Amended Advisory Opinion No. 2008-25

Rhode Island Ethics Commission

Amended Advisory Opinion No. 2008-25

Re: The Honorable Joseph A. Trillo

QUESTION PRESENTED

The petitioner, a member of the Rhode Island House of Representatives, a state elected position, requests an advisory opinion regarding whether he may participate in a floor vote of the House regarding legislation that would require insurers of commercial property to provide a premium credit for the installation of fire suppression and prevention equipment, given that he owns and operates a business that, among other things, sells and installs fire alarms.

RESPONSE

It is the opinion of the Rhode Island Ethics Commission that the petitioner, a member of the Rhode Island House of Representatives, a state elected position, may participate in a floor vote of the House regarding legislation that would require insurers of commercial properties to provide a premium credit for the installation of fire suppression and prevention equipment, notwithstanding the fact that he owns and operates a business that, among other things, sells and installs fire alarms.

The petitioner is a member of the Rhode Island House of Representatives ("the House").  He states that in his private capacity he is the owner and operator of AAA Custom Alarm Systems ("AAA"), a company that is in the business of selling and installing commercial and residential burglar alarms and fire alarms.  The petitioner estimates that approximately ten percent (10%) of his business relates to fire alarm sales and installation, and that the remainder involves burglar alarm sales and installation.  

The petitioner indicates that, at the request of the Rhode Island Department of Business Regulation, he sponsored House Bill 7722, which, if passed, would require insurers in Rhode Island to provide a premium credit to insured owners of commercial properties for the installation of fire suppression and prevention equipment.  According to the petitioner, almost any kind of fire detection and suppression equipment would qualify for the premium credits, including sprinkler systems, fire doors, fire-resistant drywall, smoke detectors, and fire alarms.

The petitioner further represents that current law already requires owners of commercial properties to install the fire prevention and suppression equipment that would be eligible for the premium credit pursuant to the proposed legislation.  Accordingly, the petitioner asserts that the legislation should not increase demand for the type of equipment sold and installed by the petitioner's business.  Rather, he states that the legislation will simply require that insurance companies fairly rate their policies based on the decreased risk of loss associated with the required installation of fire safety equipment.

The petitioner notes that his business, AAA, sells and installs certain fire prevention equipment such as fire alarms and associated control panels, and also provides state-mandated quarterly inspections on the systems that he installs.  The petitioner offers that, if the proposed legislation passes, the products he installs in commercial properties would qualify his customers for a credit on their insurance premiums.  He informs, however, that aside from his own business, any licensed electrician, electrical contractor or fire alarm contractor may perform such installations.  Because the legislation's financial benefit flows solely to the property owner, who is required to purchase the equipment pursuant to current state law, the petitioner asserts that neither he nor others in his line of work will realize any financial benefit as a result of the passage of the legislation.

This legislation has been placed on the House Calendar for consideration.  Given the above representations, the petitioner asks whether he may participate in discussion and voting on the House floor regarding the legislation.

Under the Code of Ethics, no public official shall in any way use his public office or confidential information received through his holding any public office, to obtain financial gain, other than that provided by law, for himself, a family member, any business associate, an employer or any business which he represents.  See R.I. Gen. Laws § 36-14-5(d).  In addition, a public official may not participate in any matter in which he has an interest, financial or otherwise, which is in substantial conflict with the proper discharge of his duties and employment in the public interest. See R.I. Gen. Laws § 36-14-5(a).

In determining whether a substantial conflict exists, the Commission must consider whether a public official, a family member, a business associate, an employer or any business which the public official represents, would derive a direct monetary gain or suffer a direct monetary loss by reason of the official’s activity.  See R.I. Gen. Laws §§ 36-14-5(a) and 7(a).  If no substantial conflict exists, then the public official may participate in the matter at issue.  See, e.g., A.O. 2002-5 (opining that the petitioner, a member of the State Senate and a part-time nurse at the Cranston Senior Center, could participate and vote on legislation relating to the City of Cranston’s pension fund since he could not reasonably expect to be financially impacted by the legislation at issue).

