GENERAL MUNICIPAL LAW, §§800, 801, 802[b], [h]: A
newly-elected town board member who is also an employee of the
insurance agency with which the town contracts for insurance
coverage would have a prohibited conflict of interest in those
contracts unless the exception contained in either General
Municipal Law, §802[b] or [h] is applicable.
You ask whether a newly-elected town board member would have a prohibited conflict of interest if the town were to purchase insurance coverage from an insurance agency with which the board member is employed. You state that the board member is neither an officer nor a director of the agency but that he is the manager of a branch office of the agency. You further state that the town would not be dealing directly with the branch office which the board member manages and that the board member will receive no remuneration from the town's insurance premiums. Finally, you state that the board member would not participate in town board voting or discussions relative to these insurance transactions.
Article 18 of the General Municipal Law (§800 et seq.) contains provisions of law which relate to conflicts of interest of municipal officers and employees. Pursuant to General Municipal Law, §800(3), a municipal officer or employee has an interest in any contract with his municipality if he receives a direct or indirect pecuniary or material benefit as a result of that contract. In addition, regardless of whether an officer or employee receives a direct or indirect pecuniary benefit from a contract, an officer or employee is deemed to have an interest in any contract of a firm, partnership or association of which the officer or employee is an employee, or in any contract of a corporation of which he is an officer, director, employee, or stockholder (General Municipal Law, §800[b],[c],[d]). That interest is prohibited if the officer or employee, individually or as a member of a board, has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or approve payments thereunder; (b) audit bills or claims under the contract; or (c) appoint an officer or employee who has any such powers or duties, and none of the exceptions contained in Article 18 are applicable (General Municipal Law, §§801, 802). Any contract willfully entered into in which there is a prohibited interest is null, void and unenforceable (General Municipal Law, §804) and any officer or employee who willfully and knowingly violates the provisions of Article 18 may be guilty of a misdemeanor (General Municipal Law, §805).
As an employee of the insurance agency, the board member is deemed to have an interest in any insurance contract between the agency and the town, regardless of whether he receives a direct or indirect pecuniary or material benefit from such contracts. Further, as a town board member, this individual clearly has powers and duties listed in section 801 in connection with these agreements (see, e.g., Town Law, §§20[b], 64,, 119; General Municipal Law, §78). Also, because you state that the board member will not vote on, or participate in discussions pertaining to the insurance contracts, we note that refraining from exercising any section 801 powers and duties will not cure a prohibited conflict of interest (Dykeman v Symonds, 85 Misc 2d 567, 380 NYS2d 289, affd 54 AD2d 159, 388 NYS2d 422; Opn No. 85-15, supra; 1983 Opns St Comp No. 83-180, p 226). Rather, it is the existence of the statutory power or duty of an officer or employee to perform section 801 functions which gives rise to the prohibited conflict of interest under that section, without regard to whether those functions are actually performed. Therefore, unless an exception contained in General Municipal Law, §802 is applicable, the board member would have a prohibited interest in any contract between the town and the agency (see 1988 Opns St Comp No. 88-15, p 25; 1982 Opns St Comp No. 82-234, p 294; 1982 Opns St Comp No. 82-12, p 15).
Article 18 appears to contain two exceptions which may be pertinent in the instant situation. To the extent that either exception applies, the board member's interest in the contract would not be prohibited, but disclosure of the interest in the contract would still be required in accordance with General Municipal Law, §803.
General Municipal Law, §802(1)(h) provides an exception for contracts in which an officer or employee has an interest, if the contract was entered into prior to the time the officer or employee was elected or appointed. There is, however, no exception for renewals of such contracts. Since you state that the board member is newly-elected, but do not state whether any contracts with the agency pre-dated his election to the board, we cannot determine whether this exception is applicable.
In addition, subdivision 1(b) of section 802 provides an exception when the conflict of interest results from the status of the municipal officer or employee as an officer or employee of the contracting entity, if the remuneration of such employment will not be directly affected as a result of the contract and the duties of such employment do not directly involve the procurement, preparation or performance of any part of the contract. This exception, however, only avoids a prohibited conflict in situations when an interest results solely because a municipal officer or employee is also an officer or employee of a firm or corporation. If a municipal official would also receive a direct or indirect pecuniary or material benefit from the contract or would be deemed to have an interest in the contract for reasons other than his status as officer or employee of the entity (see General Municipal Law, §800), the exception will not overcome the prohibited interest in the contract.
Since you indicate that the board member does not receive remuneration form the town's insurance premium payments to the agency and is employed at a separate branch of the agency, it is possible this exception is applicable. We do not, however, have sufficient facts to make a determination in this regard.
Even if it is determined that no prohibited conflict of interest would arise in this situation because of the exceptions discussed above, the town's code of ethics should be consulted to ascertain whether it contains any pertinent provisions which may be more restrictive than Article 18. In this regard, we note that General Municipal Law, §806 states that municipal codes of ethics must provide standards with respect to, among other things, private employment in conflict with official duties.
Finally, we note that the courts of this State have held public officials to a high standard of conduct and, on occasion, have negated certain actions which, although not violating the literal provisions of Article 18 of the General Municipal Law, violate the spirit and intent of the statute, are inconsistent with public policy, or suggest self-interest, partiality or economic impropriety (see e.g. Zagoreos v Conklin, 109 AD2d 281, 491 NYS2d 358; Matter of Tuxedo Conservation and Taxpayers Association v Town Board of the Town of Tuxedo, 69 AD2d 320, 418 NYS2d 638; Conrad v Hinman, 122 Misc 2d 531, 471 NYS2d 521). Thus, even if contracts between the insurance agency and the town are found not to violate the letter of Article 18 of the General Municipal Law or the code of ethics, we nonetheless suggest that consideration be given to the possible appearance of impropriety and the consequences of any judicial review of such a contract.
October 16, 1989