97.08

OPINION NO. 97-08

Ethics Commission advice has been requested as to whether a former Associate Commissioner for Policy of the Maryland Insurance Administration (MIA) may engage in certain activities on behalf of his new employer, a major insurance carrier (the Carrier), in connection with legislative activities arising from 1997 legislation in which he participated on behalf of the MIA. We advise that while he may engage in activities on behalf of his new employer relating to legislation that may be introduced in the 1998 Legislative Session, representing or assisting the Carrier as to Study Committee activities arising directly from legislation on which he worked while an employee would be barred by the post-employment provisions of the Ethics Law.

The Maryland Insurance Administration is a regulatory agency responsible for licensing and regulation of insurance carriers operating in the State, both domestic and foreign. It is funded substantially by a variety of fees and charges on the industry. These include annual licensing fees, form and rate filing fees, agent appointment fees, charges for triennial examinations for domestic companies and market conduct exams for all companies, and valuation fees on life insurance policies, among others. During the 1980's and 1990's there has apparently been some concern that the fee structure resulted in an unpredictable revenue stream that actually had little relationship to the regulatory services provided, as well as concern by the insurers that funds collected in connection with their activities were being diverted for uses other than to support the activities of the Insurance Administration.

Moreover, during the late 1980's and early 1990's the agency was being reviewed for accreditation by a national independent accrediting organization. This accreditation process, involving consideration of laws, regulatory structure and funding, was important to the State and the domestic insurance industry if Maryland insurers were to receive reciprocity in other states without the costly and difficult process of reexamination. In response to these accreditation and other concerns a variety of reform measures were considered by the Legislature during 1992 and 1993. A bill increasing fees and establishing a separate Maryland Insurance Administration was passed in 1993, though no changes were made in the funding mechanism itself. During 1994 substantial organizational and legislative efforts were undertaken and the agency was accredited in late 1994.

Subsequently in the Insurance Administration's FY 1997 operating budget a review of the agency's funding mechanism was directed, resulting in a report that considered the general history and related aspects of the issue and concurred in a proposal then being developed by the MIA. This departmental bill (HB 688) proposed to create an assessment mechanism based on a flat formula applied to insurers based on amount of business done in the State. All other fees would be abolished, including the life policy valuation fees. The proposal was designed to be revenue neutral from an agency standpoint, but had the effect of redistributing the burden of paying for agency operations in ways that had very different impacts on the insurers. Because of these different impacts, the bill was thus apparently opposed by the major foreign carriers operating in the State, but generally supported by domestic carriers.

Late in the 1997 Legislative Session agreement was reached that repealed for one year certain fees relating to domestic carriers and established a limited annual assessment for the purpose of spreading the burden among the insurers of making up the funds lost from abolition of this assessment fee. The legislation as enacted apparently did not resolve the basic issue of the funding mechanism for the Insurance Administration. Rather, in addition to the limited fee adjustments, an advisory committee proposed in the original bill to monitor the assessment process was converted to be a Study Committee with a mandate to examine the alternative mechanisms for funding the MIA. The Committee is to include 13 members, including legislative representatives, the Insurance Commissioner, representatives of various types of insurers and insurance professionals, and one member of the general public. It is to develop a proposal that apportions the cost of regulation fairly and equitably among the regulated entities, takes into account the economic impact of the mechanism, reduces the current cost of imposing and collecting fees, and takes into account possible retaliatory actions by other states.

The Requestor served in the MIA as Associate Director for Policy. His duties were to be the agency's contact person in Annapolis, to monitor and ensure promulgation of implementing regulations, and to supervise attorneys enforcing the law against insurance agents. He indicates that he had a role in 1994 in working on legislative aspects of the efforts to get the agency accredited, and advises that he was substantially involved in policy development activities in 1996 to develop HB 688. He drafted the original bill and put the package together for submission to the Governor in August 1996, and with the study generated by the Department of Fiscal Services created a final package by October or November. According to the Requestor, he first approached the Carrier for employment in December 1996, had two interviews in January and March 1997, and was offered a position in mid-March. He left the agency in early April. The Requestor indicates that he was not very involved in the agency's effort to encourage enactment of HB 688. He says that he did not after the beginning of January have any involvement in testifying on the legislation, though apparently he did assist in drafting testimony and making adjustments to testimony during this period.

