STATE OF MICHIGAN DEPARTMENT OF INSURANCE …€¦ · Case No. 16-972-L Docket No. 16-021312 Page 3 factual findings were unsupported by competent, material, and substantial record

STATE OF MICHIGAN DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES

Before the Director of Insurance and Financial Services

Department of Insurance and Financial Services,

Petitioner,

V

Sandy B. Kassab, Sonny S. Kassab, LA Insurance Agency IV, Inc., and LA Insurance Agency XVII, Inc.,

Respondents. --------~/

For the Petitioner:

Gary Grant (P76261) Dept. of Insurance and Financial Services 530 W. Allegan St., 7th Floor Lansina. Ml 48933

Case No.16-972-L Docket No. 16-021312

For the Respondents:

Bradley S. Defoe (P70233) John J. Rolecki (P78460) Herman D. Hofman (P81297) Varnum LLP Bridgewater Place P.O. Box 352 Grand Raoids. Ml 49501-0352

lssue~and entered this Q""d&fday of March 2018

by Patrick M. McPharlin Director

FINAL DECISION

I. BACKGROUND

This matter concerns an enforcement action initiated by Department of Insurance and Financial

Services (DIFS) staff alleging that the Respondents violated the Michigan Insurance Code (Code), MCL

500.100, et seq., in connection with automobile insurance transactions.

Case No. 16-972-L Docket No. 16-021312 Page 2

Sandy B. Kassab, System ID No. 0143564, is a licensed resident insurance producer with

qualifications in property and casualty and is authorized to transact the business of insurance in Michigan.

Sonny S. Kassab, System ID No. 0234461, is a licensed resident insurance producer with

qualifications in property and casualty and is authorized to transact the business of insurance in Michigan.

L.A. Insurance Agency IV, Inc., System ID No. 0019820 (LA IV), is a Michigan corporation with its

principal place of business located at 10231 Livernois Ave., Detroit, Ml 48204, and is a licensed resident

insurance agency in the state of Michigan with qualifications in property and casualty. Respondent Sandy

Kassab is LA IV's sole shareholder and serves as LA IV's Designated Responsible Licensed Producer

(DRLP).

LA Insurance Agency XVII, LLC, System ID No. 0019815 (LA XVII), is a Michigan limited liability

company with its principal place of business located at 17516 Livernois Ave., Detroit, Ml 48221, and is a

licensed resident insurance producer agency in the state of Michigan with qualifications in property and

casualty. Respondent Sandy Kassab is LA XVll's sole shareholder and serves as its DRLP.

Collectively, the above-named parties are herein referred to as "Respondents." Respondents LA IV

and LA XVII are referred to together as "Agency Respondents."

A hearing was held on August 1 and 2, 2017. The Respondents were represented by counsel at

the hearing. A Proposal for Decision (PFD) was issued on October 27, 2017.

II. EXCEPTIONS

On November 8, 2017, Petitioner and Respondents filed exceptions to the PFD. On November 16,

2017, Respondents filed a Response to Petitioner's Exceptions to the PFD, and Petitioner filed a Response

to Respondents' Exceptions to the PFD.

In its Exceptions to the PFD, Petitioner argued that the PFD should be adopted and a Final

Decision should issue in Petitioner's favor; except that the ALJ's exclusion of five exhibits from evidence

(namely, Exhibits P-2, P-5, P-6, P-8 and P-11) was in error and that the exhibits should be included in the

official records of the proceedings to support sanctions for the Respondents.

Respondents' Exceptions to the PFD argued that the PFD should be rejected in its entirety

because Respondents were prejudiced by "procedural defects": namely, that evidence and testimony was

admitted that should have been excluded pursuant to MCL 24.274 and MCL 24.272(4); that the ALJ's


factual findings were unsupported by competent, material, and substantial record evidence; and that the

ALJ committed errors of law in reaching its conclusions of law.

Petitioner's Response to Respondents' Exceptions argued that MCL 24.274 did not require

Petitioner to disclose documents that are confidential under Section 1246 of the Code, MCL 500.1246; that

MCL 24.272(4) did not require the exclusion of hearsay or telephonic evidence; and that there was

sufficient evidence to justify sanctions under the Code.

Respondents' Response to Petitioner's Exceptions argued that the ALJ's decision to exclude

Exhibits P-2, P-5, P-6, P-8, and P-11 was not in error because the exhibits were cumulative and unduly

repetitious under MCL 24.275.

Ill. FINDINGS OF FACT AND CONCLUSIONS OF LAW

The Findings of Fact and Conclusions of Law in the October 27, 2017, Proposal for Final Decision

are adopted and made a part of this Final Decision.

The ALJ excluded Petitioner's proposed Exhibits P-2, P-5, P-6, P-8, and P-11, all of which were

deposition transcripts of customers who also offered in-person testimony. The ALJ excluded these

proposed exhibits on the basis that the witnesses were present to appear in person and/or because an

affidavit of the witnesses had been admitted into evidence, rendering the deposition transcript redundant.

The ALJ did not cite any statute or rule of evidence to support excluding these exhibits. Accordingly, the

Director notes that MCL 24.275 and MRE 403 provide a tribunal with discretion to exclude certain evidence

if it is duplicative or repetitious. MCL 24.275 states that "unduly repetitious evidence may be excluded."

Similarly, MRE 403, which may be "followed as far as practicable," see MCL 24.275, provides for the

exclusion of evidence whose probative value is outweighed by "considerations of undue delay, waste of

time, or needless presentation of cumulative evidence." Although the Director agrees with Petitioner that

MCL 24.272(4) does not require the exclusion of hearsay evidence or telephonic testimony, he nonetheless

finds no basis for overturning the exclusion of Exhibits P-2, P-5, P-6, P-8, and P-11, and does not adopt

Petitioner's exceptions in this regard.

All of Respondents' Exceptions are restatements of arguments made in the Respondents' previous

submissions to the tribunal, including its discovery motions and post-hearing briefs. The Director finds that

these arguments were adequately addressed by the ALJ in the contested case proceeding and the PFD.

Therefore, the Director does not adopt the Respondent's Exceptions. Instead, in response to Respondent's


Exceptions, the Director adopts the ALJ's Findings of Fact and Conclusions of Law in the following: Order

Denying Respondent's Motion to Compel Discovery from Petitioner (April 11, 2017; finding that Section

1246(1) protects certain documents and information in Petitioner's possession); Order Denying Motion in

Limine to Bar Testimony of and Any Evidence Regarding [D.W. and S.S.] (July 12, 2017; finding that while

a written statement in lieu of live testimony precludes cross-examination, that goes to the weight of .the

evidence and not its admissibility); Order Granting Petitioner's Motion to Quash Subpoena Duces Tecum

(July 31, 2017; finding that testimony relating to Petitioner's internal procedures was protected under

Section 1246 of the Code); and the PFD (October 27, 2017) (finding, inter alia, that prior statements

provided to Petitioner were confidential under Section 1246 of the Code).

The PFD contains Conclusions of Law supporting findings of knowing and willful violations of the

Code for which enhanced sanctions are appropriate. Accordingly, this Final Decision orders heightened

fines for each knowing and willful violation of the Code.

This Final Decision orders suspension of Respondents' licenses. Suspension, rather than

revocation, is appropriate in this instance because of the relatively minimal economic harm to consumers,

which can be adequately redressed via restitution. In addition, Petitioner did not establish a practice or

pattern of Code violations that would support revocation. However, any finding of additional violations of the

Code shall be grounds for revocation of Respondents' licenses.

IV. ORDER

Therefore, it is ORDERED that:

1. The PFD is adopted and made part of this final decision.

2. Respondents Sandy Kassab and LA IV shall pay restitution to the following consumers within

30 days of the effective date of this Final Decision:

a. $100 to customer M.D.;

b. $100 to customer J.M.; and

c. $100 to customer S.S.

3. Respondents Sonny Kassab and LA XVII shall pay restitution to the following consumers within

30 days of the effective date of this Final Decision:

a. $100 to customer A.S.;

b. $100 to customer R.B.; and


c. $100 to customer D.W.

4. Respondent Sandy Kassab shall pay to the State of Michigan civil fines in this matter in the

total amount of $7,000 as follows:

a. $2,500 for Respondent Sandy Kassab's knowing violation of Sections 1239(1)(b), (d),

(e), and (h) of the Code, MCL 500.1239(1)(b), (d), (e), and (h), by failing to fully

disclose the details and costs of the NSD product being sold in the insurance

transaction with customer S. B.;

b. $500 for Respondent Sandy Kassab's violation of Sections 1239(1)(b), (d), (e), and (h)

of the Code, MCL 500.1239(1 )(b), (d), (e), and (h), by failing to fully disclose the details

and costs of the product being sold in the insurance transaction with customer J.M.;

c. $2,500 for Respondent Sandy Kassab's knowing violation of Sections 1239(1)(b), (d),


disclose the details and costs of the product being sold in the insurance transaction

with customer A.S.1;

d. $500 for Respondent Sandy Kassab's violation of Section 1207(1) of the Code, MCL

500.1207(1), by violating her fiduciary duty to S.B. when she received money from

S.B. intended for the purchase of an insurance policy and applied a portion of that

money to the NSD membership;

e. $500 for Respondent Sandy Kassab's violation of Section 1207(1) of the Code, MCL

500.1207(1), by violating her fiduciary duty to J.M. when she received money from

J.M. intended for the purchase of an insurance policy and applied a portion of that

money to the NSD membership; and

f. $500 for Respondent Sandy Kassab's violation of Section 1207(1) of the Code, MCL

500.1207(1 ), by violating her fiduciary duty to A.S. when she received money from

A.S. intended for the purchase of an insurance policy and applied a portion of that

money to the NSD membership.

5. Respondent Sonny Kassab shall pay to the State of Michigan civil fines in this matter in the

total amount of $3,000 as follows:

1 The PFD refers to customer "A.B." but the context and relevant subheading in the PFD clearly indicate that the intended reference is to customer "A.S." See PFD, p. 28.


a. $2,500 for Respondent Sonny Kassab's knowing violation of Section 1239(1)(b), (d),


disclose the details and costs of each product being sold in the insurance transaction

with customer R.B.; and

b. $500 for Respondent Sonny Kassab's violation of Section 1207(1) of the Code, MCL

500.1207(1), by violating his fiduciary duty to D.W. when he received money from

D.W. intended for the purchase of an insurance policy and applied a portion of that

money to the NSD membership.

6. Pursuant to Section 1239(3) of the Code, MCL 500.1239(3), Agency Respondent LA IV's

license (System ID Number 0019820) is SUSPENDED for 8 months, commencing the day

immediately following the issuance of this Final Decision. Agency Respondent LA IV's license

shall be reinstated after that period has expired only if all of the following conditions have been

met:

a. The restitution set forth in Paragraph 2 has been fully paid;

b. The fines provided for in Paragraph 4 have been fully paid;

c. The compliance plan required by Paragraph 11 has been approved by the Director;

d. No additional violations of the Code or other applicable law have occurred.

7. Pursuant to Section 1239(3) of the Code, MCL 500.1239(3), Agency Respondent LA XVll's

license (System ID Number 0019815) is SUSPENDED for 8 months, commencing the day

immediately following the issuance of this Final Decision. Agency Respondent LA XVI l's

license shall be reinstated after that period has expired only if all of the following conditions

have been met:





8. Respondent Sandy Kassab's license (System ID Numbers 0143564) is SUSPENDED for 12

months commencing the day immediately following the issuance of this Final Decision.

Respondent Sandy Kassab's license shall be reinstated after that period has expired only if all

of the following conditions have been met:






9. Respondent Sonny Kassab's license (System ID Number 0234461) is SUSPENDED for 8

months commencing the day immediately following the issuance of this Final Decision.

