The Superintendent of the State Accident Fund (SAF or the Fund) has inquired as to whether the private family business of an Office Clerk II with the Fund may acquire insurance from the Fund.

The State Accident Fund is established pursuant to the Workmen's Compensation Article of the Annotated Code of Maryland (Article 101, §§70—80). Its purpose is to ensure that employers in the State have access to compensation insurance for their employees as required by §16 of the Workmen's Compensation Law. The Fund is sometimes the insurer of last resort for an employer. It is the largest workmen's compensation insurer in the State, and is one of about 300 carriers. Its rates are significantly lower than private rates (it pays no taxes or commissions), and it insures approximately 9,500 private employers plus all State of Maryland Departments for their workmen's compensation obligations. The Fund is supported and managed solely by premiums, estimated to be over $40,000,000 annually.

Based on its statutory mandate, the SAF has very little discretion to deny insurance. This can be done, for example, where an applicant is a prior policy-holder and the policy has been cancelled and the back premiums are not paid. Applications may also be denied where there is no insurable risk, based on the statutory definitions of the Workmen's Compensation Law. (For example, volunteers, domestic workers and farmers are not required to be insured.) Rates charged are based on the classification of the business, which, though subject to some interpretation, is based on reasonably well-defined guidelines. The Fund has six organizational units, including: the Superintendent's immediate office (which handles administrative functions); the Underwriting Division (which issues and services policies); Auditing (responsible for verifying payroll and other information and determining classifications and premium charges); Risk Management and Safety (which reviews and counsels as to workplace safety); Claims (responsible for processing claims before the Workmen's Compensation Commission (WCC)); and Accounting and Data Control (which does record maintenance and processing).

This request involves an Office Clerk II (the Employee) in the Fund's Accounting and Data Control Division. The primary function of this unit is to keep and maintain the records of the agency, including the permanent computer records, claims files of cases that were filed prior to computerization, and microfiching of claims records. The unit is also responsible for controlling all of the Fund's mail, including mail hand-carried by courier from the WCC. The Employee is the person in the office responsible for handling the mail. She opens, separates, and distributes the mail, including claims transmissions from the WCC, to all appropriate units within the agency. She has a computer unit at her desk and part of her job is to preliminarily screen documents, particularly claim forms. She checks documents against the computer to ensure the claim is on file and to verify information, and may make notations (such as adding the claim number), before routing it to the proper office within the agency. She also has general clerical and filing duties.

This request involves an application for insurance submitted by the Employee and her husband as owners of a deli-convenience store owned and managed by them as a family business. The couple took over the business in October 1985 after a purchase from long-time family friends who sold it because of health problems. Though her spouse (who is also part-time in the business) is the primary manager, the Employee indicates that both of them are responsible for running the operations. According to her, the prior owner had insured through SAF and advised the couple that this was the least expensive and best insurance route. For this reason, and to facilitate a smooth transition of ownership, SAF insurance was sought. The Employee states that she was advised that no claims had been made under the policy in 12 years of the business' existence.

The SAF has a conflict of interest policy which was issued in 1984 partly in response to action and advice from the Ethics Commission. The Employee indicates that she was provided a copy of this and when the issue of workmen's compensation insurance came up she checked with the Underwriting Division and the Chief Counsel's Office, as well as the SAF Superintendent. The decision was to issue the policy pending Ethics Commission review. The agency policy states that "employees may not be an owner, officer, director, partner, employee representative, consultant, etc., of any company insured by the Fund." The Superintendent indicates that this reflects the agency's general interpretation of the Ethics Law provisions, but is not a statement that the agency opposes any exception to this rule. He expresses his concern that the Fund has a mandatory duty to provide insurance to Maryland employers, and questions whether agency employees should be denied access to the benefits of this public program as a price of agency employment. The Superintendent also notes that this type of insurance is becoming unavailable due to the current insurance crisis and that the State is considering becoming the exclusive carrier for workmen's compensation insurance in Maryland.

