This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CONFLICTS OF INTEREST -- Insurance Transactions (village board member and school district attorney as comptroller of incorporated insurance company)
GENERAL MUNICIPAL LAW, §§800(3), 801: A village trustee who is also the comptroller of an insurance company would have a prohibited conflict of interest if the village purchases insurance from that company. A school district attorney who is also comptroller of an insurance company would have a prohibited conflict of interest if the school district purchased insurance from that company and the school district attorney had any of the powers or duties listed in General Municipal Law, §801.
This is in reply to your letter, written in your capacities as village trustee and school district attorney, in which you state that you are the comptroller of an incorporated insurance agency. You ask whether there would be a conflict of interest if the village or school district utilized the services of the insurance agency.
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 corporation of which he is an officer, director, employee, or stockholder (General Municipal Law, §800[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 or knowingly violates the provisions of Article 18 may be guilty of a misdemeanor (General Municipal Law, §805).
As comptroller of the corporation, you are deemed to have an interest in contracts between the corporation and the village or school district, whether or not you receive a pecuniary or material benefit from such contracts. Further, in your capacity as a member of the village board, you clearly have powers and duties listed in section 801 (see Village Law, §§4-412; 5-524). Therefore, unless an exception contained in Article 18 is applicable, you would have a prohibited interest in any contract between the village and the agency (1980 Opns St Comp No. 80-443, p 129; 1981 Opns St Comp No. 81-430, p 484; 1982 Opns St Comp Nos. 82-12 and 82-234, pgs 15 and 294).
Similarly, if, as attorney for the school district, you have any of the powers or duties listed in section 801, such as the power or duty to negotiate, prepare or approve the contract, then you would also have a prohibited interest in contracts between the agency and the school district unless there are any applicable exceptions. In view of our policy of deferring to the State Education Department on matters which relate solely to the powers and duties of school district officials, you may wish to contact that agency with regard to whether, as school district attorney, you have any of the powers and duties listed in section 801.
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 567, affd 54 AD2d 159, 388 NYS2d 422; 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.
Article 18 appears to contain two exceptions which may be pertinent in the instant situation. To the extent that either exception applies, your 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 do not state whether any contracts with the agency pre-dated your election to the village board or appointment as school district attorney, 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.
As comptroller of the insurance agency, we assume your duties will involve receipt of premiums, audit of claims and the like. Therefore, because your duties with the agency would appear inevitably to involve the performance of some aspects of the contracts with the village or school district, it appears the exception contained in General Municipal Law, §802(1)(b) would not pertain. We also note that the exception would not apply if you had any involvement in procuring or preparing these contracts for the agency.
Even if it is determined that no prohibited conflict of interest would arise in your capacity as school district attorney, the school district'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. You may also wish to consult the Code of Professional Responsibility of the New York State Bar Association.
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. Zagoreous v Conklin, 109 AD2d 281, 491 NYS2d 358; Matter of Tuxedo Conservation 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 school district 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 consequences of any judicial review of such a contract.
March 10, 1988
John F. Forner, III, Esq.,
Attorney for Menands Union Free School District