Respondent Sonny Kassab's license shall be reinstated after that period has expired only if all

of the following conditions have been met:



c. No additional violations of the Code or other applicable law have occurred.

10. Respondents shall be on probation for one year after their licenses are reinstated pursuant to

Paragraphs 6 through 9, above. The terms of said probation are as follows:

a. Respondents shall promptly report to DIFS any new investigations, administrative, civil and

criminal proceedings, and consumer complaints (written or oral) brought or made against

them or their agents. They shall provide to DIFS a copy of all pleadings, judgments,

awards, orders, reports, or complaints associated with said matters. All disclosures and

reports must be addressed to: Department of Insurance and Financial Services, Office of

Insurance Licensing and Market Conduct, P.O. Box 30220, Lansing, Ml 48909-7720;

b. Respondents are prohibited from applying for or obtaining any new qualifications;

c. Respondents are prohibited from applying for or obtaining any new insurance company

appointments;

d. Respondents are prohibited from applying for or obtaining any new insurance licenses that

may otherwise be available to them under the Code; and

e. A market conduct examination of the Agency Respondents shall be conducted during the

pendency of the probationary period.

11. With regard to the sale of Nation Safe Driver products or any other product that is not sold as

part of a DIFS-approved insurance policy, the Respondents shall develop a comprehensive

compliance plan regarding sales practices. Such compliance plan shall be submitted to DIFS

for approval within 30 days of the effective date of the Final Decision, and must be approved


by DIFS prior to implementation. The compliance plan must include, at a minimum, the

following: detailed sales practices that ensure adequate disclosure of the products being sold,

and a detailed plan to train staff to utilize such sales practices to ensure compliance with the

Code and all other applicable laws and regulations.

12. Any finding of additional violations of the Code shall be grounds for revocation of Respondents'

licenses.

(/~~1$~l2 -··,-Patrick M. McPharlin

Director

STATE OF MICHIGAN MICHIGAN ADMINISTRATIVE HEARING SYSTEM

IN THE MATTER OF:

Department of Insurance and Financial Services,

Petitioner

V

Sandy B. Kassab, Sonny S. Kassab, LA Insurance Agency IV, Inc., and LA Insurance Agency XVII, Inc.,

Respondent

I

Docket No.: 16-021312

Case No.: 16-972-L

Agency: Department of Insurance and Financial Services

Case Type: DIFS-lnsurance

Filing Type: Enforcement

Issued and entered this '2.1 t.ttday of October 2017

by: Thomas A. Halick Administrative Law Judge

PROPOSAL FOR DECISION

PROCEDURAL HISTORY

This proceeding under the Michigan Insurance Code of 1956, being 1956 PA 218, as amended, MCL 500.100 et seq. (hereafter "Insurance Code" or "Code"), commenced with the issuance of a Complaint, Statement of Factual Allegations, and an Order Referring Complaint for Hearing dated July 20, 2016, regarding the resident insurance producer licenses of Sandy B. Kassab, Sonny S. Kassab, LA Insurance Agency IV, Inc., and LA Insurance Agency, Inc. XVII, Respondents.

On August 5, 2016, the Michigan Administrative Hearing System issued a Notice of Hearing pursuant to a Request for Hearing, scheduling a hearing date of October 13, 2016. After several adjournments during which discovery was conducted and numerous motions were filed and decided, the hearing was held on August 1 and 2, 2017.

Petitioner was represented by Gary S. Grant, DIFS Enforcement Attorney.

Respondents were represented by Attorneys Kevin M. Blair and Derrick Mullins, Honigman, Miller, Schwartz and Cohn LLP.

16-021312 Page 2

Procedural Background

This case arises from a consumer complaint1 against Respondents Sandy Kassab and LA Insurance Agency XVII, filed on April 24, 2013, alleging, inter alia, that Sandy Kassab misapplied money that she received that was intended for payment of an auto insurance policy, and rather applied that money to purchase of a motor club membership that the consumer did not ask to purchase. The complaint prompted an investigation by Petitioner that commenced with a visit to Respondent's agency (LA IV) on August 16, 2013, and a subsequent visit to Respondent's other agency (LA XVII), resulting in additional allegations of fact against the other named Respondents with regard to transactions with other customers.

On January 4, 2016, a Notice and Opportunity to Show Compliance was mailed to Respondents. Thereafter, the parties conducted an informal conference without resolution of this dispute.

On July 20, 2016, Petitioners issued a Complaint, including Counts I through V, alleging violations of the Michigan Insurance Code (Code), 1956 PA 218, as amended, MCL 500.100 et seq. Respondents referred this matter to MAHS for an evidentiary hearing to be held in accordance with the Administrative Procedures Act (APA), 1969 PA 306, as amended, MCL 24.201, et seq.

On August 1, 2016, MAHS received a Request for Hearing, and issued a Notice of Hearing on August 5, 2016, scheduling an evidentiary hearing for October 13, 2016.

On September 20, 2016, counsel for Petitioner filed a request to hold a prehearing conference, with the concurrence of opposing counsel.

On September 26, 2016, a prehearing conference was held, resulting in a Scheduling Order establishing dates for preliminary witness lists, discovery cut-off, dispositive motions, and which adjourned the hearings scheduled in this case and several related cases. It was anticipated that after discovery, it could be determined which of the related cases should be consolidated, and that hearings would be held after April 1, 2017.

On October 31, 2016, Petitioner filed its Proposed Witness List, identifying 11 witnesses.

On December 12, 2016, the parties filed a proposed, stipulated order to consolidate three of the related cases, not including this case, and also stipulating to the extension of the discovery deadline from December 31, 2016, to February 28, 2016, which was granted by Order Extending Discovery Deadline, dated December 12, 2016.

1 Insurance Complaint Form, 3/29/2012. Exhibit JT-7.

16-021312 Page3

On January 11, 2017, Respondents requested subpoenas to depose 16 witnesses involved in this case and the related cases, which were issued on January 17, 2017.

On February 14, 2017, Respondents in the related cases requested subpoenas for the deposition of six witnesses, which were signed by the ALJ and issued on February 15, 2017.

On February 27, 2017, a prehearing conference was held by telephone.

On March 13, 2017, the parties submitted a Stipulated Amended Scheduling Order, governing this case and the related cases, which was signed by the ALJ and issued on March 31, 2017. It was agreed, among other matters, that the hearing would be scheduled for no later than July 31, 2017.

On March 31, 2017, Respondent filed a motion to compel discovery.

On April 5, 2017, Petitioner filed a response to the motion to compel.

On April 11, 2017, the ALJ issued an Order Denying Respondent's Motion to Compel Discovery from Petitioner.

On May 15, 2017, Petitioner filed its Final Witness List, identifying nine witnesses by name, and three persons identified as "custodians of records."

On July 12, 2017, this Tribunal issued an Order Denying Respondent's Motion In Limine to Bar Testimony of and any Evidence Regarding [customer D.W.] and [customer S.B].

On July 21, 2017, the parties held a telephonic prehearing conference.

On July 31, 2017, this Tribunal issued an Order Granting Petitioner's Motion to Quash Subpoena Duces Tecum.

The hearing was held on August 1, and 2, 2017.

Petitioner called the following witnesses:

1. R.B., Customer of LA Insurance Agency IV, Inc. 2. S.B., Customer of LA Insurance Agency XVII, Inc. 3. J.M., Customer of LA Insurance Agency IV, Inc. 4. M.D., Customer of LA Insurance Agency IV, Inc. 5. A.S., Customer of LA Insurance Agency XVII, LLC. 6. Justin Blood, DIFS Investigator.

16-021312 Page 4

Respondents called the following witnesses:

1. Sonny Kassab, Respondent. 2. Sandy Kassab, Respondent 3. Cindy Kassab, Insurance Agent at LA Insurance Agency XVII, LLC on August 16,

2017.

The parties offered the following joint exhibits:

JT-1. Verified Return of Service documents for Petitioner's witnesses. JT-2. Audio Recording of Justin Blood investigation of LA Insurance Agency LA XVII. JT-3. Michigan Insurance Division - Licensed Individual Full History. JT-4. Insurance and NSD documents - M.D. JT-5. Insurance and NSD documents - S.B. JT-6. Insurance and NSD documents - J.M. JT-7. Insurance Complaint Form -A.S. JT-8. Insurance and NSD documents and emails - R.B. JT-9. Subpoena and proof of service for the Deposition of D.W., January 17, 2017. JT-10. Insurance and NSD documents and emails - D.W. [Pages 44-51 only]. JT-11. Insurance and NSD documents - G. JT-12. Insurance Bureau Bulletin 81-20; Insurance Bulletin 2015-21; Insurance Bulletin, 2016-20.

Petitioner offered the following exhibits:

P-1. Affidavit of M.D. P-2. Deposition Transcript of M.D. [Excluded]. P-3. Affidavit of S.B. P-4. Affidavit of J.M. P-5. Deposition Transcript of J.M [Excluded]. P-6. Deposition Transcript of A.S. [Excluded]. P-7. Affidavit of R.B. P-8. Deposition Transcript of R.B. [Excluded]. P-9. Affidavit of D.W. P-10. Affidavit of G.B. P-11. Deposition Transcript of G.B. [Excluded].

Objections:

P-1 See discussion regarding P-7, below.

16-021312 Page 5

P-2 The discovery deposition of M.D. was excluded because she was present to testify in person.

P-3 See discussion regarding P-7, below.

P-4 P-3 See discussion regarding P-7, below.

P-5 The discovery deposition of J.M. was excluded because he was present to testify in person.

P-6 The discovery deposition of A.S. was excluded because he was present to testify in person.

P-7 The Affidavit of R.B. was admitted over Respondent's objection based on Petitioner's failure to provide prior statements made by R.B. to DIFS, pursuant to MCL 24.274(2) - "An agency that relies on a witness in a contested case, whether or not an agency employee, who has made prior statements or reports with respect to the subject matter of his testimony, shall make such statements or reports available to opposing parties for use on cross-examination."

Any such statement is confidential by law pursuant to MCL 500.1246. Furthermore, the alleged "prior statements" consist of notes of conversations or answers to questions in emails do not constitute an affirmative "statement" made to DIFS by this witness within the meaning of MCL 24.274(2).

P-8 See discussion regarding P-7.



P-11 The discovery deposition of G.B. was excluded as redundant and cumulative and not necessary to establish the relevant facts that are material to reaching a decision. The Affidavit of G.B. was admitted into evidence.

Respondents offered the following exhibits:

R-A. Email. List of customers contacted. R-B. Petitioner's Response to First Set of Discovery Requests. R-C. Insurance Policy - A.S. R-D. Sample Documents related to Insurance and NSD transaction.

16-021312 Page 6

POST HEARING FILINGS

On September 7, 2017, Respondents filed a Post Hearing Brief.

On September 7, 2017, Petitioner filed its written Closing Argument.

On September 14, 2017, Respondents filed a Response to the Department of Insurance and Financial Services' Post-Hearing Brief.

On September 14, 2017, Petitioners filed a Reply to Respondents' Closing Argument.

ISSUES AND APPLICABLE LAW

The issues presented in the Complaint are whether sanction(s) are properly imposed under Section 1244(1)(a)-(d) of the Insurance Code, MCL 500.1244(1)(a)-(d) against Respondents' licenses based on violations of the following sections of the Insurance Code, supra, which provide as follows:

Sec. 249. For the purposes of ascertaining compliance with the provisions of the insurance laws of the state or of ascertaining the business condition and practices of an insurer or proposed insurer, the commissioner, as often as he deems advisable, may initiate proceedings to examine the accounts, records, documents and transactions pertaining to:

(a) Any insurance agent, surplus line agent, general agent, adjuster, public adjuster or counselor.