In his current position with the Carrier, Requestor serves as its Director of Legislative Affairs for a multi-state area including Maryland. He describes his position as mostly one of communication, of serving as the company's representative in hearings, providing information, and serving as the primary lobbyist as to matters of concern to the Carrier. He works as part of a regional office and interacts directly with the company's Vice Presidents for each State, who are the primary policy makers as to legislative action. According to the Requestor, the Study Committee membership as defined in HB 688 includes two positions for which his new employer's employees could be considered for appointment, and the company as a large foreign carrier has an interest in the Committee's activities. He has therefore requested advice as to whether he could be a member of the Study Committee. If this is not possible due to his past involvement in the program as an Associate Commissioner or for other reasons under the Ethics Law, he has asked whether he could be its representative in testifying before the Committee, or serve as its lobbyist in the next session as to any legislation presented as a result of the Committee's review.

The potential Ethics Law issue here involves application of the post-employment provisions of §15-504(b) (State Government Article, §15-504(b), Annotated Code of Maryland, the Ethics Law), which limits former employees from assisting or representing a party other than the State in a matter involving the State if the matter is one in which the individual participated as an employee. The key consideration in evaluating application of this provision in most situations relates to application of the term "matter" in a particular situation. In considering this provision in the legislative context, we have in some prior situations concluded that the substantial intervening authority of the General Assembly in taking final action on legislation may insulate a person involved in legislative recommendations from post-employment restrictions as to the final legislative product. In a recent informal matter, however, we advised an individual who had been Chairman of a State advisory board that he should not lobby for a private entity on the legislation directly drafted and considered by his Board.

We believe in the circumstances presented by the Requestor that the post-employment provision of the Law bars his involvement on behalf of his new employer in direct connection with the activities of the Study Committee, either as a member or as a witness before it. Though the Requestor indicates his role in development of testimony after his initial interview with the Carrier was limited, he clearly participated significantly in policy and legislative development of HB 688 and would now propose to switch sides. The fundamental issue to be considered by the Study Committee is the same one originally of concern in the development of the bill, as apparently none of the issues were seriously focussed on or resolved. The Requestor's prior work, including policy or procedures associated with that work, would unavoidably be at issue in Committee hearings or deliberations.

Moreover, the parties concerned in this matter are the same as those previously involved and the State's regulatory and fiscal interests are also the same. Despite the fact that the legislation that passed was altered somewhat by intervening actions of the General Assembly, we believe, given the timing of this situation and the very direct relationship of the activities of the Study Committee to the Requestor's legislative and policy activities in connection with HB 688, that the activities of the Study Committee must be viewed as unavoidably including the same matters in which he participated while an MIA employee. Section 15-504(b) of the Law would therefore bar his provision of any assistance or representation on behalf of his new employer as to the Committee's activities, including serving as a member of the Committee on behalf of the Carrier, or being its representative as a witness or otherwise in connection with the Committee's deliberations.

As to the Requestor's possible lobbying in the next session as to any legislative proposals developed by the Committee, we conclude that this would present less substantial concerns under the Law and our prior advice, given the general view that even legislation covering the same subject matter would not be the same matter from one Session to the next. In our view, in the absence of peculiar circumstances suggesting otherwise, legislation that is the product of the Study Committee (where he was not a member) that is introduced for the first time in the 1998 Legislative Session would be a different matter from any in which the Requestor participated in his MIA employment, and the limitations of §15-504(b) would not bar his representation or other assistance of the Carrier in connection with its response to the legislation.

Michael L. May, Chairman,
   Mark C. Medairy, Jr.,
   Charles O. Monk, II,
   April E. Sepulveda

Date: July 15, 1997