CEO 94-37 -- September 1, 1994
CONFLICT OF INTEREST; VOTING CONFLICT
CITY COUNCILMAN OFFICER, DIRECTOR, STOCKHOLDER,
AND EMPLOYEE OF INSURANCE AGENCY
CLIENTS OF WHICH DO BUSINESS WITH CITY
To: J. Michael Swaine, City Attorney, City of Sebring
No prohibited conflict of interest would be created under the first clause of Section 112.313(7)(a), Florida Statutes, were clients of a city councilman's incorporated insurance agency to do business with the city, provided that the councilman is not the insurance agent under whose license the clients' insurance business is conducted. While the law recognizes that a contractual relationship can exist between insurance customers and the insurance agency through which they purchase insurance and that a contractual relationship can exist between the customers and the agent under whose insurance license their insurance business is handled, there apparently is no legal basis for the proposition that the corporate form of an insurance agency should be disregarded in determining whether agents who do not write or service a particular client's business have a contractual relationship with that client. Further, no frequently recurring conflict or impediment to duty would be present under the second clause of Section 112.313(7)(a), Florida Statutes.
No voting conflict would be present under Section 112.3143(3)(a), Florida Statutes, regarding measures awarding City business to insurance clients of the corporate insurance agency, provided the councilman is not the insurance agent handling the insurance business of the clients who are considered for an award of city business. The clients would be principals of the corporation and of the agent(s) actually handling the clients' business and would not be principals retaining the councilman, and measures involving the clients generally would not inure to the special private gain of the councilman, the corporate insurance agency, his relative, or his business associates. CEO's 94-21, 94-13, 94-10, 94-3, 93-13, 92-27, 91-42, 91-28, 88-43, 86-44, 81-47, and 79-1 are referenced.
Would a prohibited conflict of interest be created under Section 112.313(7)(a), Florida Statutes, were clients of an incorporated insurance agency which employs and is partially owned by a city councilman to do business with the city?
Your question is answered in the negative, subject to the proviso noted below.
By your letter of inquiry and additional information supplied by you to our staff, we are advised that Mr. George L. Hensley serves as a member of the City Council of the City of Sebring. In addition, you advise, the Councilman is a licensed insurance agent (holding licensure as a life insurance agent and as a property and casualty insurance agent) employed by an incorporated insurance agency ("corporation"). Further, you advise that fifteen other insurance agents work for the corporation, that the corporation is an independent insurance agency (places insurance with various companies), that it sells all lines of insurance, and that it has a total of thirty-three employees. In addition, you advise that the Councilman is the chief executive officer, a director, and holder of forty-eight percent of the stock of the corporation. Further, you advise that a brother-in-law, a son-in-law, and nieces and nephews of the Councilman own the balance of the corporation's stock and hold its other offices and directorships. Additionally, you advise that "[a]lmost 100 percent of [the Councilman's] income is derived from the insurance agency."
You advise that clients of the corporation might seek to do business with the City and that the business would be structured and take place as follows:
In almost all instances[,] contracts for goods and services are entered into by various department heads of the City without participation from City Council. However, City Council votes to approve payment of all bills. City Council would be required to approve the purchase in advance only if it exceeds the limits under which the City can purchase without requesting bids. In the case of bids, the City Council approves the purchase from the lowest and best bidder.
Further, you advise that clients of the corporation who might seek to do business with the City would be maintaining insurance through the corporation regardless of whether or not the clients were awarded City business.
You point out that CEO 94-10 (our opinion adopted March 10, 1994 and rendered March 15, 1994), which concerned a county commissioner who was sole owner of an unincorporated insurance agency, "appears to be directly applicable to [the Councilman's] situation, except perhaps for the corporate status of the agency," and you inquire whether the corporate status of the Councilman's insurance agency would lead us to a finding different from that in CEO 94-10.
Section 112.313(7)(a), Florida Statutes, provides:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.--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 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 private interests and the performance of his public duties, or that would impede the full and faithful discharge of his public duties.