Sec. 1205. (1) A person applying for a resident insurance producer license shall file with the commissioner the uniform application required by the commissioner and shall declare under penalty of refusal, suspension, or revocation of the license that the statements made in the application are true, correct, and complete to the best of the individual's knowledge and belief. An application for a resident insurer producer license shall not be approved unless the commissioner finds that the individual meets all of the following:

***

(b) The business entity has designated an individual licensed producer responsible for the business entity's compliance with this state's insurance laws, rules, and regulations. [Emphasis added.]

16-021312 Page 7

Sec. 1207(1). An agent shall be a fiduciary for all money received or held by the agent in his or her capacity as an agent. Failure by an agent in a timely manner to turn over the money which he or she holds in a fiduciary capacity to the persons to whom they are owed is prima facie evidence of violation of the agent's fiduciary responsibility. [Relevant part].

Sec. 1207(2). An agent shall use reasonable accounting methods to record funds received in his or her fiduciary capacity including the receipt and distribution of all premiums due each of his or her insurers. An agent shall record return premiums received by or credited to him or her which are due an insured on policies reduced or canceled or which are due a prospective purchaser of insurance as a result of a rejected or declined application. Records required by this section shall be open to examination by the commissioner.

Sec. 1208a(1). (1) An insurance producer shall not act as an agent of an insurer unless the insurance producer becomes an appointed agent of that insurer. An insurance producer who is not acting as an agent of an insurer is not required to become appointed.

Sec. 1239(1)(d), (e), and (h) In addition to any other powers under this act, the commissioner may place on probation, suspend, or revoke an insurance producer's license or may levy a civil fine under section 1244 or any combination of actions, and the commissioner shall refuse to issue a license under section 1205 or 1206a, for any 1 or more of the following causes:

***

(d) Improperly withholding, misappropriating, or converting any money or property received in the course of doing insurance business.

(e) Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance.

***

16-021312 Page 8

(h) Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere.

Sec. 1239(3). The license of a business entity may be suspended, revoked, or refused if the commissioner finds, after hearing, that an individual licensee's violation was known or should have been known by 1 or more of the partners, officers, or managers acting on behalf of the partnership or corporation and the violation was neither reported to the commissioner nor corrective action taken.

Sec 150(1) (1) Any person who violates any provision of this act for which a specific penalty is not provided under any other provision of this act or of other laws applicable to the violation shall be afforded an opportunity for a hearing before the commissioner pursuant to the administrative procedures act of 1969, Act No. 306 of the Public Acts of 1969, being sections 24.201 to 24.328 of the Michigan Compiled Laws. If the commissioner finds that a violation has occurred, the commissioner shall reduce the findings and decision to writing and shall issue and cause to be served upon the person charged with the violation a copy of the findings and an order requiring the person to cease and desist from the violation. In addition, the commissioner may order any of the following:

(a) Payment of a civil fine of not more than $500.00 for each violation. However, if the person knew or reasonably should have known that he or she was in violation of this act, the commissioner may order the payment of a civil fine of not more than $2,500.00 for each violation. With respect to filings made under chapters 21, 22, 23, 24, and 26, "violation" means a filing not in compliance with the provisions of those chapters and does not include an action with respect to an individual policy based upon a noncomplying filing. An order of the commissioner under this subdivision shall not require the payment of civil fines exceeding $25,000.00. A fine collected under this subdivision shall be turned over to the state treasurer and credited to the general fund.

(b) The suspension, limitation, or revocation of the person's license or certificate of authority.

16-021312 Page 9

Sec. 1244. (1) If the commissioner finds that a person has violated this chapter, after an

opportunity for a hearing pursuant to the administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328, the commissioner shall reduce the findings and decision to writing and shall issue and cause to be served upon the person charged with the violation a copy of the findings and an order requiring the person to cease and desist from the violation. In addition, the commissioner may order any of the following:

(a) Payment of a civil fine of not more than $500.00 for each violation. However, if the person knew or reasonably should have known that he or she was in violation of this chapter, the commissioner may order the payment of a civil fine of not more than $2,500.00 for each violation. An order of the commissioner under this subsection shall not require the payment of civil fines exceeding $25,000.00. A fine collected under this subdivision shall be turned over to the state treasurer and credited to the general fund of the state.

(b) A refund of any overcharges. (c) That restitution be made to the insured or other claimant to cover incurred

losses, damages, or other harm attributable to the acts of the person found to be in violation of this chapter.

(d) The suspension or revocation of the person's license. MCL 500.1244(1 )(a)-(d).

SUMMARY OF TESTIMONY

Summary of Testimony of R.B. (Tr at 33:05)

On July 26, 2013, R.B. purchased a seven-day insurance policy from LA Insurance XVI I. He first called the agency in the process of shopping for the best price from various agencies, specifically for a seven-day policy. [Tr I, at 33:50].2 He noted that LA XVII was next to the Secretary of State branch-office on Livernois near Seven Mile Road. He was given a quote for insurance over the phone. [Tr I, at 34:52]. He was assisted at the agency by a male agent (Sonny Kassab). He did not have any discussion with the agent regarding road side assistance, towing service, motor club membership, or Nation Safe Drivers (NSD). [Tr I, at 36:48]. He wanted a seven-day policy because he could not afford anything more than that. He needed to get the

2 Some references to the record were taken from the digital recording before the written transcript was available. References to the recording are denoted by the time on the recording, for example: [Tr I at 33:50] which refers to the August 1, 2017 recording at 33 minutes and 50 seconds. References to the written transcript are as follows: [Tr II, 1:15], which refers to the August 2, 2017, transcript at page 1, line 15.

16-021312 Page 10

seven-day policy to get his vehicle registration. He recalls paying between $200 and $300 for the auto insurance policy. He did not know that any of the price was being applied to any other product (such as road side assistance, towing, motor club membership, or NSD). He believes that he signed documents for the purchase of a seven-day policy only. The agent did not tell him he was signing any document for the purchase of any other product.

R.B. recalls seeing the insurance policy application and documents at his deposition in January of 2017, but does not remember seeing the documents before then. He now knows that the documentation states that the cost of the insurance policy was $104. He first learned that his insurance cost only $104 (and not $200 or $300) when Mr. Blood brought it to his attention prior to the deposition, and also at the time of his deposition. [Tr I, p 35:14].

He admitted that his signature appears on the NSD application. [Tr I, p 35:24]. He says the document was presented to him and he signed it. He did not read the document carefully. He states that the agent did not discuss NSD with him.

R.B. signed an affidavit prepared by DIFS, which was based on questions that he answered by email sent to Mr. Blood. He answered the questions the best he could. He reviewed the affidavit before he signed it and believes it to be true. He stands by the information in his affidavit. He does not recall if Mr. Blood promised that he would receive money back, but that he thought he "was just helping them - helping the case along when" he signed the affidavit. [Tr I, p 40:18].

R.B. does not recall receiving any documents regarding the NSD policy. He only needed the proof of insurance documents that he took to the Secretary of State. When he when to LA XVII, he was on a tight budget and did not want roadside assistance or anything other than a seven-day insurance policy. Nothing occurred at LA XVII that made him change his mind to want to purchase roadside assistance. "I didn't want to purchase any roadside, I was on a tight budget as it was ... I didn't purchase any roadside, I didn't want the roadside assistance because it was going to be more money than what I had ... I wouldn't have gotten it." [Tr I, at 54:10-25; See also, Tr I, p 41].

On cross-examination [Tr I, p 42:22]. R.B. testified that when he was given the full price for the insurance, he believed he paid $200 to $300 for a seven-day policy, he did not know at the time of purchase that the policy only cost $104.

Q. And you understood that $104.00 went to purchase a seven-day policy, right?

A. To my knowledge. From what I'm seeing here, yes, I would say that I - I believe the documentation is showing that it's $104.00 that went towards it. As I stated before, when I was given the full price of what it was. And that's what I - to my knowledge,

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that's what I was paying for. Insurance. So, it wasn't stating that it was just $104.00 that was going toward the seven-day insurance. The whole policy that I thought I was paying for was seven-day insurance. So, if there was anything added - - [answer interrupted by Respondent's counsel.] [Tr I, p 43:7-15].

When asked again whether when at the store on July 26, 2013, he understood that $104.00 was going to purchase as seven-day policy, he answered "No." [Tr I, p 43:20].

At his deposition in January of 2017, R.B. answered as follows:

Q. So, at the time you signed this, you understood that you were purchasing a policy with a total premium of $104.

A. For the insurance policy, yes.

R.B. denied that he knew that he paid $100 for an optional NSD membership on the day he purchased the seven-day insurance policy. [Tr I, p 43:16 - 20; and p 45:9-11]. He admits signing the NSD contract that shows the $100.00 cost of the NSD contract. He believes that he received a copy of the NSD contract on the day of purchase. R.B. was in a hurry to get in and out as fast as possible, and he didn't read the NSD contract. No one told him not to read it.

Q. And no one told you NSD was mandatory, right?

A. No one told me it was mandatory. No. [Tr I, at 1 :02:26; and p 47:17].

Justin Blood first contacted Mr. Bass by telephone, he asked questions over the phone and asked questions by email, to which Mr. Bass replied by email.

R.B. received an email from Mr. Blood on September 12, 2013, asking for all information provided that LA Insurance provided to him on July 26, 2013. [JT-8, p 168]. Mr. Blood's email also stated, "Our records show that you were charged $100 for a roadside membership." [JT-8, p 168]. R.B. does not believe that this suggests that he would get $100 back.

R.B. received a "witness questionnaire" from Mr. Blood, and he sent answers to the questions. R.B. knows what the answers look like. Mr. Blood came to R.B. work place so he could sign the affidavit, but he remembers very little about this meeting.

Before being contacted by Mr. Blood, R.B. was satisfied with his insurance transaction. Mr. Blood let him know that he has been "tricked" into buying the NSD policy. R.B. did not bring a copy of his emailed answers to the deposition.

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He does not recall making any changes to the affidavit that Mr. Blood prepared for this signature.

On re-direct examination, R.B, stated that he was satisfied with the insurance, however, he believed that all the money paid was for the insurance contract, but then Mr. Blood showed him that he paid only $104 for the insurance, and he learned for the first time that he paid $100 for the NSD. The agent at LA Insurance did not say anything about NSD or roadside coverage. When he left LA Insurance Agency in 2013, he believed he had only purchased a seven-day insurance policy.

On re-cross-examination, R.B. answered as follows:

Q. You understood on July 26, 2013 ... that $104 of what you were paying was going to purchase a seven-day policy, right?

A. That's correct. [Tr, at 1 :13:50].

Q. OK. And you know that you also paid $100 for the NSD, correct?

A. I know that now, yes. I didn't know that before.

Q. But on the day you bought the insurance, you knew that only $104 was going to buy the insurance?

A. No, I did not know that the day of the insurance.

R.B. acknowledges that he stated at his deposition that he paid $104 for insurance; however at the hearing, he stated that he did not know he was purchasing roadside coverage. He signed papervilork "just to sign it." He thought he was signing everything to do with insurance. He wouldn't have paid for roadside coverage. He doesn't recall any discussion about roadside service.

[Respondent moved to exclude all of R.B.'s testimony based on his statements that he submitted a written response to DIFS (the witness questionnaire) that were not produced by DIFS during discovery. Respondent argued that MCL 24.274(2) requires the exclusion of the testimony based on the failure to disclose these email communications. This motion was denied. DIFS asserts that the email is not a prior statement under MCL 24.274(2), and even if it is, that it is not required to disclose this information, which is confidential by law under MCL 500.1246.]

DIFS moved for the admission of the Deposition Transcript of R.B. Respondents assert that the deposition was taken for discovery purpose only, and that it is unfair to admit the transcript under these circumstances. The transcript was excluded.

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The Tribunal excluded the deposition transcript as not being the best evidence and redundant, seeing how the witness testified at the hearing, in the presence of the finder of fact and subject to cross-examination.

Summary of the Testimony of S.B.

