SC Administrative Law Court Decisions

I. Statement Of The Case

On June 16, 1997, Jeffrey S. Rhodes (Rhodes) filed an application with the Department of Insurance (DOI) for an individual resident insurance agent's license. The application was transmitted to DOI by Bankers Life Insurance Company (Bankers Life) as the sponsoring insurance company for Rhodes. DOI denied Rhodes' application on June 20, 1997 because Rhodes failed to fully disclose his criminal convictions (as described in the Findings of Fact, infra). Further, on November 3, 1997, Rhodes filed a second application with the Department of Insurance (DOI) for an individual resident insurance agent's license. The second application was transmitted to DOI by Voyager Life Insurance Company (Voyager Life) as the sponsoring insurance company for Rhodes. On the second application Rhodes failed to disclose any criminal convictions. The second application was also denied.

Rhodes sought a contested case hearing before the Administrative Law Judge Division with that hearing held on November 9, 1998 in Columbia. Prior to the hearing on the merits, DOI moved for summary judgment on the ground that Rhodes filed an application within two years of a previous denial and that such a filing violates the two year prohibition imposed by S.C. Code Ann. § 38-43-130 (Rev. 1989 & Supp. 1997). That motion was held in abeyance pending a full hearing on the merits. Having now heard all evidence and arguments, both the summary judgment and the merits of this dispute are addressed in this order. The summary judgment motion is denied; however, due to Rhodes' failure to meet the requirements for an individual resident insurance agent's license, Rhodes may not receive the license he seeks.

1. Should DOI's Motion for Summary Judgment be granted on the ground that Rhodes filed an application within two years of a previous denial and that such a filing violates the two year prohibition imposed by S.C. Code Ann. § 38-43-130 (Rev. 1989 & Supp. 1997)?

2. If the Motion for Summary Judgment is denied, should the application submitted by Rhodes for an individual insurance agent's license be granted?

A. Respondent's Motion for Summary Judgment

1. Summary Judgment Requirements

Prior to the hearing on the merits, DOI moved for summary judgment on the ground that Rhodes filed an application within two years of a previous denial and that such a filing violates the two year prohibition imposed by S.C. Code Ann. § 38-43-130 (Rev. 1989 & Supp. 1997). To decide the two year prohibition issue as a summary judgment matter requires that, as a matter of law, the issue in dispute must be one decided in the moving party's favor and, further, no genuine issue of material fact must exist. Kreutner v. David, 320 S.C. 283, 285, 465 S.E.2d 88, 90 (1995).

2. Facts

In determining the state of the facts under review, the evidence, as well as the inferences that can be drawn from such evidence, must be viewed in the light most favorable to the non-moving party. Cafe Assocs., Ltd. v. Gerngross, 305 S.C. 6, 406 S.E.2d 162 (1991). Here, no genuine issue of material fact exists.

Bankers Life submitted a request to DOI entitled "Appointment of Individual Agent" in which Bankers Life sought to appoint Rhodes as an agent of the company. Question 8 on the Bankers Life request form asked if Rhodes was presently licensed in South Carolina. The question further directed that if the answer was "no" Bankers Life was required to attach an application completed by Rhodes in which Rhodes requested that DOI grant him an insurance agent's license. Bankers Life answered "no" to question 8 and attached a completed and signed application in which Rhodes applied for an insurance agent's license. The application filed by Rhodes contained his mailing address and telephone number.

On June 3, 1997, Bankers Life filed with DOI the request for appointment with the attached application of Rhodes. On June 20, 1997, DOI notified Bankers Life that the appointment request could not be granted since Rhodes' application to receive an insurance agent license was being denied. While notice was given to Bankers Life that the appointment request was denied, DOI gave no notice to Rhodes that his application for an insurance agent's license was also denied. Further, at no point did Bankers Life notify Rhodes of either the appointment request denial or the denial of Rhodes' insurance agent's license denial.

Subsequently, Rhodes filed a second application with DOI. This application was filed on September 29, 1997 and was attached to a request for Appointment of Individual Agent filed with DOI through Voyager Life. Thus, the September 29, 1997 application was filed only three months after the first denial of June 20, 1997. Based upon these facts, DOI argues the second application must be denied since an application may not be filed within two years of a prior denial. S.C. Code Ann. § 38-43-130 (Supp. 1997).

3. Application of Law to Undisputed Facts

In pertinent part, S.C. Code Ann. § 38-43-130 provides that "[n]o . . . applicant who has been refused a license by the director or his designee has the right to apply for another license within two years from the effective date of the . . . refusal . . . ." Under the facts of this case, it is clear that if the two year prohibition of S.C. Code Ann. § 38-43-130 (Supp. 1997) applies to Rhodes, DOI properly denied the application. Here, the second application was filed only three months after the denial of the first application and, in the absence of contrary law, must be denied as an application untimely filed. Given this result, Rhodes seeks to establish a basis for finding that "contrary law" does indeed prevent the two year prohibition from applying to his case.

