CEO 09-19 - December 9, 2009

CONFLICT OF INTEREST

COUNTY COMMISSIONER'S INSURANCE CLIENT SEEKING
REIMBURSEMENT AGREEMENT FROM COUNTY AND COMMISSIONER
VOTING ON REIMBURSEMENT AGREEMENT

To: Name withheld at person's request (West Palm Beach)

SUMMARY:

No prohibited conflict of interest would be created under Section 112.313(7)(a), Florida Statutes, were a developer who purchased an insurance policy from a County Commissioner to enter into a reimbursement agreement with the County. Nor would a voting conflict be created under Section 112.3143(3)(a), Florida Statutes, were the Commissioner to vote on the reimbursement agreement.


QUESTION 1:

Would a County Commissioner be presented with a prohibited conflict of interest were a developer who purchased an insurance policy from her to enter into a reimbursement agreement with the County?


Under the circumstances presented herein, your question is answered in the negative.


By your letter of inquiry and subsequent emails, you advise that you are an Assistant County Attorney for Palm Beach County, Florida. In that capacity, County Commissioner has requested you seek an opinion concerning a matter coming before the County Commission. You further advise that the Commissioner is a licensed insurance agent selling insurance as a sole proprietorship. In March 2008, she sold a general insurance policy to a developer. At that time, she did not hold an office or employment with Palm Beach County. You advise that the policy was issued by an insurance company and is serviced by an underwriter. You also advise that the Commissioner's only current involvement with the policy is that she receives a commission from the underwriter when the developer pays premiums. She does not collect the premiums; nor does she service the policy. You also advise that the developer has not sought any additional insurance coverage from the Commissioner since the renewal; nor has it retained her to continue to assess the adequacy of the developer's coverage. In summary, she is not currently using her licensure in any matter concerning the developer. On March 24, 2009, the developer renewed the insurance policy. Then, in July 2009, she was appointed to fill a vacancy on the County Commission.


The matter coming before the County Commission is a reimbursement agreement between the County and the developer for a portion of its work on a publicly assisted housing development. Specifically, the reimbursement agreement is to provide some compensation for roadway construction and other related infrastructure. The project will occur on land owned by the City of West Palm Beach and will be maintained by the City. The County is providing the funds because it found the expenditure to be for a valid public purpose.


In light of the foregoing, you inquire whether the County Commissioner would be presented with a prohibited conflict of interest if the developer entered into the reimbursement agreement with the County. Your inquiry implicates Section 112.313(7)(a), Florida Statutes, which provides:


No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee...nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties.


The first clause of Section 112.313(7)(a) prohibits a County Commissioner from having employment or a contractual relationship with any business entity that is subject to the regulation of, or doing business with, her County. The second clause of Section 112.313(7)(a) prohibits a County Commissioner from having or holding employment or a contractual relationship that will create a continuing or frequently recurring conflict between her private interests and the performance of her public duties or that would impede the full and faithful discharge of her public duties. In order for there to be a violation of Section 112.313(7)(a), the employment or contractual relationship must be contemporaneous with the entity's doing business with her agency. See, for example, CEO 08-14 and CEO 88-11.


We have addressed the applicability of Section 112.313(7)(a) in the context of purveyors of insurance on several occasions. In CEO 94-10, we opined that a County Commissioner who was sole proprietor of an insurance agency has a contractual relationship with each of the agency's clients. In CEO 94-37, we also opined that if insurance was sold under the licensure of an agent in an incorporated agency, the insured would have a contractual relationship with the agency and the Councilman/agent under whose licensure the policy was sold. In CEO 94-42, we addressed a situation where a County Commissioner owned an unincorporated insurance agency. The Commissioner inquired whether there would be a prohibited conflict of interest if a former insurance client transacted business with the county while the Commissioner was still receiving commissions. We stated:


In addition, we find that the payment from the insurance company to the Commissioner of a portion of the commissions generated by the renewals of his former client's insurance would not constitute a contractual relationship between him and his former client but, rather, would constitute dealings between him and the insurance company. Therefore, if that were the only relationship between the former client and the Commissioner, Section 112.313(7)(a) would not be violated if the former client were to do business with the County.


In our prior opinions, we did not address the distinction between a purveyor of insurance who acts as an agent and a purveyor of insurance acting as a broker. It is appropriate for us to do so here. The purveyor of insurance can be either an agent of the insurer, an agent of the insured, or both. Where the insured seeks only to obtain a policy and there is no ongoing relationship established, the purveyor is a "broker." The term "broker" is legally significant because well-settled Florida law states:


Although a broker is usually considered the agent of the insured during the process of procuring insurance, once the policy has been issued, the relationship between the insured and the broker is severed. Graham v. Lloyd's Underwriters at London, 964 So.2d 269 (Fla. 2nd DCA, 2007).


However, when acting on behalf of the insured to seek out adequate insurance, the purveyor can become their agent. Usually, this occurs via an express agreement. Alternatively, agency relationship can be presumed from a long course of dealings between the parties. See, Graham, supra, and Cat 'N Fiddle, Inc. v. Century Insurance Co., 213 So.2d 701 (Fla. 1968).


In the instant matter, the sale and subsequent renewal of the insurance policy occurred before the Commissioner was appointed and took office. The insurance policy is serviced by the underwriter. The Commissioner has advised that she has no ongoing obligations toward the developer. There is no contract between her and the developer. Nor is there any understanding that she will continue to monitor the insurance needs of the developer. She does not collect the premiums; nor does she service the policy. The Commissioner represents that the only nexus between her and the developer is that the underwriter pays her a commission based upon the developer's payment of premiums.