On July 30, 2013, S.B. went to LA IV to purchase insurance, and decided to purchase a seven-day policy. She told the insurance agent (Sandy Kassab ) that she already had a towing service through AAA, which included services for lockouts or a dead battery. The agent told her the policy would cost "close to $300." [Tr I, p 68].

S.B. testified that she only asked for automobile insurance, and that during the transaction the agent was "all over the place, honestly. She was sending faxes, answering the phone. So she just handed me some paperwork, highlighted the areas that she wanted me to sign." [Tr I, p 68].

On July 30, 2013, S.B. signed an application for a seven-day insurance policy. [See Exh. JT-5, p 27.] The insurance application process required her to sign the documents five times. In addition, S.B.'s signature appears on a document entitled "NSD Motor Club Membership" dated July 30, 2014. [Exh. JT-5, p 118].

S.B. testified that the agent "handed me a stack of papers in which she either highlighted or took her pen and was like, sign here, sign here, sign here. And that's what I did." [Tr I, p 70]. She did not read the documents. She did not realize that she had signed a document for the NSD. She believed that the money she paid to the agent was all for insurance and not for NSD. She did not know she had purchased the NSD until she was contacted by a DIFS investigator. [Tr I, p 71].

Summary of Testimony of J.M.

On July 18, 2013, J.M. went to LA IV, where he spoke with a female insurance agent about purchasing a seven-day automobile insurance policy. He never discussed a motor club membership, towing service, or roadside assistance, with the agent. [Tr I, p 97]. J.M, admits that his signature appears on the NSD form, but that he did not know he purchased the NSD.

In an affidavit signed on September 24, 2013, he stated that he did not remember whether NSD was mentioned during the transaction on July 18, 2013. On crossexamination at the hearing, he testified that he was sure that the agent never mentioned NSD.

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Summary of Testimony of M.D.

On July 18, 2013, M.D. purchased a seven-day automobile insurance policy at LA IV.

Initially she called LA IV by telephone and was given a quote of $225 "out the door." There was no discussion about roadside service.

At the agency, the agent (Sandy Kassab) told her that the insurance policy "comes with roadside assistance." [Tr I, p 135, 136, 137]. M.D. told the agent that she didn't need roadside assistance for only seven days. The agent told M.D. that the roadside assistance was "part of the package." [Tr I, p 139]. She paid $266 to LA IV. [Tr I, p 145]. She believed this amount was solely for the seven-day insurance policy. M.D. stated that had she been given the option whether to purchase the NSD, she would have declined it. [Tr I, p 143]. Although the documents stated that $153 was for insurance, the agent never broke it down for her, but only told her that the total amount of $266 was due for the package. On cross-examination, M.D. testified as follows:

Q. So when you say that you understood that it came with a package, what you understood was that for the price that you'd been quoted, you get the roadside service, correct?

A. Correct.

Q. And during that time, she didn't tell you that you didn't have the option to decline it. You just never asked, right?

A. Correct. She never mentioned it, and I never asked. [Tr I, p 152].

Summary of Testimony of A.S.

In January of 2012, Customer "A.S." went to LA XVII to purchase an insurance policy. Sandy Kassab told her the down payment on a six-month policy would cost $220.00. After purchasing the policy, A.S. learned that the insurance company had received only $120.00. When A.S. inquired with Sandy Kassab, she was told that of the $220.00 paid, $100.00 was applied to purchase NSD, and that the NSD was required in order to keep the insurance. This witness stated emphatically that she did not want NSD, that it was never discussed at any point in the transaction, and that when she discovered the $100.00 payment for NSD, she told Sandy Kassab that she already had roadside assistance through AAA. Sandy Kassab replied that A.S. could cancel the AAA, because she had to keep the NSD, because it was part of the package. [Tr I, p 165-

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170]. This testimony is consistent with the language that A.S. wrote on the complaint form3 that she filed with DIFS in March of 2012. [Joint Exh. JT-7].

Summary of Testimony of Justin Blood

Justin Blood testified that he has been with DIFS for over nine years, currently serving as an insurance investigator. Mr. Blood investigated a consumer complaint filed by customer A.S. regarding LA IV. He first collected a list of customers of LA IV and LA XVII. He also visited each agency on August 16, 2013. He spoke with Sandy Kassab at LA IV regarding a quote for insurance. She provided him with a quote for a six-month and a seven-day policy. She stated that the seven-day policy would cost $290.00 "out the door." This undercover investigation of Sandy Kassab and LA IV was recorded. He has reviewed hundreds of documents related to seven-day insurance policies and transactions. There is one approved, seven-day insurance policy that is approved in Michigan, it is offered by lntegon Insurance Company working together with National General Insurance Company. He has reviewed thousands of such policies and transactions. This policy does not include roadside assistance, towing services, or NSD.

Of the thousands of polices reviewed, the highest premium that Mr. Blood has seen for a seven-day policy is $171.00. [Tr. I, p 198:21].

At the August 16, 2013, encounter with Sandy Kassab, Mr. Blood stated his ZIP code was 48203, which is one of the highest in the State with regard to automobile insurance rates. [Tr. I, p 198:13].

Mr. Blood visited LA XVII on August 16 and 17, 2013. He decided to investigate LA XVII because Sandy Kassab was also the DLRP for that entity.

National Motor Club, Inc. sells the "National Safe Drivers" (NSD) memberships at wholesale to insurance agencies, which sell them to customers at retail. For a membership sold for $100.00, NSD earn $9.00 of revenue and the seller (insurance agency) earns $91.00. [Tr. I, p 219-221].

Summary of Testimony of Sonny S. Kassab

Sonny S. Kassab worked as a licensed insurance agent at LA Insurance XVII. He generally worked there alone, but sometimes his sister, Sandy Kassab would cover for him when he was not there. He testified that he never told a customer that NSD was required or that it was part of an insurance policy; some customers purchased

3 Some of the handwriting on the Complaint form is difficult to decipher, but AS. was able to read most of it while on the witness stand, and confirmed that her statement on the form is consistent with her testimony.

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insurance without NSD; he answered questions for customers about the policy and NSD; he never mislead a customer as to whether NSD was included in an insurance policy; he never signed a customer's name to any document; and, that no customer has ever complained that he mislead them about an insurance policy.

He did not treat customers D.W. or R.B. any differently than any other customer.

Sandy Kassab

The relevant facts pertaining to Sandy Kassab are included in the Findings of Fact section and discussed further in the Conclusions of Law section of this Proposal for Decision.

FINDINGS OF FACT

Based on the entire record in this matter, including the witness testimony and admitted exhibits, the following findings of fact are established by a preponderance of the evidence:

1. At all relevant times, Sandy B. Kassab and Sonny S. Kassab were licensed resident insurance producers with qualifications in property and casualty and were authorized to transact the business of insurance in Michigan.

2. Respondent LA Insurance Agency IV, Inc. ("LA IV") is a Michigan corporation with its principal place of business located at 10231 Livernois Ave., Detroit, Michigan 48204, and is a licensed resident insurance agency in the state of Michigan with qualifications in property and casualty.

3. Respondent Sandy Kassab is an officer of each Agency and their Designated Responsible Licensed Producer (DRLP).

4. LA Insurance Agency XVII, Inc., (LA XVII) is a Michigan corporation that at all relevant times was a licensed resident agency insurance producer with qualifications in property and casualty.

5. On August 16, 2013, DIFS investigators Justin Blood and another DIFS investigator ("Peck") visited LA XVII, at which time Sonny Kassab and Cindy Kassab were present. Mr. Blood conducted an investigation under the assumed name, Nick Davis. After greetings were exchanged between Blood and Cindy Kassab, Blood asked for a quote for a car he intended to buy. Sonny Kassab asked Blood whether he "was looking for no fault or full coverage?" Blood answered, "I just kinda want to price out everything and see what I got . . . ." Cindy Kassab handled a telephone call, then asked Blood for his driver's license

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and for some personal information. She asked Blood whether he currently had insurance, and he stated that he did have insurance through State Farm. Cindy Kassab answered, "If you've had State Farm for the last six months with no lapse in coverage, you're not going to get a cheaper rate. We're a non-standard market ... so, just a heads up." [JT-2 at 4:53]. Cindy Kassab provided a quote for a sixmonth policy with full coverage for the price of $3,275. Blood also asked about a seven-day policy, and Cindy Kassab Explained that "you cannot get a seven-day policy with full coverage." She stated that the seven-day liability policy would cost $265. [JT-2, recording 1, at 8:50]. Blood asked, "What is . . . full coverage?" Cindy Kassab answered, "Comp and collision ... Full coverage is made up of three components, · liability, comprehensive, and then collision coverage." After further explaining the details of the six-month, full coverage policy, she stated, "If you're going to have a six-month policy, then you can just add that car onto your policy" (referring to Blood's existing State Farm policy) it would be cheaper than, probably, $265 for seven days." Blood then asked, "with the State Farm it has roadside assistance and stuff, do you guys have anything like that." Cindy Kassab, "We do." Blood asked, "On the six-month policy?" Cindy Kassab answered, "Mm, hm." Blood then asked, "I think the State Farm comes automatically?" Cindy Kassab answered, "So um, oh, I don't know." Blood asked, "for Progressive, does it cost anything else?" Cindy Kassab answered, "a [?] charge of twelve dollars, but that quote wasn't through Progressive, a six-month policy was through MAIPF, which is the pool, it's the facility . . . your Progressive rate was $5,200." Regarding the road service, Cindy Kassab stated, "And so with the pool, you can get towing and road service, but it doesn't come with it, it's something separate that you have to purchase." She answered Blood's question, stating that roadside and towing does not come with the six-month quote, "I did not even put that in there," she said. Blood then asked, "What about the seven-day policy?" Cindy Kassab answered, "Yep, you can get that too ... you can get road service." Blood inquired further, "ls that automatic, or ... ?" Cindy Kassab stated, "You can do it either way." Blood: "Would it be cheaper if I didn't?" Cindy Kassab, "Um, yeah, like I said, you'll save a little bit, but it depends on whether you are going to do no fault or full coverage. But like I said, if you already have a policy, you're going to be way better off adding [a car] to your policy ... so think about it, I'm going to grab this [phone call], okay, good luck, call your agent . .. it will be way cheaper."

6. With regard to the above discourse between Cindy Kassab and Justin Blood, Cindy Kassab testified that the $265 for the seven-day policy "would include road service." [Tr II, p 257:18]. Cindy Kassab testified that NSD is included in the price quoted to the customer, and stated further that, the reason for doing so was that "I'm giving the quote with the liability and the NSD. At the time of giving the quote they're both included in the pricing." When asked further, "And is that because

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you're trying to sell NSD to the customer," she answered, "Of course." She further clarified that when the customer actually purchased the policy that "we'd break it down to them" and she further denied that she ever told a customer that the NSD was required or that it was part of the insurance policy. [Tr II, p 259].

7. With regard to the investigation involving Cindy Kassab, the price initially quoted for insurance ($265.00) also included the NSD membership, before the customer asked about roadside assistance. She did not say NSD was optional at that point in the conversation. However, to her credit, she later stated that "you could do it either way" (with or without road service) and that "you would save a little bit" without it.

