CEO 79-79 -- November 16, 1979

CONFLICT OF INTEREST

DIRECTOR OF DIVISION OF WORKERS' COMPENSATION RETAINING ASSOCIATION WITH INSURANCE AGENCY WHILE SERVING IN THAT POSITION

To: (Name withheld at the person's request.)

Prepared by: Phil Claypool

SUMMARY:

The Code of Ethics prohibits a public employee from being employed by, or having a contractual relationship with, a business entity which is subject to the regulation of his public agency. Section 112.313(7)(a), F. S. This provision would not be violated, however, were the Director of the Division of Workers' Compensation of the Department of Labor and Employment Security to continue his association as a licensed insurance agent with an insurance agency which sells workers' compensation insurance. Although the prospective director's insurance agency sells workers' compensation insurance, the agency is not involved in any phase of claims handling -- neither in making determinations of compensability in settling claims for compensation nor in making provisions for the payment of compensation. Also, an examination of the Workers' Compensation Law (Ch. 440, F. S., as amended by Ch. 79- 40, Laws of Florida) reveals that the division has no regulatory authority over an insurance agency, particularly as the agency is not involved in the processing of claims; it is the Department of Insurance which has been granted regulatory authority over workers' compensation insurance companies. Under the statutory responsibilities of the division, the prospective director will be unable to affect the compensation he will receive from the insurance agency while serving as director, and he will be unable to affect the commission received by the insurance agency from insurance companies. Accordingly, no prohibited conflict of interest would be created were the Director of the Division of Workers' Compensation to continue his association as a licensed insurance agent with an insurance agency which sells workers' compensation insurance.

QUESTION:

Would a prohibited conflict of interest be created were the Director of the Division of Workers' Compensation to continue his association as a licensed insurance agent with an insurance agency which sells workers' compensation insurance?

Your question is answered in the negative.

In your letter of inquiry you advise that you are considering the appointment of ____, a licensed insurance agent, as Director of the Division of Workers' Compensation of the Department of Labor and Employment Security for a period of 1 year. You also advise that, during this period, ____ would retain certain ties with the insurance agency which has employed him; he would continue to receive compensation from the agency in the form of salary, living expenses, and travel expenses. Although he would confer with his colleagues regarding internal management of the agency, you advise, such consultations would not be on state time or at state expense and would not interfere with his duties as division director.

You further advise that ____ has agreed to certain limitations of his business affairs during his tenure as division director. In this respect, he first has agreed not to advise any insured client regarding any matter pertaining to workers' compensation, except when such conferences are required by, and would be within the course and scope of, his employment by the state as division director. Secondly, he has agreed not to advise any past or present insured client regarding workers' compensation coverage or any other type of insurance coverage. Finally, he has agreed to limit his conferences with his insurance agency to weekends, to the maximum extent feasible.

The Code of Ethics for Public Officers and Employees provides in relevant part:

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. [Section 112.313(7)(a), F. S.]

This provision of the Code of Ethics prohibits a public employee from being employed by, or having a contractual relationship with, a business entity which is subject to the regulation of his public agency. Under this prohibition, therefore, we must determine first of all whether the prospective employee would have a contractual relationship or employment with a relevant business entity.

In your letter of inquiry you advise that the prospective employee presently is employed by an insurance agency and is licensed as a general lines agent under Ch. 626, F. S., and applicable regulations of the Department of Insurance. As a licensed general lines insurance agent, he serves as an intermediary between insurance companies and persons desiring to have insurance by soliciting insurance and procuring applications. As a general lines insurance agent, you advise, he is not an employee of an insurance company, but purely an independent agent who sells a range of types of coverage offered by insurance companies. He binds insurance companies to cover persons and entities who pay insurance premiums. As our staff was advised in a telephone conversation with the office of the General Counsel of the Governor, the prospective employee is authorized as an agent by various insurance companies to sell their insurance policies. In return, he is compensated as a salaried employee of the insurance agency, which receives commissions on policies sold to applicants for insurance coverage during the life of those policies.

The prospect's insurance agency sells several types of insurance coverages, including workers' compensation, you advise. However, you also advise that the agency is not involved in any phase of claims handling -- neither in making determinations of compensability in settling claims for compensation nor in making provisions for the payment of compensation.