Toward that end, Rhodes argues the two year prohibition cannot apply to him since he was never notified that his first application had been denied. Rhodes argues that to hold him to the two year prohibition when he never had notice of the denial is a violation of due process. DOI, however, argues that application of the two year prohibition does not violate due process. Rather, DOI argues notice, albeit indirectly, was adequately provided to Rhodes since DOI notified Bankers Life, the insurance company that acted as a sponsor for Rhodes. Given these two differing views on notice, the question is whether due process is violated by DOI notifying the sponsoring insurance company instead of notifying the applicant.

Our State assures that no party will be bound by an administrative agency's decision unless prior adequate notice has been given. See Ross v. Medical University of South Carolina, 328 S.C. 51, 492 S.E.2d 62 (1997) (State Constitution at Art. 1, § 22 specifically guarantees right to notice and opportunity to be heard by administrative agency); League of Women Voters of Georgetown County v. Litchfield-by-the-Sea, 305 S.C. 424, 409 S.E.2d 378 (1991) (opponent of sewer system which developer sought to construct was entitled to notice and hearing prior to certification of project by state Coastal Council). Even individuals unable to claim the benefits of the Administrative Procedures Act's contested case hearing provisions are still guaranteed the notice requirements of due process. Stono River Environmental Protection Ass'n v. South Carolina Dept. of Health and Environmental Control, 305 S.C. 90, 406 S.E.2d 340 (1991) (while intervenors were not entitled to an adjudicatory hearing, they were entitled to the due process rights of notice and opportunity to be heard).

Accordingly, a denial of Rhodes' application for an individual resident insurance agent's license must be accomplished by notice to Rhodes of the denial. Such being true, how is that notice properly accomplished? The guiding principle is well settled.

The means [of notice] employed must be such as one desirous of actually informing the absentee might reasonably adopt to accomplish it. The reasonableness and hence the constitutional validity of any chosen method may be defended on the ground that it is in itself reasonably certain to inform those affected, compare Hess v. Pawloski, 274 U.S. 352, 47 S.Ct. 632, 71 L.Ed. 1091, with Wuchter v. Pizzutti, 276 U.S. 13, 48 S.Ct. 259, 72 L.Ed. 446, 57 A.L.R. 1230, or, where conditions do not reasonably permit such notice, that the form chosen is not substantially less likely to bring home notice than other of the feasible and customary substitutes.

Mullane v. Central Hanover Bank and Trust Co., 70 S.Ct. 652, 658, 94 L.Ed. 865 (1950).

Accordingly, the proper inquiry is, given all the known circumstances, what means of notice would one reasonably adopt if one were "desirous of actually informing the absentee?" The answer in this case must be a letter to the applicant, not a letter to the insurance company.

In effect, DOI has chosen to provide notice to Rhodes by a form of substituted notice even though no legitimate basis exists for such a procedure.⁽¹⁾ The lack of legitimacy and, thus, the lack of reasonableness, is apparent in DOI's substituted notice.

First, under the circumstances of this case, all of the information to accomplish the required reasonable notice to Rhodes is readily available. The application contains the name and address of the party seeking the license. In fact, the application specifically requests the mailing address if it is different from the street address. Arguably, had such information been lacking, perhaps notice to the insurance company would have sufficed. See Amy Realty Co. v Aponte, 132 Misc. 2d 932, 505 N.Y.S.2d 979, 981 (N.Y. Sup. Ct. 1986) (mailing of substituted service to a licensed premises instead of to the license holder's known principal place of business is a violation of due process since such a substituted service can be used "if only the address of the Premises was listed on the license"). Here, no lack of information is present since Rhodes' address is plainly stated in the application.

Second, DOI has not taken the affirmative steps one would take if one were "desirous of actually informing the absentee." Nothing in the insurance company's application holds the insurance company to a duty of notifying the individual seeking the insurance agent's license as to what action DOI has taken. Indeed, rather than perceiving DOI's letter as a duty to notify the applicant, the insurance company is just as likely to understand DOI's determination as being notice to the insurance company that it should submit the name of another individual. Hence, no clear directive exists that the insurance company must notify the applicant. Thus, DOI's reliance upon the insurance company to provide such notice to the applicant is unreasonable.