8. Also on August 16, 2013, Blood and Peck visited LA IV, at which time Respondent Sandy B. Kassab was present. Mr. Blood indicated that he was interested in a quote for insurance on a vehicle he intended to purchase. Sandy Kassab asked Blood "Who's name is the car in?" Blood told Sandy Kassab that he was going to buy a 2002 Chevy Impala and that he was "looking for a quote." Blood identified himself as "Nick Davis" and provided an address and other personal information. Blood stated that he was looking for a quote on a six-month policy, and Sandy Kassab stated that the six-month premium would be $2,454, with a down payment of 40% ($982) with the balance due in three monthly payments of $497. Sandy Kassab then offered the following: "The second option they offer is a seven-day policy, which will just allow you to get plates and tabs and get on the road legally, and that's going to be $290." Blood responded, "$290 right out the door?" Sandy Kassab answered, "Out the door, yes. But you do need to bring that title back from that owner, or even a copy of it, and then your license, and then the down payment is cash, credit card, or money order." Blood asked for the name of the insurance company, and Sandy Kassab stated that for the six-month policy it would be through the insurance pool, and would be either State Farm or Citizens. Sandy Kassab then answered a very brief phone call, and answered Blood's question about the insurance pool. Blood then stated that the six-month policy was quite expensive and that he was interested in the seven-day policy because he just wanted to get tabs and plates. Sandy Kassab replied, "You can do that too." Blood asked, "what comes with the seven-day policy?" Sandy Kassab replied, "It's just insurance for the seven days and then you add4 towing and road service also." [Jt-2, recording 2, at 4:38]. Blood then asked for further details, "Oh that comes with it?" Sandy Kassab answered, "Um hm" and Blood replied, "Nice." Again, Sandy Kassab answered "Yes" when Blood asked, "But with the sevenday policy it just comes with it." ("It" meaning roadside assistance.) Sandy

4 It is possible that Cindy Kassab said, "then you have towing and road service also." The ALJ listened to the live recording and also slowed it down to better understand her words, and hears "then you add towing and road service."

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Kassab affirmed that with the six-month policy the roadside could be added for $100.00 but that with the seven-day policy roadside "just comes with it."

9. Of the thousands of policies he has reviewed, the highest premium that Mr. Blood has seen for a seven-day policy is $171.00. [Tr. I, p 198:6].

10. At the August 16, 2013, encounter with Sandy Kassab, Mr. Blood stated his ZIP code was 48203, which is one of the highest in the State with regard to automobile insurance rates. [Tr. I, p 198:13].

11. Mr. Blood visited LA XVII on August 16 and 17, 2013. He decided to investigate LA XVII because Sandy Kassab was also the DLRP for that entity.

12.Customer "A.S." went to LA XVII in January of 2012 to purchase an insurance policy. Sandy Kassab told her the down payment on a six-month policy would cost $220.00. After purchasing the policy, A.S. learned that the insurance company had received only $120.00. When A.S. inquired with Sandy Kassab, she was told that of the $220.00 paid, $100.00 was applied to purchase NSD, and that the NSD was required in order to keep the insurance. This witness stated emphatically that she did not want NSD, that it was never discussed at any point in the transaction, and that when she discovered the $100.00 payment for NSD, she told Sandy Kassab that she already had roadside assistance through AAA. Sandy Kassab replied that A.S. could cancel the AAA, because she had to keep the NSD, because it was part of the package. [Tr, p 165-170]. This testimony is consistent with the language that A.S. wrote on the complaint form5 that she filed with DIFS in March of 2012. [Joint Exh. JT-7].

13.On July 26, 2013, R.B. purchased a seven-day insurance policy from LA Insurance XVII. He first called the agency in the process of shopping for the best price from various agencies. He noted that LA XVII was right next to the Secretary of State branch-office on Livernois near Seven Mile Road. He received a quote over the phone. He was assisted at the agency by a male agent (Sonny Kassab). He did not have any discussion with the agent regarding road side assistance, towing service, motor club membership, or Nation Safe Drivers (NSD). He wanted a seven-day policy because he could not afford anything more than that. He needed to get the seven-day policy to get his vehicle registration. He recalls paying between $200 and $300 for the auto insurance policy. He did not know that any of the price was being applied to any other product (such as road side assistance, towing, motor club membership, or NSD). He believed he

5 Some of the handwriting on the Complaint form is difficult to decipher, but A.S. was able to read most of it while on the witness stand, and confirmed that her statement on the form is consistent with her testimony.

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signed documents for the purchase of a seven-day policy, and the agent did not tell him he was signing any document for the purchase of any other product.

14. Customer D.W. was looking for long-term insurance, in order to renew the tags on his car, but could not afford the price that Sonny Kassab quoted. Instead, he opted for a seven-day policy, and was quoted a price of $370.00, which he paid in cash. The documentary evidence proves that $200.00 of the $370.00 was applied to purchase the NSD membership. He only wanted insurance, and could afford nothing more than a seven-day policy, but ended up paying more for the roadside assistance than for the insurance.

15.On July 30, 2013, S.B. went to LA IV to purchase insurance, and decided to purchase a seven-day policy. She told the insurance agent (Sandy Kassab) that she already had a towing service through AAA, which include services for lockouts or a dead battery. The agent told her the policy would cost "close to $300." [Tr I p 68].

16. S.B. testified that she only asked for automobile insurance, and that during the transaction the agent was "all over the place, honestly. She was sending faxes, answering the phone. So she just handed me some paperwork, highlighted the areas that she wanted me to sign." [Tr I, p 68].

17.On July 30, 2013, S.B. signed an application for a seven-day insurance policy. [Exh. JT-5, p 27]. The insurance application process required her to sign the documents four times. In addition, S.B.'s signature appears on a document entitled "NSD Motor Club Membership" dated July 30, 2014. [Exh. JT-5, p 118].

18.S.B. testified that the agent (Sandy Kassab) "handed me a stack of papers in which she either highlighted or took her pen and was like, sign here, sign here, sign here. And that's what I did." [Tr I, p 70]. She did not read the documents. She did not realize that she had signed a document for the NSD. She believed that the money she paid to the agent was all for insurance and not for NSD. She did not know she had purchased the NSD until she was contacted by a DIFS investigator. [Tr I, p 71].

19.Approximately 50% of revenues for the agencies are from sales of NSD memberships.

20. National Motor Club, Inc. sells the "National Safe Drivers" (NSD) memberships at wholesale to insurance agencies, which sell them to customers at retail. For a membership sold for $100.00, NSD earn $9.00 of revenue and the seller (insurance agency) earns $91.00. [Tr. I, p 219- 221].

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21. Customer M.D. called LA IV and obtained a quote for insurance in the approximate amount of $255.00. She did not ask for any other product. [Tr I, p 133, 136].

22.On July 17, 2013, M.D. went to LA IV, where Sandy Kassab told her that roadside coverage was "part of the package." [Tr I, p 136]. She told the agent that she did not need roadside assistance, and she would have declined to purchase it had she been given the opportunity.

23. The actual cost of the insurance policy that M.D. purchased was $153.00. [Joint Exh. JT- 4].

24.On July 18, 2013, J.M. went to LA IV, where he spoke with a female insurance agent about purchasing a seven-day automobile insurance policy. He never discussed a motor club membership, towing service, or roadside assistance, with the agent. [Tr I, p 97]. J.M, admits that his signature appears on the NSD form, but that he did not know he purchased the NSD.

25.ln an affidavit signed on September 24, 2013, J.M. stated that he did not remember whether NSD was mentioned during the transaction on July 18, 2013. On cross-examination at the hearing, he testified that he was sure that the agent never mentioned NSD. ·

CONCLUSIONS OF LAW

As the complaining party, Petitioner has the burden to prove the truth of the factual and legal allegations set forth in the Complaint by a preponderance of evidence. As the Michigan Supreme Court has stated, "[p]roof by a preponderance of the evidence requires that the fact finder believe that the evidence supporting the existence of the contested fact outweighs the evidence supporting its nonexistence." Blue Cross and Blue Shield of Michigan v Milliken, 422 Mich 1; 367 NW2d 1 (1985).

Pursuant to Section 1239(1) of the Insurance Code, supra, the Commissioner (now Department Director per Executive Order 2013-1) may sanction a license of a resident insurance producer for violations of the Code. MCL 500.1244.

Sec. 1239. (1) In addition to any other powers under this act, the commissioner may

place on probation, suspend, or revoke an insurance producer's license or may levy a civil fine under section 1244 or any combination of actions, and the commissioner shall refuse to issue a license under section 1205 or 1206a, for any 1 or more of the following causes:

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***

(b) Violating any insurance laws or violating any regulation, subpoena, or order of the commissioner or of another state's insurance commissioner.

***

(d) Improperly withholding, misappropriating, or converting any money or property received in the course of doing insurance business.

(e) Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance.

***

(h) Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere.

Sec. 249. For the purposes of ascertaining compliance with the provisions of the insurance laws of the state or of ascertaining the business condition and practices of an insurer or proposed insurer, the commissioner, as often as he deems advisable, may initiate proceedings to examine the accounts, records, documents and transactions pertaining to:

(a) Any insurance agent, surplus line agent, general agent, adjuster, public ;;idjuster or counselor.

Sandy Kassab

The following evidence supports a conclusion that Sandy Kassab violated sections 1239 (b), (d), (e), and (h) of the Insurance Code. MCL 500.1239(b), (d), (e), and (h).

When the state's investigator asked for a quote on an insurance policy, Sandy Kassab offered the following: "The second option they offer is a seven-day policy, which will just allow you to get plates and tabs and get on the road legally, and that's going to be $290."

Blood then asked, "OK, but with the ... seven-day policy, it [towing and road service] just comes with it? And Sandy Kassab answered, "Yeah."

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Respondent attempts to characterize the above exchange as a simple misunderstanding. However, after hearing the entire conversation, it is clear that Sandy Kassab stated that the price for the seven-day policy is $290, with no mention of roadside service at that point. Sandy Kassab testified at the hearing that if an insurance premium was $173.00 she provided a quote of $273.00, which is for the seven-day policy and roadside assistance. [Tr II, p 191 :4]. Therefore, with regard to the statement to Mr. Blood, it is more likely than not that the price of the insurance policy was $190, and that $100 of the total quote was for NSD. Sandy Kassab did not say it was optional. Her statement was misleading, and created the impression that the insurance premium was $290. This is false. This price included the NSD.

We know from other transactions that it was the practice at each agency to quote a price for the policy that included the NSD. [See, e.g., Testimony of Cindy Kassab, Tr II, p 258:13].

The above findings of fact are supported by the ensuing discussion between Mr. Blood and Sandy Kassab. When Mr. Blood (alias, Mr. Davis) asked whether "it just comes with" the insurance he was referring to roadside service, and Sandy Kassab answered "Yeah," meaning yes, roadside assistance does come with the insurance. By quoting the single price for insurance, and then indicating that roadside coverage comes with the insurance for $290, Sandy Kassab intentionally misled the customer. She was content to allow the customer to believe that the roadside assistance came with the insurance policy. She clearly did not explain that he could get "on the road" with a seven-day policy for $190.00, and that he could have optional roadside assistance for an additional $100.00.

It is no defense to claim that she would have explained the deal to him accurately had he proceeded to fill out the paperwork. At that point, the customer would have been under the belief that the agent had offered to sell insurance which included roadside assistance for $290. It is likely that the deal would have closed under that premise, as it did in numerous other transactions involved in this case.

Sandy Kassab was asked how she typically responds if a customer asks for a quote on a seven-day policy and the computer shows that the cost for that policy will be, for example, $173.00.

Q. . .. what would you tell that customer when they say, what's, what's the quote?

A. For $273.00 you would get the seven-day policy, which is liability coverage, and the optional roadside assistance. [Tr II, p 191 :4].

Other than her own testimony, there is no evidence that she ever worded her responses to specify "optional roadside assistance." Even if she did, it is misleading to give a quote

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for insurance and "optional" roadside assistance, when the customer only asked for a quote for an insurance policy.

The fact that the NSD membership agreement states that it is "optional and not required in order to purchase or obtain insurance ... " does not cure the above misleading statements. It is not acceptable to misrepresent the terms of the transaction and present documents for signature that contradict the verbal representations.