The first part of this statute, absent the applicability of an exemption under Section 112.313(12), Florida Statutes, or a "grandfathering" under Section 112.316, Florida Statutes, would prohibit the Councilman's being employed with or holding a contractual relationship with a business entity which is subject to the regulation of or which is doing business with the City Council (his public agency). By virtue of his salaried position as an insurance agent working for the corporation [a "business entity," see Section 112.312(5), Florida Statutes], the Councilman holds "employment," and by virtue of his ownership of stock he holds a "contractual relationship," with the corporation. However, your scenario does not indicate that the corporation would be doing business with or be subject to the regulation of the City Council. Rather, other businesses, which obtain insurance through the corporation, would be doing business with the City. Our precedent, longstanding and frequently augmented, finds that a public officer or employee does not hold employment or a contractual relationship with a business entity due to the fact that he holds employment or a contractual relationship with a corporation (even a closely-held corporation) that in turn holds a contractual relationship with that same business entity. See, for example, CEO 94-21, CEO 93-13, CEO 92-27, CEO 91-42, CEO 91-28, CEO 88-43, CEO 81-47, CEO 79-1, and all of our other opinions referenced therein. We do not abandon that precedent in this opinion.
Nevertheless, we note that CEO 94-10 recognized that there is a legal basis supporting the existence of a contractual relationship between an insurance customer or client and an insurance agency. See, for example, Cat 'N Fiddle, Inc. v. Century Insurance Company, 213 So. 2d 701 (Fla. 1968); Robinson v. John E. Hunt & Associates, Inc., 490 So. 2d 1291 (Fla. 1st DCA 1986); and Monogram Products, Inc. v. Berkowitz, 392 So. 2d 1353 (Fla. 2nd DCA 1980). Therefore, the issue becomes whether there is any legal basis to recognize the existence of a contractual relationship between an insurance agent personally and the clients serviced by a corporate insurance agency with which the agent is employed or otherwise connected.
Generally speaking, while there are many cases which recognize that an employee or servant of a corporation can be personally liable for tortious acts committed within the scope of his employment with the corporation if the employee is personally involved in the wrongful conduct (for example, when an employee negligently operates a company car resulting in damage to another), there appears to be no legal basis for concluding that an employee of a corporation is contractually responsible for breaches of agreements between his employer and his employer's customers (for example, when a furniture store's clerk takes a customer's order for a hardwood desk and the store fails to obtain the desk for the customer or the furniture manufacturer mistakenly delivers a desk made from finished particle board or other material). However, unlike furniture or other chattel property, insurance is not an item that is sold virtually without regulation. In Florida, as in most if not all states, insurance is a highly-regulated industry. Further, in Florida it is the individual insurance agent, rather than the insurance agency, that is licensed by the State, and insurance agencies as well as insurance solicitors have been recognized as agents (in a generic sense) acting for individuals licensed as insurance agents. See Patek v. Associated Insurance Underwriters, Inc., 160 So. 2d 721 (Fla. 3rd DCA 1964), in which the court reversed a directed verdict in favor of an individual defendant (insurance agent) under a breach of contract cause of action and remanded the case for a new trial as to the contractual liability of the insurance agent personally to the plaintiff (a purchaser of insurance). In the original trial of that matter, the insurance agency (corporation) also was sued in contract and the jury returned a verdict in favor of the plaintiff. The court's opinion in Patek reads in part:
Byron Patek filed an action in the circuit court against Associated Insurance Underwriters, Inc. and Peter J. Kelly for damages for breach of contract to supply certain marine insurance. On trial of the case before a jury[,] the plaintiff won a verdict against the defendant corporation for $19,500, and a verdict was directed in favor of the defendant Kelly. This appeal by the plaintiff involves the latter ruling. The appellant contends the question of Kelly's liability, like that of the corporation, should have been presented to the jury because the licensed agency held by Kelly was the basis for the transaction of the business, with the result that the corporation was acting under and as agent of the agency holder, Kelly.
