Washington Life Insurance - How and Why Did it Work?

Transcription

1 rwkekrbdler STATE IN5URAMCE UOUMSSXIHS* STATE OF WASHINGTON TUHWATER OFFICE 5000 CAPITOL BLVD. P.O. BOX 4025S OLYMPIA, \NA Phone: (3BD) OFFICE OF INSURANCE COMMISSIONER IN THE MATTER OF LIFE INSURANCE COMPANY OF THE SOUTHWEST, An authorized insurer. ORDER NO SIMBANo CONSENT ORDER LEVYING A FINE The Insurance Commissioner of the State of Washington, pursuant to the authority set forth in ROW and RCW , and having reviewed the official records and files of the Office of the Insurance Commissioner C'OIC"), makes the following: FINDINGS OF FACT: 1. Life Insurance Company of the Southwest ("LSW") is a life and disability company domiciled in Texas and duly authorized to engage in the business of insurance in Washington. National Life Insurance Company C'Nat'l") is domiciled in Vermont and authorized to engage in the business of insurance in Washington. Nat'l is LSWs parent company. 2. On July 6,2011, OIC received a complaintfi-omconsumer "FLR," who alleged that two Producers had sold her a number of inappropriate policies. 3. FLR alleged that she went to Insurance Producer Steven Minnich seeking financial planning for retirement FLR met in person with Mr. Minnich several times. Dtmng several of those meetings, they had telephone conference calls and webinars with Charles OUver, who vras providing back-ofece support and mentoring to Mr. Minnich about a process they call "Missed Fortune" or the "Max Funded" concept

2 4. As part of that process, Mr. Minnich and Mr. Oliver sold FLR one life insurance pohcy with Nat'l with a death benefit of $1,000,000. They also sold her an LSW armuity with a premium of SI00, The sale of the LSW life insurance policy was conducted by Mr. Miimich m Washington and the policy was approved for sale in Washington. Mr. Minnich was appropriately licensed and appointed by LSW in Washington. 6. The Producers shared the commission for the sale of the LSW annuity, Annuity No X with an initial premium amount of $102, Mr. Oliver received 95% of the commission. Mr. Minnich and FLR were in Washington for a substantial portion of the souciting, negotiating, and selling of this annuity. Mr. Oliver did his share of the souciting, negotiating, and selling while he was physically in Florida, but speaking to FLR in Washington via phone and webinar. He also prepared the application in Florida, but then sent it to Mr. Minnich in Washington to obtain FLR's signature. 7. Mr. Oliver and Mr. Minnich settled with the Commissioner and acknowledge that Mr. Minnich agreed he would meet FLR in Idaho for the purpose of signing the application for the LSW annuity. Idaho was chosen, among other reasons, because Mr. Oliver was not licensed in Washington, but was licensed in Idaho. He was not c^pointed by LSW in Washington, but was appointed in Idaho. 8. The LSW annuity was delivered in Washington. 9. LSW admitted in writing that the sale to FLR of Annuity No X was made by Mr. Oliver, but believed that the sale had been made in Idaho, not Washington. 10. FLR lives full-time in Washington. -She sells prepaid legal plans and occasionally learns through her Washington contacts of a potential customer in Idaho. She estimates that she has sold approximately one prepaid legal plan per year to an Idaho resident. The rest are sold in Washington. 11. The Washington replacement form, which is to accompany each completed application for life insurance, is a statement signed by the apphcant as to whether such proposed insurance or annuity will replace existing life insurance or aimuity. It lists a number of questions with blanks to be checked "yes" or "no." On the Washington replacement form accompanying FLR's application for LSW Life policy No. LSOl 89446, there are no answers to any of the Page 2 of 6

3 questions about consequences of replacement The boxes are simply blank. No Washington replacement form was completed for the sale of LSW annuity No X, even though the application states that it is to replace another annuity. 12. LSW provided for its Producers a form entitied a "State of Execution" fonn to use when a sale is made in a state other dian the insured's, owner's or applicant's state of residence. The forai then allows a producer to check a box that says "Insured, Owner, or Applicant is employed or conducts business in state of execution." A blank sp^e is then provided for more information, including the listing of the work address. FLR's work address, which would not have been an Idaho state address, was not provided- Rather, the form states, "The applicant is a Pre-Paid Legal associate and travels to Idaho, Montana, Oregon and several other states to do businesses. While she was doing working [sic] with clients in Idaho... she signed the documents at a public place of business." These facts, even if true, were insufficient to permit the sale of the contract to FLR in Idaho, as opposed to Washington. 13. OIC communicated with LSW directly as part of its investigation of this complaint On May 3, 2013, OIC sent LSW an Order Suspending its Certificate of Authority which OIC proposed to enter. The Order outlined the violations alleged against LSW, and OIC's proposed enforcement action. 14. OIC agreed not to enter this proposed Order if LSW would rescind the policy and refimd FLR's premiums with interest In or about September, 2013, LSW rescinded the policy and refimded FLR's premiums with interest as agreed between LSW and FLR. OIC did not enter the Order Suspending LSW's Certificate of Authority. CONCLUSIONS OF LAW: 1. The above-described insurance transactions are governed by Washington Law because every material part of the transactions occurred in this state, and the insurance covered the life of a fiili-time Washington resident 2. An insurance transaction includes the solicitation, negotiations preliminary to execution, execution of the insurance contract, transaction of matters subsequent to execution of the contract and arising out ofit, and the insuring. RCW The only part of the transaction involving FLR that did not occur in Washington was the execution of the annuity Page 3 of 6