It is clear from the recording of the conversation between Sandy Kassab and the investigator that when asked for quote, she stated that cost of the seven-day policy was $290.00. Initially, she did not say that the policy "included" roadside assistance or "came with" roadside assistance. There was no discussion of NSD, towing, or roadside assistance. At this point the customer was led to believe that the cost of the insurance (only) would be $290.00. More likely than not, based on the totality of the evidence, the actual insurance cost was $190.00.

Sandy Kassab stated that "The second option they offer is a seven-day policy, which will just allow you to get plates and tabs and get on the road legally, and that's going to be $290." Blood responded, "$290 right out the door?" Sandy Kassab answered, "Out the door, yes." The conversation was at a natural ending point, and had Mr. Blood walked out, he would have been under the impression that a seven-day policy would cost him $290.00, with no mention of roadside assistance, optional or otherwise.

Of the thousands of policies he has reviewed, the highest premium that Mr. Blood has seen for a seven-day policy is $171.00. [Tr. I, p 198:6]. At the August 16, 2013, encounter with Sandy Kassab, Mr. Blood stated his ZIP code was 48203, which is one of the highest in the State with regard to automobile insurance rates. [Tr. I, p 198:13]. Again, the $290.00 quote included both the insurance premium and $100.00 for the NSD policy that the customer did not ask for.

Later, Blood asked "what comes with the seven-day policy?" Sandy Kassab replied, "It's just insurance for the seven days and then you add6 towing and road service also." [Jt-2, recording 2, at 4:38]. Stating "then you add towing and road service" is different than saying that it is "optional." She did not say it was optional. She stated it as a matter of fact that "you add towing and road service," which would be reasonably understood to mean that the road service is part of the $290.00 quoted price.

Blood then asked for further details, "Oh that comes with it?" Sandy Kassab answered, "Um hm" and Blood replied, "Nice." Again, Sandy Kassab answered "Yes" when Blood asked, "But with the seven-day policy it just comes with it" ("it" meaning roadside

6 It is possible that Cindy Kassab said, "then you have towing and road service also." The ALJ listened to the live recording and also slowed it down to better understand her words, and hears "then you add towing and road service."

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assistance.) Sandy Kassab affirmed that with the six-month policy the roadside could be added for $100.00 but that with the seven-day policy roadside "just comes with it."

Based on the foregoing, it can be concluded that the $290.00 quote also included both insurance and NSD. This is misleading and dishonest.

Customer S.B.

The July 30, 2013, transaction with S.B. also supports the above-cited violations.

On July 30, 2013, S.B. went to LA IV to purchase insurance, and decided to purchase a seven-day policy. She told the insurance agent (Sandy Kassab) that she already had a towing service through AAA, which included services for lockouts or a dead battery. The agent told her the policy would cost "close to $300.00." [Tr I, p 68].

S.B. testified under oath at the hearing that she only asked for automobile insurance and that Sandy Kassab "handed me some paperwork, highlighted the areas that she wanted me to sign." [Tr I, p 68].

The customer, S.B., credibly testified that the agent "handed me a stack of papers in which she either highlighted or took her pen and was like, sign here, sign here, sign here. And that's what I did." [Tr I, p 70]. Ms. Bundy did not realize that she had signed a document for the NSD. She believed that the money she paid to the agent was all for insurance and not for NSD. She did not know she had purchased the NSD until she was contacted by a DIFS investigator. [Tr I, p 71].

The fact that S.B. already had roadside service, towing, lockout, and battery service through AAA lends credibility to Ms. Bundy's claim that she did not want duplicative services through NSD. This is similar to the transaction with A.S. (discussed infra).

Respondents argue that S.B. is not credible because she did not mention in her affidavit that she had roadside assistance through AAA, but that she testified to this fact at the hearing. There is no evidence to prove that Ms. Bundy did not have AAA. Undoubtedly, Respondents could have obtained evidence to prove whether she had AAA roadside assistance or not. There is no reason to believe that S.B. lied about having roadside assistance through AAA. This fact standing alone, without regard to whether she mentioned it when interviewed for the affidavit, makes it highly unlikely that she would knowingly purchase another roadside assistance membership. Respondents have not provided any valid answer to this inconvenient fact. Respondents cite Sandy Kassab's self-interested testimony where she claims that she never misled any customer. The credibility problem lies in Sandy Kassab's testimony. The recorded conversation between Sandy Kassab and Justin Blood is convincing - she led the investigator to believe that the quoted price included roadside assistance. It is entirely reasonable to

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believe that S.B. was also misled to believe that the NSD was required or otherwise included with the insurance policy.

Respondents attempt to impeach S.B.'s credibility by pointing to some alleged inconsistencies in her testimony, regarding her understanding of the NSD policy, specifically whether Sandy Kassab explained it to her, whether it was voluntary, whether it came with the insurance, or was a part of the insurance. Any confusion in this regard is understandable given the misleading tactics employed by Respondents. The fact remains that S.B already had AAA roadside assistance. Under these circumstances, it is highly unlikely that she would have agreed to purchase the NSD membership, unless she was led to believe that it was either part of the insurance policy (not severable) or that it was required to buy the membership in order to get the insurance.

A. There was no option to take this out. I would have gladly taken this extra $100 and put it towards something else. [S.B. testimony, Tr I, p 79-80].

S.B.'s testimony that roadside assistance was "never explained to her" is not inconsistent with her testimony that she was not given the option to buy insurance without the NSD. The testimony that NSD was never explained does not mean or imply that it was discussed at all.

Customer J.M.

J.M.'s testimony is also found to be relevant and credible. On July 18, 2013, J.M. went to LA IV, where he spoke with Sandy Kassab about purchasing a seven-day automobile insurance policy. He never discussed a motor club membership, towing service, or roadside assistance with the agent. [Tr I, p 97]. J.M. admits that his signature appears on the NSD form, but states that he did not know he purchased the NSD. J.M. believed that the entire amount that he paid was for the seven-day policy.

Customer A.S.

In January of 2012, complainant and customer "A.S." went to LA XVII to purchase an insurance policy. Sandy Kassab told her that the down payment on a six-month policy would cost $220.00. After purchasing the policy, A.S. learned that the insurance company had received only $120.00 for the policy. At a later date, A.S. inquired about this discrepancy, and Sandy Kassab told her that of the $220.00 paid, $100.00 was applied to purchase NSD, and that the NSD was required in order to keep the insurance. Customer A.S. stated emphatically that she did not want NSD, that it was never discussed at any point in the transaction, and that when she discovered the $100.00 payment for NSD, she told Sandy Kassab that she already had roadside assistance through AAA. Sandy Kassab replied that A.S. could cancel the AAA, because she had to keep the NSD, because it was part of the package. [Tr, p 165-170].

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This testimony is consistent with the language that A.S. wrote on the complaint form7

that she filed with DIFS in March of 2012. [Joint Exh. JT-7].

Sandy Kassab was asked, "Do you ever tell a customer that your policy includes optional roadside coverage?" She answered, "That it includes? No. You're purchasing it." [Tr II, p 196:13]. This testimony is directly contradicted by the recorded transaction with the DIFS investigator and testimony from A.S.

The above evidence pertaining to the recorded investigation, together with the testimony of S.B., J.M., and A.S., standing alone, is sufficient to prove that Sandy Kassab, while working at LA XVII, violated the Code sections 1239(1) (d), (e), and (h).

Where the customer paid $290.00 based on the understanding that the money was to be applied to the purchase of insurance, and in fact, $100.00 of that amount was applied to the NSD membership, this constitutes "misappropriating ... money received in the course of doing insurance business" contrary to MCL 500.1239(d).

Where the customer asked only for a quote for insurance, and where Sandy Kassab quoted a price for insurance that also included the price of an NSD membership, without informing the customer of this fact, Sandy Kassab "intentionally misrepresented the terms of an actual or proposed insurance contract or application for insurance" in violation of MCL 500.1239(1)(e).

The same conduct described above with regard to subsections 1239(1)(d) and (e), also constitutes "fraudulent, coercive, or dishonest practices demonstrating incompetence, untrustworthiness, or financial irresponsibility" in violation of MCL 500.1239(h). Under Michigan case law, a claim of fraud requires that the following elements be proven:

[t]he general rule is that to constitute actionable fraud it must appear: (1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery. [Candler v Heigho, 208 Mich 115, 121; 175 NW 141 (1919), overruled in part on other grounds by United States Fidelity & Guaranty Co v Black, 412 Mich 99, 116 n. 8, 13; 313 NW2d 77 (1981)

7 Some of the handwriting on the Complaint form is difficult to decipher, but A.S. was able to read most of it while on the witness stand, and confirmed that her statement on the form is consistent with her testimony.

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(citation and quotation marks omitted).] Titan Ins Co v Hyten, 491 Mich 547, 555; 817 NW2d 562, 567-68 (2012).

All of the above elements are present under the fact of this case. Sandy Kassab falsely represented the cost of the insurance cost (a material representation), knowing that it was false because the quote also included NSD, with intention that customers would rely on the inflated quote. The customer relied upon the misrepresentation, and thereby suffered an economic loss.

An insurance producer violates section 1239(1 )(d) by "Improperly withholding, misappropriating, or converting any money or property received in the course of doing insurance business." It is proven that Sandy Kassab, LA IV, and LA XVII received money for insurance and wrongfully applied it to the NSD membership.

S.B. believed that all the money she paid to Sandy Kassab and LA IV was for insurance. This is true whether or not she thought the NSD was part of or included with the insurance. She only wanted insurance and thought that was what she was paying for. This is also evident from her recorded interaction with investigator Blood.

With regard to the transaction with customer A.B., it is proven that there was no discussion of NSD at the time A.B. purchased her insurance. A.B. believed all the money was to be applied to the insurance policy. However, Sandy Kassab and LA IV received the money and "misappropriated, or converted" it to the NSD transaction, in violation of section 1239(1)(d).

"Misappropriation" means "turning to a wrong purpose." Black's Law Dictionary, Rev. 4th

ed p 1150. The money intended for insurance was turned to a wrong purpose (the NSD). The "wrong purpose" was that the customer only wanted insurance at the cheapest price and was led to believe that the NSD was required or part of the policy; or the customer had no actual knowledge that they purchased an NSD membership.

"Conversion" means "Any unauthorized act which deprives an owner of his property permanently or for an indefinite time." Black's Law Dictionary, Rev. 4th ed p 402. Again, the money intended for insurance was converted to the NSD policy, either under the false pretense that the NSD was required or part of the insurance policy, or without any actual knowledge on the part of the customer. (The money was either sent to Nation Motor Club, Inc., or kept by Respondent(s), which was not authorized by the customer.) The evidence also establishes that Sandy Kassab violated the following section:

An agent shall be a fiduciary for all money received or held by the agent in his or her capacity as an agent. Failure by an agent in a timely manner to turn over the money which he or she holds in a fiduciary capacity to the

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persons to whom they are owed is prima facie evidence of violation of the agent's fiduciary responsibility. MCL 500.1207(1) [Relevant part].

The fact that Sandy Kassab, LA IV, and LA XVII received money in a fiduciary capacity intended for the purchase of an insurance policy and applied a portion to the NSD membership is a violation of section 1207(1).

Section 1207(1) imposes a fiduciary duty upon the agent, and states that certain conduct is a prima facie violation of the fiduciary duty. However, a prima facie case is not proven under this statutory provision because Sandy Kassab did not fail "to turn over the money which he or she holds in a fiduciary capacity to the persons to whom they are owed . . . ." There is no evidence that she did not turn the money over to the insurance company to whom it was owed. Further, it has not been proven that she failed to turn over the money for the NSD membership to any person to whom it was owed. The evidence shows that the customers in fact had an NSD membership in effect, albeit unwittingly. Whether the money collected for the NSD membership was owed to Nation Motor Club, Inc. or whether it was all profit kept by Respondents, in either case, the monies were "paid to whom they are owed." The NSD money was not owed to the insurance company.