Third, in the instant case, the obvious circumstances noted on the face of the applications do not indicate a close relationship between Bankers Life and Rhodes such that DOI could reasonably assume that the denial would be conveyed to Rhodes. For example, Bankers Life is located in St. Petersburg, Florida, and Rhodes resides in Rock Hill, South Carolina. While technology obviously decreases the distance between the two, that distance alone would give DOI some indication that the two parties are not in close contact. Additionally, the application from Rhodes is dated September 5, 1996 while the application filed by Bankers Life is dated June 3, 1997. Again, the difference of nine months in the two applications should cause some concern that a lack of relationship exists. Thus, DOI's reliance upon the insurance company for notice is not reasonable.

Finally, this is not a case in which Rhodes failed to follow the requirements imposed for obtaining a license. See Green v. Wheeler, 458 P.2d 938 (Or. 1969) (where the party's failure to record an assignment of a water right led the court to conclude no notice violation occurred since a party cannot complain of a lack of notice that resulted from the party's own failure to follow the law). Here, no failure to comply is shown.

Rather, on the contrary, compliance is shown. The regulations require Rhodes to obtain a "sponsoring insurer." S.C. Regs. 69-23(6)(b). Rhodes used Bankers Life to fulfill that requirement. Further, the license application requires that the application must be given to the sponsoring insurer "for submission to the Department of Insurance." Respondent's Exh. 2, "Application for Individual Insurance Agent's License." Again, Bankers Life received Rhodes' application and submitted it as required. Thus, Rhodes complied with the form's direction. Accordingly, Rhodes was entitled to notice but did not receive it.

4. Conclusion on Summary Judgment

In conclusion, DOI's motion is denied. As the applicant, Rhodes' interests are clearly affected by a denial. Therefore, Rhodes had a right to receive direct notice of that denial. See S.C. Const. Art I, § 22. DOI's failure to provide proper notice prevented the denial from becoming effective. Since the two year prohibition begins to run only "from the effective date of the . . . refusal . . . ." (S.C. Code Ann. § 38-43-130), the lack of an effective refusal prohibits the application of the two year waiting period. Thus, DOI may not deny Rhodes' application of October 29, 1997 on the ground that the two year rule of S.C. Code Ann. § 38-43-130 requires denial.

B. Application for Individual Insurance Agent's License

1. Positions of Parties

DOI contends that the Voyager Life application should be denied because Rhodes failed to disclose any previous convictions on his application. Rhodes argues that his failure to list convictions on the application should be excused because he misunderstood the question and relied on the assistance of others in filling out the application. Rhodes did not understand the question to address "traffic charges," as he characterizes the convictions on his record. Rhodes argues that his reliance on others, who similarly misunderstood the application, should excuse his failure to fully and truthfully complete the application under oath. Finally, Rhodes argues that his traffic violations occurred too long ago to be considered.

2. Findings of Fact

The Department is the state agency for licensing insurance agents. On June 16, 1997, Bankers Life submitted a request to DOI containing Rhodes' application for an individual resident insurance agent's license. In the Bankers Life submission, in response to the question "Have you ever been convicted, pled guilty, or pled no contest in a criminal proceeding?", Rhodes marked "Yes" and simply explained "DUI." Rhodes made no mention of a public drunk conviction on his Bankers Life application.

On September 29, 1997, Rhodes submitted via Voyager Life an application for an insurance agent license. Question 4 of the application reads "Have you ever been convicted, pled guilty, or pled no contest in a criminal proceeding?" In response to Question 4, Rhodes marked "No." The Voyager Life application was signed by Rhodes and was notarized on April 22, 1997. Submitted with the application was a report compiled by the State Law Enforcement Division (SLED). The SLED report indicated that Rhodes had been convicted of the following:

1979 DUI, Alcohol

1981 Public Drunk

1985 DUI, First Offense

1986 Driving under Suspension, Second Offense

1986 Concealed Weapon

1989 DUI, more than First

1989 ABC violation

However, the SLED report was in error as to the concealed weapons conviction since that charge was null prossed on January 5, 1987. On November 5, 1997, DOI informed Voyager Life that the Voyager Life application was denied because Rhodes failed to disclose the criminal convictions contained in the SLED report.

3. Conclusions of Law

a. Jurisdiction and Standard of Proof

The Administrative Law Judge Division has jurisdiction over this contested case. S.C. Code Ann. § 1-23-600(B); cf. §§ 38-3-150 and 38-3-210. As a contested case controversy, the standard of proof applied is that all matters must be proven by the preponderance of the evidence. National Health Corp. v. South Carolina Dep't of Health and Envtl. Control, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989). Deciding whether the preponderance of the evidence proves that a license must be granted or denied is a matter resting with the ALJ since he is the individual charged with issuing the decision. Palmer v. South Carolina ABC Comm'n, 282 S.C. 246, 317 S.E.2d 476 (Ct. App. 1984). In seeking to prove that the license should be issued, Rhodes bears the burden of proof since he is the party asserting the affirmative of showing he is entitled to the license. 29 Am. Jur. 2d Evidence § 127 (1994); Sanders, Neese, and Nichols, South Carolina Trial Handbook, § 9:3 (1994). Only when Rhodes has met the burden of demonstrating he has satisfied the required conditions can the license be granted. 73A C.J.S. Public Administrative Law and Procedure § 128 (1983).

b. Requirements for Issuance of Insurance License

Before being issued a license to do business as an agent in this State for an insurer, each applicant shall make written application for the license upon forms to be furnished by the department, and all information on the forms required by the director or his designee must be subscribed to by the applicant under oath . . . . [T]he license may not be issued until the director or his designee has determined that the applicant is qualified as an insurance agent . . . .