4 application. That was intentional; the agents specifically asked FLR to travel to Idaho to sign the application because the annuity is not approved for sale in Washington, and because Mr. Oliver was not licensed in Washingtoa This stratagem was insufficient to remove the transaction from the purview of Washington Law. 3. By allowing Mr. Oliver to act as an agent of LSW in Washington v/ithout the Company having appointed him as such, LSW violated of RCW (1)'. 4. Mr. Minnich and Mr. Oliver, as LSWs agents, knew or should have known that FLR would be surrendering one policy of life insurance and borrowing against another to pay the premiums on the LSW life policy. They knew, and appropriately so indicated on the application, that the LSW annuity was a replacement for another aimuity. The sale of the LSW life insurance poucy and annuity to FLR by the agents constituted replacements under WAC WAC (2) and WAC (1) require an insurer to require witii, or as part of, each completed application for life insurance a statement signed by the applicant as to whether such proposed -insurance or aimuity will replace existing Ufe insurance or annuity. WAC includes several additional requirements, none of which were followed. By accepting the sale of the LSW life insurance policy accompanied by a replacement form on which no answers to any of the questions about consequences of replacement were given, LSW violated these regulations. 6. By accepting the sale of the LSW annuity to a Washington resident without the Washington-reqmred replacement form, LSW violated WAC (2) and WAC (1). 7. By accepting this business but feiling to require its agents to complete the Washington replacement form related to these transactions (including a list properly and fiilly identifying all existing life insurance and/or aimuity contracts to be replaced), explain it and provide a copy to FLR, LSW violated WAC ' RCW (2) does allow an insurer to appomt an insurance producer as its agent byfilinga notice of appointment withinfifteen d^ from the date the producer submits hisfirstinsurance application for that insurer. However, that statute became effective after the events at issue. Moreover, N4r. Oliver id not have a Washington ^pointment with LSW at the time of these sales or within fifteen days thereafter. Page 4 of 6

5 CONSENT TO ORDER: Life Insurance Company of the Southwest, acknowledging its dutytocomply fiilly with the appucable laws of the State of Washington, consents to the following in consideration of its desire to resolve this matter without further administrative or judicial proceedings. The Insurance Commissioner consents to settie the matter in consideration of the Company's payment of a fine and such terms and conditions as are setforthbelow. 1. LSW consents to the entry of this Order, waives any and all hearing rights, and further administrative or judicial challenges to the OIC*s actions related to the subject matter of this Consent Order. 2. By agreement of the parties, the Insurance Commissioner will impose a fine of $17,500 (Seventeen Thousand, Five Hundred Dollars), which is to be paid witiiin thirty days of entry of this Order. 3. ' LSW understands and agrees that any future failure to comply with the statutes and regulations that are the subject of this Order constitutes grounds for further penalties, which may be imposed in direct responsetosuchfintherviolation. 4. LSW's feilure to timely pay this fine shall constitute grounds for revocation of LSW's Certificate of Autiaority, and shall result in the recovery of the fine through a civil action brought on behalf of the Insurance Commissioner by the Attorney General of the State of Washington. EXECUTED this ih day of o'uu^ LIFE INSURANCE COMPANY OF THE SOUTHWEST By: Printed Name: ^^^^TT-I - ^Sywt ^ Typed Coiporate Tide: Page 5 of6

6 ORDER Pursuant to the foregomg Findings of Fact, Conclusions of Law, and Consent to Order, the Insurance Commissioner hereby orders as follows: 1. Life Insurance Company of the Southwest shall pay a fine in the amount of S17, The Company's feilure to pay tiie fine within the time limit set forth above shall result in the revocation of the Company's Certificate of Authority and in the recovery of the fine through a civil action brought on behalf of the Insurance Conunissioner by the Attorney General of the State of Washington. ENTERED AT TUMWATER, WASHINGTON, this ^da^y of MIKE KREIDLER Insurance Commissioner By /^^^X ^^^^ ///^ Andrea L. Philhower ^ ^ OIC Staff Attorney Legal Affairs Division Page 6 of6