It is arguable that the money was owed to the customer, because there was never a valid agreement to purchase the NSD membership, and the insurance cost less than the amount paid. Therefore, under this interpretation, the fiduciary had a duty to return the money to the customer (to whom it was "owed") and therefore, a prima facie case exits.

In any event, the first sentence of section 1207 imposes a "fiduciary responsibility" upon the agent for all money received. A violation may exist with or without the benefit of the presumption that arises upon establishing a prima facie case. Whether or not a prima facie case has been demonstrated under the second sentence of section 1207(1), Sandy Kassab violated her fiduciary duty to apply the money only for the purchase of insurance, as intended by several customers.

"Fiduciary" has been defined as "A person holding the character of a trustee . in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires." Black's Law Dictionary, Rev. 4th ed p 753. Sandy Kassab held the money at issue in trust, in a fiduciary capacity within the meaning of MCL 500.1207(1 ). Sandy Kassab did not handle the transaction and the money with "scrupulous good faith and candor." She violated her fiduciary duty under section 1207(1) under our facts, where the customer believed that the money was paid only for insurance, when in fact it was not.

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Sonny Kassab

The following evidence supports a conclusion that Sonny Kassab violated sections 1239(1) (b), (d), (e), and (h) of the Insurance Code. MCL 500.1239(1), (d), (e), and (h).

Customer R.B.

The transaction with R.B. at LA XVII on July 26, 2013, proves that Sonny Kassab sold customer R.B. a NSD membership. R.B. credibly testified that he did not ask for the NSD, did not know that he signed an application to purchase it, and he believed he was paying only for a seven-day insurance policy. R.B. credibly testified that he only wanted automobile insurance at the lowest price.

R.B. and Sonny Kassab did not discuss road side assistance, towing service, motor club membership, or Nation Safe Drivers (NSD). He wanted a seven-day policy because he could not afford anything more. He needed to get the seven-day policy to get his vehicle registration. "I didn't want to purchase any roadside. I was on a tight budget .... " [Tr I, p 42:3]. He recalls paying between $200.00 and $300.00 for the auto insurance policy. The actual price of the insurance policy was $104.00, but he paid a total of $204.00. He did not know that any of the price was being applied to any other product (such as road side assistance, towing, motor club membership, or NSD). He believed that he signed documents for the purchase of a seven-day policy, and the agent did not tell him he was signing any document for the purchase of any other product.

Based on R.B.'s stated objectives, it is not credible that he would have willingly opted to pay an extra $100.00 for roadside assistance, when he could have achieved his objective, "to get my tags," for $104.00. Neither is it credible that he would fabricate this testimony merely to obtain a $100.00 refund (in addition to submitting to a deposition and traveling to Lansing to testify).

Although Respondents claim that R.B. vacillated in his testimony, the fact is, that even on cross-examination he answered "no" when asked whether he understood that only $104.00 of the total amount paid went to the purchase of insurance. He acknowledged that the paperwork states that the insurance cost $104.00, but he believed that the entire $204.00 was for the seven-day insurance policy only. [Tr I, p 43].

Respondents attempt to impeach the credibility of R.B., in part, based on the following testimony:

Q. And no one told you NSD was mandatory, right?

A. No one told me it was mandatory, No. [Tr I at 1 :02:26; and p 47: 17].

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This answer was given after a series of questions where R.B. acknowledges signing the NSD application. He admits he did not read the application, in part, because he was in a hurry. The above answer does not amount to admission that he knew he was purchasing an NSD membership. R.B. stated that no one told him that NOS was mandatory. This does not mean that he was told anything about the NSD or that he knew he was purchasing it. R.B. is found to be credible. He met with the DIFS investigator, submitted to a deposition, and traveled to Lansing to testify. It is not reasonable to conclude that he went to these lengths, fabricated his testimony, and committed perjury, merely to get a $100.00 refund.

Even if there are some minor inconsistencies on tangential matters, R.B.'s testimony is consistent with regard to the material facts. He was lured into the transaction by being quoted a lump sum price, which only Sonny Kassab knew was intended to include an NSD membership. It is wrong and deceptive to quote a price that includes a product that the customer did not ask for, where the customer specifically asks for a quote for automobile insurance only.

Respondent argues that R.B.'s testimony should be stricken because it was established at the hearing that in 2013 R.B. completed a questionnaire about his visit to the agency on July 26, 2013, which provided written answers by email to the DIFS investigator. [Tr I, p 49.] The investigator used these answers to prepare an affidavit that R.B. signed on September 30, 2013. This affidavit is consistent in all significant respects with R.B.'s hearing testimony. The affidavit was admitted into evidence. However, Petitioner refused to produce the email containing the written answers to the questionnaire via discovery and did not offer it into evidence.

Respondents argue that the written answers must be disclosed as a prior statement under MCL 24.274(2), which provides in relevant part: "An agency that relies on a witness in a contested case, whether or not an agency employee, who has made prior statements or reports with respect to the subject matter of his testimony, shall make such statements or reports available to opposing parties for use on cross-examination." Id.

DIFS argues that the answers to the questionnaire are not a "prior statement" within the meaning of MCL 24.272(2). The affidavit, which was based at least in part on the answers to the questionnaire, is a prior statement that was produced in discovery and admitted into the record. DIFS further argues that the written answers in the email are not discoverable or admissible because DIFS obtained that information in an investigation and it is therefore "confidential by law" under MCL 500.1246(1). Finally, DIFS asserts that the director is authorized, but not required, to admit such information in "the furtherance of any regulatory or legal action brought as a part of the" director's duties. Id. DIFS argues that a contrary ruling in this case would stand in opposition to

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its longstanding interpretation and application of section 1246 in other regulatory actions. There are no appellate decisions providing guidance on the application of section 1246(1 ). This Tribunal rules in favor or Petitioner on this issue.

The above testimony of R.B., standing alone, is sufficient to meet Petitioner's burden of proof with regard to Sonny Kassab. The pattern of similar activity that occurred at LA IV and LA XVII by Sandy Kassab supports this conclusion.

Affidavit of D.W.

Petitioner also presented the affidavit of LA XVII customer D.W, who was unavailable to· testify at the hearing. (Exh. P-9). This affidavit is admissible and relevant. Although the probative value of this evidence is diminished because it is not sworn testimony and was not subject to cross-examination, a reasonably prudent person would consider this affidavit as corroborative of the other evidence of similar transactions involving customers who did testify at the hearing, and facts developed by the investigation by Mr. Blood. Standing alone, the affidavit would not meet the burden of proof. Nevertheless, despite the deficiencies inherent in an affidavit, the affiant did attest that he was looking for long-term insurance, in order to renew the tags on his car, but could not afford the price that Sonny Kassab quoted. Instead, he opted for a seven-day policy, and was quoted a price of $370.00, which he paid in cash. The documentary evidence proves that $200.00 of the $370.00 was applied to purchase the NSD membership. Here is another customer that claims he only wanted insurance, and could afford nothing more than a seven-day policy, but ended up paying more for the roadside assistance than for the insurance that he needed to get his tags renewed. It defies logic and credulity that D.W. would agree to pay $200.00 for the NSD membership, when he could have obtained the seven-day policy for $170.00.

Respondent's question D.W.'s credibility on various grounds. His affidavit claims that he did not sign his name on the NSD application, but there is no evidence to back this up. More significantly there are some discrepancies in that the address that D.W. provided on his paperwork differs from his address on the affidavit that he signed some two months later. [See JT-10 and P-9]. D.W. used a Belleville address to purchase insurance, but he stated a Detroit address in his affidavit. This is concerning, but even if he did lie about his address (perhaps to avoid the high price of insurance for a Detroit address) this does not support the notion that he would be willing to pay $200.00 extra for roadside assistance, merely to get a seven-day policy so he could get his tags renewed.

The fact that Sonny Kassab and LA XVII received money in a fiduciary capacity that was intended for the purchase of an insurance policy and applied a portion to the NSD membership proves that they failed to turn over the money to the insurer is a violation of section 1207(1) of the Insurance Code.

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LA IV and LA XVll's Motion for Directed Verdict under MCL 500.1239(3)

In Count V of the Complaint, Petitioner seeks to impose sanctions upon the licenses of LA IV and LA XVII ("the Agencies"). The insurance code provides as follows:

The license of a business entity may be suspended, revoked, or refused if the commissioner finds, after hearing, that an individual licensee's violation was known or should have been known by 1 or more of the partners, officers, or managers acting on behalf of the partnership or corporation and the violation was neither reported to the commissioner nor corrective action taken. MCL 500.1239(3).

The above section provides a statutory basis for the Director to determine "after a hearing" that an individual's violation of the code authorizes the Director to suspend or revoke the license of the "business entity." This issue was raised upon Respondents' motion for directed verdict at the close of Petitioner's case in chief, which was taken under advisement. Under a reasonable interpretation of section 1239(3), it is concluded that the Respondent Agencies, LA IV and LA XVII, are subject to sanctions based on the conduct of the individual licensee Sandy Kassab and Sonny Kassab.

At the close of Petitioner's proofs, the evidentiary record was sufficient to support an inference that LA IV and LA XVII are subject to sanctions under section 1239(3), based on the failure of officer Sandy Kassab to report a violation and to take corrective action. The Motion for Directed Verdict is properly denied. First, Respondents do not claim that the record supports a finding and conclusion that Sandy Kassab reported a violation. Rather, Respondent's Post Hearing Brief focuses upon the lack of evidence offered in Petitioner's case in chief to prove that there was no "corrective action taken" by Sandy Kassab. It is a fact that the violations were reported to DIFS in the consumer complaint filed by customer AS., and were not reported by the Agencies.

Further, it can be inferred that Sandy Kassab did not report a violation, because she does not believe any violation existed.

Petitioner introduced no evidence in its case in chief that Sandy Kassab failed to take corrective action. As Respondents' counsel stated on the record, "during the Petitioner's case in chief, there was no evidence that corrective action was not taken." [Tr II, p 92:5]. Respondent's argument assumes that Petitioner was required to prove a negative proposition - that something didn't happen. Any such corrective action, or lack thereof, was within the knowledge of the officer Sandy Kassab. Petitioner did not call Sandy Kassab as a witness in its case in chief.

At the close of Petitioner's proofs, the record was silent as to whether Sandy Kassab took any corrective action. It can nevertheless be inferred, based on the evidence that

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was presented, that no corrective action was taken. There was ample evidence that Sandy Kassab violated the code. She denies that any violation occurred. Therefore, it is reasonable to infer that the officer who committed the violation took no corrective action, or that any corrective action that was taken was inadequate because it occurred after the violation was discovered by DIFS. Therefore, the evidence of record at the close of Petitioner's proofs is sufficient to meet the burden to go forward, so as to shift the burden of proof on this negative proposition to Respondents.

As will be discussed in greater detail, infra, Respondents should bear the burden of going forward with the evidence that corrective action was taken, given the nature of the statutory language and the circumstances of this case. According to Professor McCormick, "Perhaps a more frequently significant consideration in fixing the burdens of proof is the judicial estimate of the probabilities of the situation. The risk of failure of the burden of proof may be placed upon the party who contends that the more unusual event has occurred." McCormick on Evidence, 3d Ed, p 950.

Therefore, it is appropriate to consider the evidence that was elicited from Sandy Kassab on cross-examination8, which establishes, as argued in Petitioner's Closing Argument, that "Sandy Kassab acknowledges that no report to DIFS was made, and it should be inferred based on this admission that no corrective action was taken for Code violations because Kassab did not agree that any violations had occurred." It is clear that the complaint in this case originated from a customer ("A.S.") and was not reported by Sandy Kassab.

