Advisory Opinion No. 2003-16 Re: Craig S. Stenning QUESTION PRESENTED The petitioner, the Executive Director of the Division of Behavioral Healthcare at the Rhode Island Department of Mental Health, Retardation and Hospitals, a state employee position, requests an advisory opinion as to whether he may accept from his former employer, an "interested person" under the Code of Ethics, the transfer of a term life insurance policy with a cash surrender value of approximately $18,000. RESPONSE It is the opinion of the Rhode Island Ethics Commission that the petitioner, the Executive Director of the Division of Behavioral Healthcare at the Rhode Island Department of Mental Health, Retardation and Hospitals, a state employee position, may accept from his former employer, an "interested person" under the Code of Ethics, the transfer of a term life insurance policy with a cash surrender value of approximately $18,000, subject to certain conditions. The petitioner is the Executive Director of the Division of Behavioral Healthcare at the Rhode Island Department of Mental Health, Retardation and Hospitals ("MHRH").(1) For over 28 years prior to January of 2000, he was the President/CEO of CODAC, Inc. ("CODAC"), a provider of mental health services in Rhode Island. The petitioner represents that CODAC, during his employment there, purchased a $250,000 term life insurance policy for the petitioner's benefit. The petitioner states that while CODAC owns the policy, it is not a beneficiary. Rather, the petitioner was permitted to choose the beneficiary. The petitioner represents that CODAC's purchase of the policy was intended to be in lieu of a salary increase and was therefore part of his compensation. The petitioner and CODAC represent that upon his leaving CODAC's employ, he was provided with a severance package in recognition of his 28 years of service. The petitioner and CODAC represent that CODAC intended to transfer ownership of the policy to the petitioner as part of the severance package, but that due to inadvertence and mistake the transfer did not take place. This error was revealed, it is asserted, during a review of CODAC's books and records. The cash surrender value of the policy is represented to be approximately $18,000. CODAC now wishes to transfer ownership of the policy to the petitioner, which it claims it would have done upon his severance had it not been for inadvertence and mistake. The petitioner asks whether his acceptance of such transfer would implicate the provisions of the Code of Ethics. Subject to certain exceptions not applicable in this case, Commission Regulation 36-14-5009 provides that no person subject to the Code of Ethics shall accept a gift or other thing of value having a value greater than $150 from a single interested person without that interested person receiving lawful consideration of equal or greater value. The regulation defines "interested person" as a person or business that has a direct financial interest in a decision that the person subject to the Code of Ethics is authorized to make, or to participate in the making of, as part of his official duties. Regulation 36-14-5009(c). Based upon the petitioner's representations that his Division at MHRH has responsibilities over CODAC, including funding issues and programmatic reviews, CODAC is considered an "interested person" for purposes of the gift regulation. Accordingly, if the transfer of the insurance policy from CODAC to the petitioner were considered a gratuitous act without consideration, then such transfer would be prohibited under the gift regulation because the policy is valued at an amount over $150. Here, however, the petitioner's representations are that the policy was purchased by CODAC during the petitioner's employment to be solely for his benefit and in lieu of a salary increase. To the extent that the policy purchased by CODAC was intended by both parties to fairly compensate the petitioner for the performance of his duties, then it would appear that CODAC received lawful consideration from the petitioner of equal or greater value. Although the gift regulation will not bar the petitioner from accepting the policy insofar as it is considered to be compensation for his prior service to CODAC, the petitioner is cautioned that he may not be entitled to accept the policy at its current cash surrender value. In its letter to the Commission, CODAC states that the petitioner left CODAC in January 2000. CODAC further states, however, that "no premium payments have been made by CODAC since December 31, 2000." Based upon these representations, it appears that CODAC may have made premium payments during the one-year period following the petitioner's severance from CODAC. For this period of time, the payments cannot be considered fair compensation and are not supported by consideration of equal or greater value. Therefore, the transfer of ownership of the policy to the petitioner will trigger application of the gift regulation for the value of any premium payments made after the date of the petitioner's severance from CODAC. If the total of such payments (and the corresponding increase in cash surrender value) exceeds $150, then the petitioner would be prohibited by Regulation 5009 from accepting the transfer. In order to avoid application of Regulation 5009's prohibition, prior to the transfer the petitioner should reimburse CODAC for any increase in the policy value attributable to CODAC's post-employment premium payments. Code Citations: Regulation 5009 Keywords: Compensation Gifts (1) This request for an advisory opinion was originally requested in April 2002 by CODAC, Inc. By letter dated April 24, 2002, CODAC was informed that the Commission would not accept a request for advisory opinion from CODAC, a third party, but only from the petitioner. On January 21, 2003, the Commission received a letter from the petitioner seeking issuance of the advisory opinion based upon the details provided in CODAC's prior letter. For the purposes of this advisory opinion, the representations made by CODAC are considered to be adopted by the petitioner.