It is clear that the developer would be doing business with the County if the reimbursement agreement were to be approved. Therefore, we must decide whether the Commissioner has employment or a contractual relationship with the developer. According to the Commissioner, there is no agreement for the Commissioner to act as the developer's agent. We also note that there have only been a couple of occasions where the developer dealt with the Commissioner: when the developer initially procured the policy and again when the policy was renewed by the developer. This is not sufficient, in our opinion, to constitute a long course of conduct which would indicate an implied agency under Cat 'N Fiddle. We conclude that in this instance the Commissioner has acted only as the developer's insurance broker. In light of Graham, her contractual relationship with the developer ended once the policy was renewed. These findings are consistent with our conclusions in Question 2 of CEO 94-42.


Accordingly, we find that the Commissioner does not have employment or a contractual relationship with the developer. Therefore, the first clause of Section 112.313(7)(a), Florida Statutes, would not be violated were the County to enter into the reimbursement agreement with the developer.


It does not appear that the second clause of Section 112.313(7)(a), Florida Statutes, would be violated under this inquiry. The Commissioner's private interests were set via renewal contract, at the very latest, in May 2009. The Commissioner did not get appointed until July 2009. In light of the fact that the policy's terms were set prior to her taking office, and your representations that the policy cannot be changed without cancellation, we find that it would not be possible for the Commissioner to enrich herself at the expense of the public. Though the County Commission will vote on the matter, we do not believe that these circumstances would give rise to a continuing or frequently recurring conflict of interest or an impediment to the full and faithful discharge of her public duties.


Accordingly we find that the Commissioner would not be presented with a prohibited conflict of interest pursuant to Section 112.313(7)(a), Florida Statutes, if the County enters into the reimbursement agreement with the developer.1


QUESTION 2:

Would Section 112.3143(3)(a), Florida Statutes, prohibit the Commissioner from voting on the reimbursement agreement concerning the developer?


Under these circumstances, your question is answered in the negative.


You advise that the reimbursement agreement is scheduled to be voted on at the County Commission meeting on December 14, 2009. You inquire whether the Commissioner would be prohibited from voting on that measure. This question implicates Section 112.3143(3)(a), Florida Statutes, which provides:


No county, municipal, or other local public officer shall vote in an official capacity upon any measure which would inure to his or her special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom he or she is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained, other than an agency as defined in s. 112.312(2); or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer. Such public officer shall, prior to the vote being taken, publicly state to the assembly the nature of the officer's interest in the matter from which he or she is abstaining from voting and, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes.


Section 112.3143(3)(a) prohibits a County Commissioner from voting on a measure that would inure to her special private gain or loss, the special private gain or loss of a relative, or the special private gain or loss of a business associate. Additionally, the provision prohibits voting on a matter which would inure to the special private gain or loss of any principal (or parent or subsidiary of a corporate principal) by whom the County Commissioner is retained. Section 112.3143(3)(a) requires that the principal-agent relationship must exist at the time of the vote. See, CEO 06-5. In the event that a voting conflict is present, Section 112.3143(3)(a) requires abstention and certain other procedures to be followed.


We must decide whether the developer would be a principal by whom the Commissioner is retained. We reiterate our conclusion in Question 1 that the Commissioner acted as a broker. As such, her retention as a principal of the developer concluded once renewal was accomplished. This conclusion is supported by our opinion in Question 3 of CEO 94-42, where we opined that the Commissioner would not be presented with a voting conflict if a former client were to have a measure come before his Commission while he was still receiving commissions. In light of the foregoing, we find that the developer is not a principal by whom the Commissioner is retained. Therefore, the Commissioner is not prohibited from voting on the reimbursement agreement.


Finally, Section 286.012, Florida Statutes, provides:


No member of any state, county, or municipal governmental board, commission, or agency who is present at any meeting of any such body at which an official decision, ruling, or other official act is to be taken or adopted may abstain from voting in regard to any such decision, ruling, or act; and a vote shall be recorded or counted for each such member present, except when, with respect to any such member, there is, or appears to be, a possible conflict of interest under the provisions of s. 112.311, s. 112.313, or s. 112.3143. In such cases, said member shall comply with the disclosure requirements of s. 112.3143.


Section 286.012 requires members of the County Commission to vote on a matter coming before the Commission unless there is, or appears to be, a possible conflict of interest under the enumerated provisions of Part III, Chapter 112, Florida Statutes. Though Section 112.3143(3)(a) does not require the Commissioner's abstention regarding the reimbursement agreement, she may nevertheless wish to abstain in order to avoid even the appearance of a conflict of interest. It is important to note that, should the Commissioner abstain under Section 286.012, she is required to comply with the disclosure requirements of Section 112.3143(3)(a).


Your questions are answered accordingly.


ORDERED by the State of Florida Commission on Ethics meeting in public session on December 4, 2009 and RENDERED this 9th day of December, 2009.


____________________________________

Cheryl Forchilli, Chair


[1]We are also mindful that were we to find that the situation constitutes a violation of Section 112.313(7)(a), the Commissioner would be required to either resign from the County Commission or extricate herself from the policy. You have advised that the only way at this point for the Commissioner to be removed from the policy is for the developer to cancel the insurance and purchase another similar policy. We do not believe that the Code of Ethics, under these limited circumstances, should be interpreted to require such a harsh result.