Under a reasonable interpretation of the section 1239(3), the reporting and corrective action must take place before the conduct is discovered by DIFS. Otherwise, an officer could fail to report a violation and the business entity could avoid responsibility as long as the officer takes any form of "corrective action" after being caught in the violation. In our case, the violation was reported by a consumer complaint filed by customer A.S. on April 4, 2013. It was not reported by any officer. The officer has a duty to both report the violation and take corrective action. The officer must discover the violation, report it to DIFS, and take corrective action in order for the business entity to avoid responsibility. The statute describes the officer's duty to ensure that the business entity's agents are complying with the Code.

Sandy Kassab also "knew or should have known" that Sonny Kassab engaged in the same deceptive business practices at LA XVII that she engaged in at the Agencies.

There is authority for the proposition that Respondents bear the burden on the negative proposition that no corrective action was taken.

8 See A & N Club v Great American Ins Co, 404 F2d 100 (6th Cir. 1968). "the motion [for directed verdict] may be renewed though at the close of all the evidence. This Court has held that a review now would take into consideration all of the evidence presented before and after the initial motion." Id, at 103.

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The leading case to the point is United States v Denver & Rio Grande R Co, 191 US 84; 24 S Ct 33, 35; 48 L Ed 106, from which the following is taken:

'It is a general rule of evidence, noticed by the elementary writers upon that subject (1 Greenl.Ev. § 79) that 'where the subject-matter of a negative averment lies peculiarly within the knowledge of the other party, the averment is taken as true unless disproved by that party.' When a negative is averred in pleading, or plaintiff's case depends upon the establishment of a negative, and the means of proving the fact are equally within the control of each party, then the burden of proof is upon the party averring the negative; but when the opposite party must, from the nature of the case, himself be in possession of full and plenary proof to disprove the negative averment, and the other party is not in possession of such proof, then it is manifestly just and reasonable that the party which is in possession of the proof should be required to adduce it; or, upon his failure to do so, we must presume it does not exist, which of itself establishes a negative.' Brown v Koury, 346 Mich 97; 77 NW2d 336 (1956) dissenting opinion by Black, J., Smith, J, concurring.

In Brown, supra, the dissenting Justices noted that the party in possession of the proof (the defendant) had the burden to "plead and prove" the matter and that "Until he does so plaintiffs are under no obligation to speak up, by pleading or otherwise, with anticipatory regard for such claim." Id, at 102. In our case, there is no indication from the record that Respondents raised this defense in any pleading, but that Petitioner heard it for the first time when Respondents moved for a directed verdict. In addition to the reasonable inference that no corrective action was taken, Respondents' motion is properly denied based on the allocation of the burden of proof. Respondents are uniquely situated to produce evidence of any corrective action taken. It is eminently reasonable to require Respondents to produce evidence of corrective action, where they allege that Petitioner failed to prove a negative with regard to an unforeseen defense.

Respondents argue that they took corrective action in late 2013, by instituting a new form because some customers "seemed confused," not because an officer found that an individual licensee violated the code. (Respondents LA 4 and LA 17 Post Hearing Brief). The original consumer complaint is dated March 29, 2012, and DIFS notified LA XVII and Sandy Kassab of the complaint by letter dated April 20, 2012. [Exh. JT-7, p 12 and 17]. Under these circumstances, where Sandy Kassab is the violator, it is absurd to suggest the corporation may avoid responsibility by taking this type of purported "corrective action." Although not in evidence, Respondents argue that DIFS has actual

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knowledge of the form, which was produced in a related matter ("The Gardon Action," Case No. 16:969-L). As quoted in Respondent's Post-Hearing Brief, this form states as follows:

I am purchasing a 6 month / 7 day policy (circle one). My agent has explained all available options on the 6 month policy as well as the 7 day only policy. I also acknowledge that I have purchased roadside service and towing with Nation Safe Drivers. I have read the membership and understand its content and acknowledge receipt of a copy of the contract. Respondent LA 4 and LA 1 Ts Post-Hearing Brief, p 2-3.

Although this document was not admitted into the evidentiary record, it is considered as the type of documentary evidence that would be offered to support a motion for summary disposition. See MCR 2.116(8)(2), (3), and (5). This affidavit is considered as documentary evidence submitted with Respondent's renewed motion for directed verdict, which could also be characterized as a motion for summary disposition. A motion for summary disposition under MCR 2.116(c)(10) may be filed at any time. MCR 2.116(8)(2) and (G). If this evidence is not considered, Respondents produced no other evidence that corrective action was taken, and therefore, have failed to rebut the reasonable inference to the contrary.

In light of the nature of the violations in this case, where customers were told one thing and asked to sign documents that say something different, the purported corrective action is wholly inadequate. In other words, the new form did nothing to correct the violations, but would merely serve to cover them up. In a typical transaction, the customer signed four times on the insurance documents and once on the NSD form. The NSD form already includes language directly above the signature line stating that the customer acknowledges reading the form and understands that the membership is "optional and not required in order to purchase or obtain insurance .... " [JT-8, p 26]. It has already been ruled in this case that this signature does not obviate the misleading statements that preceded the signing. Procuring a sixth signature on a redundant document does not cure the violations in this case, which by their very nature involve misrepresentation of the contents of the form. The new form is not "corrective action" within the meaning of section 1239(3). Proper corrective action would require an acknowledgment (reporting) that a violation occurred and proof that actions were taken to ensure that no further misleading statements or practices were engaged in by Sandy Kassab or any other agent. It would be a relatively simple matter for Respondents to continue perpetrating these violations by obtaining one more signature.

Sandy Kassab knew or should have known that her conduct violated the code. She therefore, had a duty to report it, which she did not do. It is also notable that the statute also contemplates a situation where the officer did not actually discover the violation, but "should have known" of the violation, in which case, there is a duty to report and

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take corrective action, notwithstanding that the officer lacked actual knowledge. Therefore, when an officer who commits the violations denies any wrongdoing (lacks actual knowledge of the violation) she naturally would not report a violation or take any corrective action.

The language of Section 1239(3) strongly suggests that is it primarily intended to impose a duty upon an officer "acting on behalf of the corporation" to report a violation by another agent and to immediately take corrective action. This duty requires the officer to use reasonable diligence to know when an "individual licensee" violates the code under his or her watch. The section has far less relevance in a case involving a violation by the officer. This is not to say that an officer could potentially avoid liability to the business entity if in fact, she realized that she had violated the code, immediately reported the violation to DIFS, and took corrective action, but clearly, these are not our facts.

Under Respondent's view, the officer could fail to report a violation and avoid liability to the entity by attempting some form of corrective action, either before or after DIFS discovers the violation. Taken to the extreme, the entity could avoid liability by correcting the violations any time prior to the close of the hearing. (Section 1239(3) requires the director to make the determination "after hearing.") Furthermore, the entity could not be held liable unless DIFS proves a negative - that is, the entity failed to take corrective action. These considerations all point to the logical conclusion that the burden of proof must be cast upon the party that either took or did not take the corrective action.

As explained by Respondents in their brief, "neither" is defined as "Used before the first of two . . . alternatives (the others being introduced by 'nor') to indicate that they are each untrue or each do not happen." (Nor, Definition, OxfordDictionaries.com, [citation omitted]. This supports the above rendering of the statutory language, which is reasonably interpreted to state that the business entity may be sanctioned for a violation, unless the officer reports the violation and takes corrective action. Again, in order for the business entity to avoid liability for a violation by its agent, it must be shown that the officer both reported the violation and took effective corrective action. And, the burden of proof on this issue is properly cast on the business entity. The "neither nor" construction dictates that both elements must exist in order to avoid imputing liability to the entity. Under Respondents' interpretation, this Tribunal is, in effect, asked to presume that corrective action was taken, merely because Petitioner introduced no direct evidence on that point in its case in chief. Assuming corrective action was taken, but the violation was not reported, this suggests that the law permits the entity to hide the violation, but avoid liability by taking secret "corrective action" (which it is under no duty to disclose). It is clear that the intent of section 1239(3) is that the director may sanction the entity for a violation by an agent unless the entity (by its officer) both reports the violation and takes immediate corrective action.

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Finally, Petitioner correctly asserts that, without regard to section 1239(3), the agencies may be sanctioned under corporate law principles based on the violations by the officer Sandy Kassab. In addition to the count alleging a violation of section 1239(3), the Statement of Factual Allegations includes Counts I-IV, each of which allege that 'The Agencies provided justification for suspension or revocation of licensure ... " based on the wrongful conduct of the officer Sandy Kassab. [See, Statement of Factual Allegations, paragraphs 28, 31, 34, and 39]. Each of the foregoing allegations include language modeled after section 1239(3) to the effect that Sandy Kassab "was required to report the violations to the Director or take correction action, but did neither." However, Count V specifically avers a violation of section 1239(3), whereas Counts I to IV do not, thereby alleging the necessary facts to support a finding of liability under common law principles and case law pertaining to corporations. Therefore, Respondents were on notice that Petitioner sought to sanction the Agencies based on the conduct of Sandy Kassab and Petitioner is not precluded from arguing alternative legal grounds for imposing sanctions on the Agencies. Under the law of corporations, there is no need to prove that Sandy Kassab failed to report the conduct and failed to take corrective action. The Agencies may be held liable for the wrongful conduct of its officer.

. . the fraudulent acts of a corporate officer may be imputed to a corporation where those acts (1) are in the course of employment and (2) are for the benefit of the corporation. Official Committee of Unsecured Creditors v RF Lafferty & Co, 267 F3d 340, 358 (2001); MCA Fin Corp v Grant Thornton, LLP, 263 Mich App 152, 163; 687 NW2d 850, 857 (2004)

As an officer of LA IV and LA XVII, Sandy Kassab's violations are imputed to the Agencies.

Sandy Kassab committed the violations involving customer M.D. at LA IV, in the course of her employment, within the scope of her responsibilities as an officer, and for the benefit of the corporation.

Sandy Kassab committed the violations with regard to the transaction with customer S.B. at LA XVII, which provides the factual and legal basis for imputing the violation to the corporate entity.

It is also reasonable to conclude that Sandy Kassab knew or should have known that Sonny Kassab engaged in the same practices.

In Sniecinski v Blue Cross & Blue Shield of Michigan, 469 Mich. 124, 131; 666 NW2d 186 (2003), our Supreme Court set forth the standard of review for a motion for directed verdict.

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This Court reviews de novo the trial court's decision on a motion for a directed verdict. Sniecinski v Blue Cross & Blue Shield of Michigan, 469 Mich 124, 131; 666 NW2d 186 (2003). With respect to the motion, the evidence and all legitimate inferences are examined in a light most favorable to the nonmoving party. Id. A directed verdict is only appropriate if there is no factual question on which reasonable jurors could differ. Zantel Marketing Agency v Whitesell Corp, 265 Mich.App 559, 568; 696 NW2d 735 (2005). "A motion for directed verdict ... should be granted only if the evidence viewed in this light fails to establish a claim as a matter of law." Sniecinski, 469 Mich at 131.

Also see Torma v Montgomery Ward & Co, 336 Mich 468; 58 NW2d 149 (1953):

In determining whether defendant was entitled to a directed verdict at the close of plaintiff's proofs the testimony introduced by her must be construed as strongly as possible in her favor. Loveland v Nelson, 235 Mich 623, 209 NW 835; Thompson v Michigan Cab Co., 279 Mich. 370, 272 NW 710. Torma, id. at 475.

PROPOSED DECISION

The undersigned Administrative Law Judge proposes that the above findings of fact and conclusions of law be adopted, and that a sanction or sanctions be ordered by the Director in a final decision and order.

EXCEPTIONS

Any Exceptions to this Proposal for Decision should be filed in writing with the Department of Insurance and Financial Services, Division of Insurance, Attention: Dawn Kobus, P.O. Box 30220, Lansing, Michigan 48909, within twenty-one (21) days of the issuance of this Proposal for Decision. An opposing party may file a response within fourteen (14) days after Exceptions are filed.

~,IL1 (\_ tl~" Thomas A. Halick Administrative Law Judge