Kelly was a duly licensed lines agent under the Florida Insurance Code, Chapter 626, Fla. Stat., F.S.A. He chose to exercise his agency through the corporation, of which he was a member and officer. The corporation was not, and under the statute could not be so licensed as agent. * * * * * We must agree with the contention of the appellant that the liability for which the corporation was held could extend to Kelly individually, because Section 626.0111(3) appears to place responsibility on such an agent with respect to business transacted by a solicitor under his license. [Emphasis supplied.]
Therefore, based upon Patek, the other cases cited above, and the nature of the State's insurance licensure scheme, which licenses individuals rather than companies, corporations, or businesses, as insurance agents, we recognize that an individual insurance agent as well as a corporate insurance agency can have a contractual relationship with the insurance customer. However, we are aware of no legal basis for finding that an insurance agent would have a contractual relationship with clients or customers of an incorporated insurance agency whose insurance business he did not personally handle. Patek appears only to recognize the existence of a contractual relationship between the client and the particular agent under whose license the client's business is handled, not between the client and every insurance agent connected with the insurance agency. In addition, we note that Section 626.734, Florida Statutes (applicable to general lines insurance agents) and its parallel provision applicable to life insurance agents (Section 626.795, Florida Statutes), while imputing liability to insurance agents who are also officers, directors, or stockholders of incorporated insurance agencies, appear to provide a cause of action for negligence, intentional torts (i.e., conversion of funds), and strict liability, and provide a basis for penal discipline of an agent's insurance licensure, rather than creating or recognizing a contractual relationship between a customer of an incorporated insurance agency and an insurance agent under whose license(s) the customer's insurance is not handled. See Hartnett v. Department of Insurance, 432 So. 2d 155 (Fla. 3rd DCA 1983); Copeland Insurance Agency, Inc. v. Home Insurance Company, 502 So. 2d 93 (Fla. 5th DCA 1987); and Ganter v. Department of Insurance, 620 So. 2d 202 (Fla. 1st DCA 1993).
Thus we find that the first clause of Section 112.313(7)(a) would not be violated were a customer of the Councilman's insurance agency to do business with the City, unless the Councilman is the agent under whose license the customer's insurance business is conducted.
We are aware that this opinion reaches a somewhat different result from that set forth in CEO 94-10 and that the differing outcomes are due primarily to the presence or lack of presence of an intervening separate business entity (a corporation). Nevertheless, it is the Legislature and not this Commission that has the power to make or amend the law. We are not free to ignore terms, requirements, or statutory elements that the Legislature has seen fit to employ, such as "contractual relationship," and we cannot ascribe to such terms a meaning unsupported by plain language or caselaw. We note that it has been proposed that Section 112.313(7)(a) be amended to address situations such as that present in this opinion, in order to close what some consider to be a "loophole" in the existing law. See HB 707, Section 2, First Engrossed version, 1994 Regular Session of the Legislature, for an example of such proposed language. The language of that bill would have amended Section 112.313(7)(a) to read:
(7) CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.--
(a) No public officer or employee of an agency shall have or hold any employment or contractual relationship with, or own a majority voting interest in a business entity that has a contractual relationship with, any business entity, affiliate of a business entity, or
any agency which is subject to the regulation of, or is doing business with, an agency of which he is an officer or employee . . . .
However, the Legislature has not yet seen fit to place such language into the statute. In addition, we note that the proposed language, even if it had been adopted, would not have addressed the Councilman's situation since he (as a forty-eight percent shareholder) does not own a majority voting interest in the corporation.