Under the circumstances you have related, we are of the opinion that the prospective employee would be employed by the insurance agency while serving as director of the division. In addition, we are of the opinion that he would maintain a contractual relationship with the insurance companies which have authorized him to act as their agent, as the agency relationship is a type of contractual relationship. 2 Fla. Jur.2d Agency Employment s. 1 (1977).

The next question we must address is whether the Division of Workers' Compensation may be said to "regulate" either the insurance agency or any of the workers' compensation insurance companies involved. With respect to the insurance agency, an examination of the Workers' Compensation Law (Ch. 440, F. S., as amended by Ch. 79-40, Laws of Florida) persuades us that the division has no regulatory authority over an insurance agency, particularly since the agency is not involved in the processing of claims. General lines insurance agents, as mentioned above, are regulated by the Department of Insurance by virtue of that department's licensing authority. Similarly, we find that workers' compensation insurance companies are regulated by the Department of Insurance rather than by the Division of Workers' Compensation of the Department of Labor and Employment Security. In order to reach this conclusion, we have examined the responsibilities of the Division of Workers' Compensation as they might affect insurance companies.

With the 1979 revision of the Workers' Compensation Law, the Legislature expressed its intent that "the division assume an active and forceful role in the administration of this act so as to ensure that the system operates efficiently and with the maximum benefit to both employers and employees." Chapter 79-40, s. 33, Laws of Florida. Thus, the Legislature required that employers notify the division of a claim for compensation immediately after notice is given to the employer, and the division now participates actively in the claims handling process by methods such as advising claimants of their rights and issuing advisory opinions on injured workers' entitlement benefits.

In addition, the Legislature instructed the division to . . . examine on an ongoing basis claims files in its possession in order to identify questionable claims handling techniques, questionable patterns of claims, or a pattern of repeated unreasonably controverted claims by employers, carriers, or self- insurers and shall certify its finding to the Department of Insurance. Only such questionable techniques, patterns, or repeated unreasonably controverted claims as constitute a general business practice of a carrier in the judgment of the division shall be certified in its findings by the division to the Department of Insurance. [Chapter 79-40, s. 16, Laws of Florida.]

That section also authorizes the Department of Insurance to take appropriate action to bring such general business practices to a halt. In addition, the division was instructed to publish an annual report indicating the promptness of first payment of compensation records of each insurance carrier. Chapter 79-40, s. 16, Laws of Florida. Similarly, the Department of Insurance in these cases is directed to take appropriate steps to halt poor carrier payment practices.

Nevertheless, it is the Department of Insurance which has been granted regulatory authority over workers' compensation insurance companies. Such carriers are required to be permitted by the Department of Insurance, which is authorized to revoke or suspend their permits or licenses. Chapter 79-40, s. 29, Laws of Florida. In addition, the Department of Insurance is authorized to review the rates of workers' compensation insurers, and it may order a new rate schedule and the return of excess profits of an insurance company. See ss. 624.435, 627.096, and 627.215, F. S., as amended by Ch. 79- 40, Laws of Florida.

Our inquiry does not stop at this point, however, because s. 112.313(7)(a) also prohibits a public employee from having any employment or contractual relationship that will create a continuing or frequently recurring conflict of interest or that would impede the full and faithful discharge of his public duties. Here, we note that it is the Department of Insurance, not the Division of Workers' Compensation, which has the authority to regulate workers' compensation insurance companies and agents. In addition, we note that, in any particular case, the decision whether a carrier is liable and how much it must pay is determined by a deputy commissioner in a judicial-type proceeding which is subject to review by the First District Court of Appeal. Chapter 79-40, s. 46, Laws of Florida. Thus, the division does not have the authority to decide a given case in favor of a particular insurance carrier.

The term "conflict of interest" is defined in the Code of Ethics to mean "a situation in which regard for a private interest tends to lead to disregard of a public duty or interest." Section 112.312(6), F. S. It is apparent that the private interests of the prospective employee will relate to his receipt of compensation from the insurance agency, as well as to the continued receipt of commissions by the insurance agency from various insurance companies. However, despite the prospective employee's authority as Director of the Division of Workers' Compensation, under the statutory responsibilities of the division, he will be unable to affect the compensation he will receive from the insurance agency while serving as director, and he will be unable to affect the commissions received by the insurance agency from insurance companies.

Accordingly, we find that no prohibited conflict of interest would be created were the Director of the Division of Workers' Compensation to continue his association as a licensed insurance agent with an insurance agency which sells workers' compensation insurance.