As an initial matter, the facts as represented by the petitioner do not indicate that he or his business will receive a financial benefit or detriment as a result of the passage of the proposed legislation.  In particular, this finding relies upon the petitioner's statements that:  (1) the proposed credit accrues to the property owner, not to the entity selling and installing the equipment; (2) the property owners are already required to purchase and install the safety equipment that would qualify for the credit; and that, accordingly (3) the proposed legislation, if passed, would not increase the petitioner's sales or profits.

The petitioner's representation of no personal financial impact does not end our analysis, however; the petitioner has noted that in some cases, after installation, his business will return to the customer's property on a quarterly basis to inspect and service installed systems.  Such a continuing service relationship with his customers indicates the existence of an ongoing business association.  Just as sections 5(a) and 7(a) of the Code prohibit substantial conflicts of interest involving official action that will benefit the public official himself, these sections also prohibit conflicts where official action leads to a financial impact upon the official's business associates.  Here, it is clear that the proposed legislation, if passed, would confer a direct financial benefit upon the petitioner's ongoing business associates, in the form of reduced insurance premiums.  Given this clear financial impact, the Commission must next consider whether the legislation's effect is sufficiently broad-based so as to negate a determination that the petitioner's participation would amount to a substantial conflict of interest.

Section 7(b), sometimes referred to as the "class exception," outlines instances in which the substantial conflict prohibitions of the Code will not apply.  These instances are:  (1) where a public official, a family member, a business associate, an employer or any business which the public official represents would accrue a benefit or detriment as a member of a business, profession, occupation or group “to no greater extent than any other similarly situated member,” and (2) where such person or business would accrue a benefit or detriment as a member of a “significant and definable” class or subgroup within the business, profession, occupation or group “to no greater extent than any other similarly situated member.”  See R.I. Gen. Laws § 36-14-7(b).

In determining whether a proposed subgroup sufficiently “significant and definable,” the Commission considers the totality of the circumstances, including, but not limited to: (1) the description of the class or subclass; (2) the size of the class; (3) the function or official action being contemplated by the public official; and (4) the nature and degree of foreseeable impact upon the class and its individual members as a result of the official action.  See A.O. 2004-27.

If the class exception of section 7(b) applies, then there will be no substantial conflict of interest, notwithstanding official action that confers a direct financial benefit or detriment upon the acting public official, his family, employer or business associate.  Under this exception, no substantial conflict exists where the individual members of an entire industry are impacted equally.  See, e.g., A.O. 98-40 (opining that the petitioner, a member of the State House of Representatives and the spouse of a dentist, could participate and vote on legislation relating to the practice of dentistry since the legislation at issue affects all dentists within Rhode Island to the same extent); A.O. 98-14 (opining that the petitioner, a member of the State House of Representatives and owner of a restaurant which serves alcohol, could vote on legislation relating to the legal alcohol limit since the legislation at issue affects all members of the restaurant, bar and hospitality industry to the same extent).

Here, the proposed legislation would impact all owners of insured commercial property in the State of Rhode Island which are required to purchase and install fire prevention and suppression equipment. The petitioner states that there are thousands of such property owners in the state.  The proposed legislation, requiring insurance companies to consider the purchase of fire safety equipment when rating its policies, would benefit all such owners equally, and particularly would not benefit the petitioner's customers to any greater or lesser extent than those commercial property owners who utilize other businesses to install fire safety equipment.  Based on these factors, as represented by the petitioner, we find that the class exception found in section 7(b) applies and the petitioner may participate in the House discussion and voting relative to the proposed legislation.

In summary, the petitioner's representations indicate that his business will not be financially impacted by the passage or non-passage of legislation that would require insurance companies to offer premium credits to the owners of commercial property who purchase and install certain fire safety equipment.  The petitioner's representations further indicate that the ongoing customers of his business will not benefit from the passage of the legislation to any greater or lesser extent than will any other owner of commercial property in Rhode Island, a group that numbers in the thousands.  For these reasons, it is the opinion of the Rhode Island Ethics Commission that the Code of Ethics does not prohibit the petitioner from participating in discussion and voting relative to this particular legislation.

Code Citations:

36-14-5(a)

36-14-5(b)

36-14-5(d)

36-14-7(a)

36-14-7(b)

Related Advisory Opinions:

2004-27

2003-57

2003-2

2002-5

Keywords:

Class Exception

Financial Interest

Private Employment

Business Associate