Even though we have found that the Councilman would not hold a contractual relationship with clients of the corporation which employs him and with which he is otherwise connected, unless their insurance business is handled under his insurance license(s), the second clause of Section 112.313(7)(a) would, absent the applicability of a grandfathering or an exemption, prohibit his holding employment or contractual relationships (stockholder, officer) with the corporation if such employment or contractual relationships would create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or would impede the full and faithful discharge of his public duties. A conflict under the second clause can be based upon any employment or contractual relationship, regardless of whether or not the employment or contractual relationship is with a business entity that is subject to the regulation of or is doing business with the public official's public agency. In the past, we have found prohibited conflicts to exist under this second clause when the public official was in a position such that he would be tempted to compromise the performance of his public duties in order to benefit himself or other persons or entities with which he was privately connected. However, we do not find that such temptation exists in the Councilman's situation. Any City business awarded by the City Council would not be awarded to the Councilman or to his corporation but, rather, would be awarded to businesses which maintain insurance through the corporation and which, as represented by you, would continue to have the need of and to maintain insurance regardless of whether or not they take on City business. This lack of a conflict under the second clause is buttressed by the fact that the majority of the business between the City and suppliers of goods or services would be entered into between the suppliers and departments of the City separate and distinct from the City Council, with little, if any, involvement from the Council. See CEO 94-3, Question 2.
Accordingly, we find that a prohibited conflict of interest would not be created under Section 112.313(7)(a), Florida Statutes, were clients of the Councilman's insurance agency to do business with the City, provided the insurance affairs of those particular clients are not handled under the Councilman's insurance license(s).
Does the voting conflicts law contained in Section 112.3143(3)(a), Florida Statutes, apply to the Councilman concerning measures to award City business to insurance clients of the corporate insurance agency?
Section 112.3143(3)(a), Florida Statutes, provides:
No county, municipal, or other local public officer shall vote in his official capacity upon any measure which would inure to his special private gain; which he knows would inure to the special private gain of any principal by whom he is retained or to the parent organization or subsidiary of a corporate principal by which he is retained, other than an agency as defined in s. 112.312(2); or which he knows would inure to the special private gain 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 his interest in the matter from which he is abstaining from voting and, within 15 days after the vote occurs, disclose the nature of his 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.
This statute would prohibit the Councilman from voting (and would require a declaration and the filing of a memorandum) regarding any measure that would inure to his own special private gain, that of a principal by which he is retained, that of a relative, or that of a business associate. Sections 112.3143(1)(b) and 112.312(4) define "relative" and "business associate," respectively, to mean:
. . . any father, mother, son, daughter, husband, wife, father-in-law, mother-in-law, son-in-law, or daughter-in-law.
any person or entity engaged in or carrying on a business enterprise with a public officer, public employee, or candidate as a partner, joint venturer, corporate shareholder where the shares of such corporation are not listed on any national or regional stock exchange, or coowner of property.
We find that the Councilman would be subject to the requirements of Section 112.3143(3)(a) regarding measures concerning the award of City business to insurance clients whose insurance business is handled by the Councilman and not by another licensed insurance agent of the corporation. The Councilman would be an agent of the particular clients whose insurance he handles and they would be principals retaining him. See Patek, supra. However, there is no legal basis to conclude that the Councilman would also be an agent of insurance clients whose affairs are handled by other insurance agents of the corporation. Therefore, the voting conflicts law would not be applicable to the Councilman regarding measures that would inure to the special private gain of clients serviced by other insurance agents of the corporation, under the portion of that law addressing gain to one's principals.
In addition, while we find that the award of business to insurance clients of the corporation would inure to the special gain of the clients, we do not find that an award also would inure to the gain of the Councilman, his relative (son-in-law), or his business associates (the other shareholders of the corporation). The award of City business to the clients would not cause the clients to purchase insurance from the corporation because, as you represent, the clients would have need of and would be maintaining insurance regardless of whether or not they were awarded City business. In addition, assuming that an award of City business to a client would trigger a need or an increased need for insurance, we are of the general view that it would be remote and speculative to find that the insurance would be obtained from the Councilman's agency as a direct result of the vote to award City business to the client. See, for example, CEO 94-13 and CEO 86-44.
However, please be advised that Section 286.012, Florida Statutes, allows a public official to abstain from voting on a measure that "appears to be" conflicting. Therefore, even though Section 112.3143(3)(a) does not require the Councilman's abstention regarding the award of City business to clients of the corporation whose insurance is not handled under his license(s), he may nevertheless wish to abstain as to some or all measures involving clients of the corporation who are serviced by other agents in order to avoid even the appearance of a conflict of interest.
This question is answered accordingly.