S.C. Code Ann. § 38-43-100 (Supp. 1997). Moreover, in order to grant a license, DOI must be satisfied that an applicant is "trustworthy." S.C. Code Regs. 69-23(g) (1976).

To determine if a party is trustworthy, one may properly consider statements made on the filed application since the application, having been given under oath, is held to be based upon truthful statements. Statements found to be untrue can have adverse consequences. For example, in licensing and permitting decisions, "a misstatement under oath or a concealment of fact may provide a basis for denial." Wall v. South Carolina ABC Comm'n, 269 S.C. 13, 16, 235 S.E.2d 806, 808 (1977). More particularly as to insurance applications, in examining how trustworthy an applicant is, "misstating the facts in an application for insurance" violates the Insurance Law and serves as grounds for the revocation of or the refusal to reissue an insurance agent's license. S.C. Code Ann. § 38-43-130 (Supp. 1997).

c. Application of Law to Findings of Fact

In Wall, an application for a beer and wine permit was properly denied based on misrepresentations on the application. There the applicant answered in the negative to a question on his sworn application regarding whether he had a criminal record. However, the truth was that he had convictions for driving under the influence, public drunkenness, and illegal possession of fireworks. Although those violations were particularly relevant to the suitability to sell beer and wine, the Supreme Court specifically held that "the circuit judge erred when he found that the [applicant's] misrepresentation on his application was not sufficient to deprive him of the permit." Wall, 269 S.C. at 16, 235 S.E.2d at 808.

Here, Rhodes did not disclose the following convictions:

1979 DUI, Alcohol 1986 Driving under Suspension, Second Offense

1981 Public Drunk 1989 DUI, more than First

1985 DUI, First Offense 1989 ABC violation

In the absence of justification, this failure to disclose warrants denial. Wall v. South Carolina ABC Comm'n, 269 S.C. 13, 235 S.E.2d 806, (1977); S.C. Code Ann. § 38-43-130 (Supp. 1997) ("misstating the facts in an application for insurance" is a ground for the revocation of or the refusal to reissue an insurance agent's license).

Rhodes argues that his failure to disclose is justified. First, he argues he relied upon the advice of third parties who explained that in their view "traffic violations" such as DUI were not required to be disclosed. Second, he argues the convictions are too old to be considered. I cannot agree.

At best the reliance upon third parties is some evidence that Rhodes' misstatements were not willful in the sense of creating a criminal violation. Indeed, a finding of willfulness could form the basis for a felony charge since, under some circumstances, a willful misstatement of facts on a legally required document would not only serve as grounds for refusal of a license, but could also constitute a crime.⁽²⁾ However, a party seeking to prove he is trustworthy cannot justify the lack of disclosure by reliance on advice of third parties that "traffic violations" need not be disclosed. While traffic related, DUI is not an insignificant criminal violation--likewise, public drunkenness. Such violations must be disclosed and cannot be justified by reliance of non-disclosure given through third-party advice. Further, the lack of justification is underscored by Rhodes' knowledge that the DUI convictions were multiple instances. Disclosure was required.

Rhodes argues that his violations occurred too long ago to be considered. Again, I cannot agree. The question of criminal convictions on the application does not set a time limit beyond which the applicant may omit criminal penalties imposed. No provision on the application allows an applicant to impose a time limit of their own choosing. Full disclosure was required; it was not given. Accordingly, Rhodes does not meet the statutory prerequisites for licensure.

The application submitted by Rhodes via Voyager Life cannot be approved. Rhodes' misrepresentation of his criminal record on his sworn application prevents granting the license.

AND IT IS SO ORDERED.

RAY N. STEVENS

Administrative Law Judge

November 24, 1998

Columbia, South Carolina

1. Nothing in this order suggests that personal service is required. On the contrary, notice by mail is entirely proper. However, this order takes issue with the means by which DOI seeks to accomplish its notice duty to the applicant.

2. "It is unlawful for a person to wilfully give false, misleading, or incomplete information on a document, record, report, or form required by the laws of this State." S.C. Code Ann. § 16-9-10 (Supp. 1997). DOI has presented no argument that Rhodes in anyway offends the criminal laws of the State.