As a part owner of a family business to which she provides substantial services, the Employee has an employment and interest relationship with the business as contemplated in §3-103(a)(1)(i) of the Public Ethics Law (Article 40A, §3-103(a)(1)(i), Annotated Code of Maryland, the Ethics Law). Given the nature of the business, its likely value and income to her probably also exceeds $1,000 and would be a financial interest as defined by §1-201(m) of the Law. Since an insurance policy between the Fund and the business would be a contract, the Employee's affiliation with it would be in violation of the §3-103(a)(1)(i) prohibition against being employed by or having a financial interest with an entity that contracts with one's agency, if an SAF policy is issued to the business, unless an exception can be applied.

Exception could be possible under Commission regulations implementing language in §3-103(a)(1)(i) providing that its prohibition applies "except as permitted by regulation of the Commission where such interest is disclosed or where such employment does not create a conflict of interest or appearance of conflict." These regulations (COMAR 19A.02.01 and 19A.02.02) are designed by the Commission as general criteria for determining whether an interest or employment that would otherwise be prohibited is so remote from the individual's agency and official duties that the possibility of a conflict of interest or appearance of conflict is unlikely. The criteria include consideration of the nature of the employee's official duties, as well as how and to what extent the private relationship relates to the agency and its activities. The regulations are designed to set forth guideposts for evaluating the possibility of a conflict of interest, rather than as technical criteria, and also provide for agency input.

In applying the criteria to this situation, we note that there are very few issues raised, given the Employee's primarily clerical duties and her position in a non-substantive unit of the agency's program. One possible issue would be under the item that deals with the Employee's responsibilities on behalf of the private entity, since she would, as an owner, have some of the responsibility for payment of the premium, and for complying with SAF reporting and other requirements. Also, as to the financial interest regulations, though the cost of the policy here is apparently under $5,000, the potential liability of SAF if a claim were filed probably exceeds this, and issues could therefore be raised as to the value of the entity's contractual relationship with the Fund.

We believe that the circumstances here present a very unusual factual and legal situation. The Employee has ministerial duties in the agency, and though she would have responsibilities with her private business, these too could be viewed as administrative and ministerial as long as the payment of the premium is the only business between the Fund and the entity. On the other hand, if there were ever to be a claim, the Employee's mere employment with SAF could compromise the agency's objectivity in acting on the transaction. Moreover, the Fund is not a large agency (110 employees), and problems could be raised if any affirmative SAF action were to be taken against the entity, merely from the Employee's accessibility to other agency personnel, including those responsible for the policy with her private business. For these reasons, our advice to the Employee and the agency is that an exception, as defined in our regulations, would not as a general matter be allowable to permit this relationship to be established between her agency and her private business.

We do, however, recognize the SAF's concern that it is mandated to be the insurer of last resort to small businesses that would otherwise be unable to procure insurance. We are of the view that the Ethics Law was not generally intended to totally eliminate the ability of State employees to have private business interests, or to exclude State employees from participation in programs of their agency that are available to the public generally, especially where these are not available from any other source. This is particularly true where the employee involved occupies in a ministerial position. We therefore advise the agency that it could issue this insurance policy to the Employee's business, if the Superintendent is satisfied that the business has sought and been unable to procure other insurance. This is based on our view that the Ethics Law is to be read consistently with other laws. We caution, however, that any exception would apply only as long as private insurance is unavailable and for as long as the relationship between the Employee's business and SAF continues to be administrative and without incident.

We also advise the Employee to continue to be aware of the disqualification (§3-101), prestige (§3-104), and information (§3-107) provisions of the Law. She must take special care, if her business is insured by SAF, to avoid any action or discussion with her colleagues, however casual, about her private business' relationship with the agency.

Thomas D. Washburne, Chairman
    Reverend John Wesley Holland
    Betty B. Nelson
    Barbara M. Steckel

Date: January 22, 1986