In a decision issued, on March 1, 2016, the Division of Insurance Hearing Officer Jean F. Farrington entered an Order under General Laws Chapter 175, § 166D against Derek Anderson Siewert of Jacksonville, Florida revoking his insurance licenses in Massachusetts and ordering him to dispose of any interests in Massachusetts as a proprietor, partner, stockholder, officer, or employee of any licensed insurance producer. Additionally, Hearing Officer Farrington fined Mr. Siewert $3,000.00 pursuant to General Laws Chapter 176D § 7.
Failed to report administrative action levying fine in Montana and subsequent consent decree revoking license in Pennsylvania and California.
The Massachusetts action to revoke Mr. Siewert’s licenses arose from the Division determining that when he applied for a Massachusetts non-resident producer license on August 18, 2013, he answered “No” to the question on the application that asked if he had ever been a party to an administrative proceeding relating to a professional or occupational license.
In fact, he had entered into a consent agreement in 2010, with the Montana Department of Insurance arising out of his third-party administration company not holding an administrator’s license in Montana. Mr. Siewert and his co-owner, and the company neither admitted nor denied the allegations but agreed to pay a fine of $7,500 and to not conduct business in Montana without appropriate licenses.
Also, the Division sought revocation of his Massachusetts license because he had failed to report to the Division as required by G.L. c. 175, § 162V, within thirty-days, a second consent decree that he entered into with the Pennsylvania Insurance Department in April 2014 and the subsequent revocation of his producer license in June of 2014, by the California Department of Insurance based on the Pennsylvania consent decree.
Investor funded life insurance trust scheme led to Pennsylvania administrative action against producer
The Massachusetts decision by Hearing Officer Farrington does not give any reasons for the revocation of Mr. Siewert’s license in Pennsylvania. It makes for an interesting story of how the Pennsylvania Insurance Department put a stop to a convoluted stranger-originated life insurance scheme before it picked up steam.
The underlying Pennsylvania revocation resulted from Mr. Siewert and his company ARX Insurance Advisors, LLC (“ARX”), a Jacksonville, Florida LLC putting together an illegal scheme to sell life insurance policies against the lives of members of two Pennsylvania labor unions.
The scheme was illegal in Pennsylvania and would be illegal in a number of other states because there was no insurable interest in the lives in question.
The program named “Legacy Life Insurance Program” was organized so that Mr. Siewert and another nonresident agent would be appointed as producers for Sagico Life Insurance Company (“Sagico Life”) while the third nonresident producer would represent the members/insureds of the two labor unions.
Mr. Siewert coordinated the arrangements for the Legacy Life Insurance Program with the Sagico Life.
Two out-of-state trusts funded by unknown investors to pay premiums on union members’ life insurance policies
The program provided that two irrevocable trusts established in Pennsylvania as of the date of the initiation of the program would own the policies under the Legacy Life Insurance Program.
The trusts themselves were vehicles that were being used by third-party investors who were unknown to the unions or any of their members whose lives were being insured to pay premiums to Sagico Life to fully fund the coverage for union members at “no cost” and no risk of any cost to them.
The trusts although established under Pennsylvania laws were wholly managed by trustees from New York and New Jersey. The insureds never knew who the third-party entities funding the life insurance were.
Mr. Siewert and another of the nonresident agents represented to the union leadership and its members that under the Legacy Life Insurance Program upon the death of a member or insured his or her personally designated beneficiary would receive $100,000.00, the union would receive $25,000.00 and the trustees would receive for the beneficiaries of the trust $124,999.00.
The insureds under the life insurance policies, however, were never informed that $124,999.00 of death benefits per insured would be paid to unknown third-party entities.
Additionally, the Pennsylvania Department found that although the union members had received representations through the presentations and sales material that their designated beneficiary would receive $100,000.00 upon their death. Mr. Siewert and the other licensees could produce no evidence that such a guarantee existed in the insurance documents or even in the respective trusts.
Union members obtaining “free” insurance get no trust documents
The trust documents entitled “Trust Owned Life Insurance” were electronically signed by the insureds and ceded to the respective trustees or the trusts who maintained all authority over the policies including the rights to designate beneficiaries and the ownership of the policies.
The insureds never knew how the insurance policies would be managed since they were only provided the first page and signature pages of the trusts at the time of the application.
Once the union members signed the trust documents, the agents involved accepted the union members’ applications and forwarded them to Sagico Life for underwriting and policy issuance.
Applications taken over the phone had prefilled inaccurate information
During the short four-month life of the program Sagico Life approved and issued policies to 800 members of the two unions out of the 1,152 life insurance applications submitted.
