State v. Viatical Services, Inc.

Citations: 741 So. 2d 560; 1999 Fla. App. LEXIS 10478; 1999 WL 565896Docket: 99-2018

Court: District Court of Appeal of Florida; August 4, 1999; Florida; State Appellate Court

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In *State of Florida v. Viatical Services, Inc.*, the Florida District Court of Appeal addressed the trial court's refusal to issue a search warrant for Mutual Benefits Corp., a viatical settlement company under investigation for potential fraud. The trial court found probable cause but expressed concerns over the potential violation of privacy rights related to medical records and the impact on the business. Consequently, the state filed a petition for certiorari, redesignated from a mandamus petition, to challenge the trial court's order.

The case involved claims that Mutual was concealing medical histories in life insurance applications, with evidence from the Department of Insurance indicating significant missing disclosures and identified fraud in multiple files. Following the initial search warrant's execution, which uncovered additional relevant records at Viatical Services, Inc. (VSI), the state sought a new warrant to include these premises.

During the adversarial hearing for the new warrant, the prosecutor contended that Mutual and VSI lacked standing to contest the warrant, yet the court proceeded. Defense counsel argued that the requested records included confidential medical information, asserting that the broad search of all 10,000 files would infringe on the privacy rights of individuals not involved in the investigation. The court's decision and the implications for privacy rights and business operations were central to the proceedings.

The seizure of all files from VSI would impede its ability to service existing policies and timely pay premiums, jeopardizing both VSI's and Mutual's operations and investor security. The state recognized confidentiality issues concerning medical records but proposed seizing and sealing them while notifying insured parties. Although Mutual was under investigation, all insureds faced potential fraud suspicion. The state indicated that despite probable cause of legal violations by the owners and employees, it could copy seized files for return to ensure business continuity. The court permitted the seizure of only sixteen files, ordered them sealed pending notification, and allowed the defense to copy the files. Additionally, it authorized the Department to monitor the premises to prevent file alterations and instructed the companies to only modify files as necessary for servicing.

The court's order also mandated the Statewide Prosecutor's office to consult with corporate counsel to refine the warrant's request for business records, acknowledging that extensive records had already been reviewed during a prior audit. 

The state filed a petition for mandamus, treated as a certiorari petition, to review the order limiting the search warrant to files with identified fraud. A second certiorari petition claimed the trial court improperly conducted an adversarial hearing before issuing the warrant. The court affirmed its jurisdiction under State v. Pettis, noting the absence of an appeal remedy for the state after a search warrant denial. The irreparable harm was evident as the state was denied access to evidence linked to a criminal investigation despite a finding of probable cause. The court critiqued the trial court's actions as effectively suppressing evidence pre-seizure. 

Regarding the adversarial hearing, the court dismissed the state's second petition due to a lack of demonstrated irreparable harm, as the state had not shown it was impeded in presenting its case. Furthermore, since the initial search warrant had already been executed, the element of surprise was lost. Although there was no precedent for conducting an adversarial hearing prior to a search warrant issuance, which could hinder criminal investigations, the court dismissed this writ due to insufficient evidence of irreparable harm and noted that such a hearing contradicted statutory provisions.

Pre-seizure hearings for search warrants are conducted ex parte to prevent the subject from destroying evidence. Under Florida Statutes section 933.07 (1997), a judge issues a search warrant if there is probable cause based on the submitted application and evidence. In this case, the judge determined that probable cause existed for seizing files from Mutual, despite only 16 of the reviewed files showing apparent fraud, which represented 22% of those examined. This percentage suggests a potential widespread fraudulent pattern in viatical settlements. Relevant case law, including United States v. Hayes and United States v. Brien, supports that when a pervasive scheme to defraud is suspected, all business records may be seized.

The trial court erred by restricting the warrant to the 16 identified files due to concerns over privacy rights related to the medical records of insured individuals. If privacy rights exist, the court should have implemented measures to protect these rights while allowing the investigation to proceed, such as sealing the medical records until a post-seizure hearing. The court’s failure to issue a broader search warrant based on established probable cause necessitates remanding the case with directions to issue the warrant, provided that the insured's medical records are sealed pending a hearing. While privacy protections for medical records are affirmed in State v. Rutherford, the context differs as those records were held by a healthcare provider, not a third-party entity like Mutual, which complicates the application of privacy statutes.

None of the relevant statutes apply to Mutual or VSI regarding the sale of insurance policies for cash. To facilitate such transactions, the insured must allow viatical settlement companies to access medical records, which may also be reviewed by investors and the Department of Insurance for valuation and oversight. The right to privacy concerning medical records is questioned when the medical condition is integral to a commercial transaction, especially for parties involved in or monitoring the transaction. The court expressed concern about allowing the state to coordinate with Mutual and VSI on the search warrant's scope, as it undermines the state's authority when probable cause exists. The judge should have permitted the seizure of documents, with a requirement for the state to return them promptly. Seizing all records may be justified if there's probable cause of widespread fraud. The court decided to grant the writ and remand for the issuance of a search warrant under specific conditions. The state's need to investigate potential fraud by Mutual, which allegedly purchased and sold contestable policies, was deemed a valid reason for record inspection, aligning with legal precedents regarding the necessity of probable cause and the least intrusive methods in criminal investigations.