Request By:
Al Miller, Esq.
109 North Railroad Street
P.O. Box 350
Central City, Kentucky 42330
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter raising a question as to whether a conflict of interest situation could occur in regard to a particular city councilman. Central City, a city of the fourth class, purchases insurance from an independent insurance agency. An employe of that agency was recently appointed to fill a vacancy on the city council. The councilman in question receives a salary from the insurance agency but has no ownership or other interest in the agency except that he receives a yearly bonus based on the total amount of insurance the agency sells. This councilman would abstain from voting on any matter in which the insurance agency has an interest.
Your question is as follows:
"If the city decides to purchase insurance from the independent agency when the present insurance contracts come up for renewal, can it do so without the city councilman who is an employee of the independent insurance agency being in violation of KRS 61.270 (fourth class city officer not to be interested in contract with city) or KRS 86.050(2) (members of city council - terms - qualifications)?"
KRS 61.270 provides that if any officer of a fourth class city becomes directly or indirectly interested as agent, principal or surety in any contract with the city, he shall vacate his office, and the contract, if entered into while he is in office, shall be void. KRS 86.050(2) states in part that no member of the city council shall be interested in any contract with the city.
In OAG 77-415, copy enclosed, the city was about to purchase insurance coverage in connection with its employe retirement benefit program when a question arose as to a possible conflict of interest in connection with one of the city commissioners. The commissioner in question was an insurance agent with the authority to solicit on behalf of several companies, some of whom might be doing business with the city. The commissioner, however, did not receive a salary from the insurance companies and his relationship with them was as an agent who received a commission only for sales actually made.
At page two of the above-mentioned opinion it was stated that no conflict of interest existed with respect to the commissioner since the disqualifying interest must be pecuniary by which he stands to gain or lose something, and it did not exist under the facts set forth. As long as the commissioner is not personally involved in the execution of the contract as an agent of the insurance company and receives no commission resulting from the contract, no statutory violation would occur.
We next direct your attention to
Commonwealth ex rel. Vincent v. Withers, 266 Ky. 29, 98 S.W.2d 24, 25 (1936), where the Court said:
"It is a salutary doctrine that he who is intrusted with the business of others cannot be allowed to make such business an object of profit to himself. This is based upon principles of reason, of morality, and of public policy. These are principles of the common law and of equity which have been supplemented and made more emphatic by the foregoing and other statutory enactments.
Nunemacher v. City of Louisville, 98 Ky. 334, 32 S.W. 1091, 17 Ky. Law Rep. 933. In their application and operation it is impossible to lay down any definite rules defining the nature of the interest of the officer, or indicating the line between that which is proper and that which is unlawful. In general, the disqualifying interest must be pecuniary or proprietary by which he stands to gain or lose something. Falling within the principle are contracts with firms in which the member of the municipal body is a partner or a corporation of which he is an officer, or sometimes only a stockholder or employee.
Byrne & Speed Coal Co. v. City of Louisville, 189 Ky. 346, 224 S.W. 883;
Douglas v. Pittman, 239 Ky. 548, 39 S.W.2d 979. Furthermore, it is not material that the self-interest is only indirect or very small."
The city councilman in your fact situation is merely an employe of the insurance agency with whom the city may be doing business, and not a partner, officer, director or someone who directly influences company actions and policies. That particular situation probably would not disqualify the city councilman as his pecuniary interest in transactions between the city and the insurance agency would be too remote or collateral. Again see Withers, supra, at page 25. A problem arises, however, because of the fact that the councilman receives a yearly bonus from the insurance agency based on the total amount of insurance the agency sells which would include insurance coverage sold to the city. This would give him a pecuniary interest in the insurance business the city might transact with the insurance agency by whom he is employed. The applicable case law and statute cover an indirect as well as a direct interest and the interest in the transaction need only be "very small" to constitute a conflict of interest.
Thus, in conclusion, under the fact situation you have presented, if the city decides to purchase insurance coverage from an insurance agency with whom one of the city councilmen is employed, that city councilman would be in violation of KRS 61.270 and KRS 86.050(2) if he receives a yearly bonds from the insurance company based on the total amount of insurance the agency sells as that would include insurance coverage sold to the city he serves as a city councilman.