The application process turned out to be done through an office in Indiana for union members who were generally located in the Pittsburgh and surrounding areas. The applications for life insurance that were taken over the phone however, had certain information prefilled in the forms that misrepresented that:
- the members were employees of the respective trusts and that:
- the beneficiaries of the death proceeds were the trusts which contradicted the actual beneficiaries designated by the members themselves, and
- the application represented that the location of the policies was the home address of the trustee in New Jersey.
During the course of the Pennsylvania Department’s investigation, Sagico Life advised the that it had never seen or approved any of the presentations, including a PowerPoint presentation used by the producers or any of the mailings that proposed to offer its life insurance under the Legacy Life Insurance Program.
First year commissions of 115% to agents and unlicensed entity
During the course of the investigation by the Pennsylvania Department Mr. Siewert confirmed that the third-party entities funded 100 percent of the premiums for the insurance and agreed to secure the funding arrangements through the role of Annuity Funding LLC for the premiums.
For their efforts Mr. Siewert and his associates were to be paid 115 percent of the premiums for the first year with Mr. Siewert to receive 25 percent, the other two nonresident agents were to received 25 percent and 15 percent, respectively and then 35 percent of the gross commission plus interest to Annuity Funding LLC an entity that the Pennsylvania Department found had no license to receive insurance commissions in Pennsylvania.
The commissions were to be paid through Mr. Siewert’s agency, ARX. During the course of the program approximately $1 million in premiums were received by Sagico Life through ARX as of March 2013 with an additional $3 million to be remitted by April 2013.
Scheme shut down for lack of insurable interest and producer and his agency fined $50,000 each
In August 2013 the Legacy Life Insurance Program was terminated by the actions of the Department and the 800 policies that had been issued were rescinded.
The Pennsylvania Division found that no insurance documents associated with the Legacy Life Insurance Program, including the applications and policies, gave any insureds any insurable interest because of any nature or relationship between the members or any parties, the unions, the trustees, the trusts or the third-party entities by any legal interest as required by Pennsylvania law.
Mr. Siewert and his agency agreed to a consent decree acknowledging that they had failed to ensure that:
- The Legacy Life Insurance plan complied with Pennsylvania insurance laws;
- There was full and accurate disclosure to the member insureds as to the nature of the plan;
- There was the requisite insurable interest between the parties; and
- The plan was marketed in compliance with Pennsylvania insurance laws; and
- The funding was adequate, appropriate, timely and in full place prior to the inception of the Legacy Plan.
Also, under the consent decree, Mr. Siewert and his agency, the Pennsylvania Division revoked the licenses to do business in Pennsylvania and fined Mr. Siewert and his agency civil penalties of $50,000.00, each.
Hearing Officer finds violations, revokes license and fines Mr. Siewert
In Massachusetts, Mr. Siewert did not contest the allegations of the Division of Insurance that he had made a misrepresentation of his original nonresident insurance application, that he had failed to notify the Division of the Pennsylvania Department’s consent agreement revoking his licenses in that state, or the administrative revocation that followed in California as a result of Pennsylvania’s action.
When he eventually failed to appear for the final scheduled hearing, Hearing Officer Farrington declared him in default and made findings consistent with similar proceedings involving nonresident licensees who failed to disclose or report similar administrative actions that:
The number and the seriousness of the grounds relied on by the Division to support its disciplinary action fully warrant revocation of Siewert’s license. On this record, I find that, in addition to revocation of his license, Siewert should be prohibited from transacting any insurance business, directly or indirectly, in Massachusetts, and should be required to dispose of any interest he may have in any insurance business in Massachusetts.
Additionally, Hearing Officer Farrington imposed fines for Mr. Siewert’s violations stating:
Chapter 175, §162R (a) also permits the Commissioner to levy a civil penalty in accordance with Chapter 176D, §7 for violations of the insurance laws and regulations. The maximum penalty permitted under Chapter 176D, §7 is $1,000 per violation. Siewert, by failing to report the Montana administrative action on his application, committed one such violation, and by failing to report the Pennsylvania and California administrative actions committed two violations of Chapter 175, §162V(a). Because these actions constitute serious violations of the insurance laws, I impose the maximum fine for each of them.
The final order entered by the Hearing Officer stated:, “That any and all insurance producer licenses issued to Derek Anderson Siewert by the Division are hereby revoked;” and ordered him to return any licenses “in his possession, custody or control” to the Division, prohibited him from “directly or indirectly transacting any insurance business or acquiring, in any capacity whatsoever, any insurance business in Massachusetts,”, and to “dispose of any and all interests in Massachusetts as proprietor, partner, stockholder, officer or employee of any licensed insurance producer…”
Finally, the Hearing Officer ordered that “Derek Anderson Siewert shall pay a fine of Three Thousand ($3,000) (sic) within 30 days of the entry of this order.”