWIN
_________________________________
HON. PATRICIA A. DELANEY
_________________________________
HON. WILLIAM B. HOFFMAN
WSG:clw 0927
[Cite as Workman v. Ohio Dept. of Ins., 2012-Ohio-4809.]
IN THE COURT OF APPEALS FOR RICHLAND COUNTY, OHIO
FIFTH APPELLATE DISTRICT
VAN A. WORKMAN :
:
Plaintiff-Appellant :
:
:
-vs- : JUDGMENT ENTRY
:
OHIO DEPARTMENT OF INSURANCE :
:
:
Defendant-Appellee : CASE NO. 2012-CA-21
For the reasons stated in our accompanying Memorandum-Opinion, the judgment of
the Court of Common Pleas of Richland County, Ohio, is affirmed. Costs to appellant.
_________________________________
HON. W. SCOTT GWIN
_________________________________
HON. PATRICIA A. DELANEY
_________________________________
HON. WILLIAM B. HOFFMAN