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HomeMy WebLinkAbout81-007 PalermoAlbert W. Lencioni Insurance Co. Examiner II Room 1311, Strawberry Sq. Harrisburg, PA 17120 STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 June 24, 1981 OPINION OF THE COMMISSION Dear Messers Lencioni, Palermo and Seidel: I. Issue: II. Factual Basis for Determination: Carl J. Palermo 81 -007 Insurance Co. Examnier II Room 1311, StawberrySq. Harrisburg, PA 17120 Frank D. Seidel Insurance Co. Examiner 1400 Spring Garden Street Philadelphia, PA 19130 RE: Insurance Company Examiners, Statement of Financial Interest As Insurance Company Examiners in the Pennsylvania Insurance Department you posed the question of whether Insurance Company Examiners in the Pennsylvania Insurance Department are public employees as defined in the Ethics Act and required to file Statements of Financial Interests? The Pennsylvania Department of Insurance regulates the insurance industry in the Commonwealth. Insurance Company Examiners review and analyze Financial Interest Statements and operations of insurance companies. The examiner examines company records and audits financial statements to secure compliance with insurance laws, rules and regulations. For example, the insurance company examiner scrutinizes, verifies and analyzes financial information from insurance companies for adherence to state law and regulations; determines that company reserves are adequate to cover liabilities; determines that company securities are permissable investments; prepares f detailed reports o audits and examinations; and recommends corrective measures. Additional duties include review of management contracts and reinsurance agreements to determine compliance withinsurance law. These duties require a thorough understanding of, and ability to apply, Pennsylvania insurance statutes and regulations. An examiner may also conduct inten- sive and detailed review of companies involved in a proposed merger. Lencioni, Palermo and Seidel June 24, 1981 Page 2 An Advice of Counsel 80 -2A was issued on this question as of October 21, 1980 and you have properly appealed this Advice to the full Commission. III. Applicable Law: The Ethics Act applies to all persons within the defini- tion of "public employees ": Any_individual employed by the Common- wealth or a political subdivision who is responsible for taking or recommen- ding official action of a non - ministerial nature with regard to: (1) contracting or procurement; (2) administering or monitoring grants or subsidies; (3) planning or zoning; (4) inspecting, licensing, regulating or auditing any person; or (5) any other activity where the official action has an economic impact of greater than a de minimus nature on the interest of any person. 65 P.S. §402. Commission regulations further explains this definition as follows: IV. Discussion: Public employee shall not include individuals who are employed by the State or a political subdivision thereof in teaching as distinguished from administrative duties. 51 Pa. Code 1.1 The question presented is simply stated: Are insurance company examiners employed by the Pennsylvania Department of Insurance public employees required to file Statements of Financial Interests under the Ethics Act? This question must be reviewed and answered in relation to the Ethics Act and the purpose of the statute, as well as the regulations of the Ethics Commission. The insurance examiners argue that they do not take or recommend official action of a non - ministerial nature in regard to inspecting or auditing any person. Turning to the Ethics Act as the primary point of discus- sion we review the Act itself. The statutory definition includes anyone who inspects, regulates or aduits. According to a job description authored by one of petitioners, an examiner is responsible for performing advanced technical auditing of the financial statements of insurance companies. An examiner is also responsible for in -depth examination and review of Lencioni, Palermo and Seidel June 24, 1981 Page 3 companies involved in a proposed merger. Clearly, under 65 P.S. §402, quoted above the Examiners are within the statuorty defintion. Examiners perform audits, a function specifically mentioned in the definition. The Examiner who reviews and makes recommendations regarding mergers between insurance companies obviously makes recommendations that have a greater than de minimus economic impact on the interests of many persons. The regulations of the Commission reinforce the conclusion that insurance examiners are within the Act's definition of public employee. The Regulations describe a public employee as a person who makes final technical recommendations, whose recommendations are an inherent and recurring part of his position and affect organizations other than his own organiza- tion. The job descriptions submitted by the petitioners indicate that they make technical recommendations and reports, that this is an inherent part of an examiner's work and that these recommendations affect insurance companies. Insurance examiners review and analyze financial statements of insurance companies and deteLmines whether the insurance companies have made permissable investments. The examiners apply knowledge of the Commonwealth'_s insurance law and accoun- ting practices in the performance of these duties. The inter- pretation and application of law to a specific set of facts involves the exercise of judgment and discretion by the Examiner. Accordingly, these actions are non- minsterial. Analysis reveals that Insurance Examiners come within both the statutory and regulatory definitions of "public employee." Examiners use their judgment in the application of Pennsylvania insurance law to the facts presented by various insurance companies. These non - ministerial actions include inspection and audit of insurance companies' financial statements. In addition to inspection and audit, examiners review the invest- ments of insurance companies and examine prospective mergers between insurance companies. These actions have a greater than de minimus economic impact on insurance companies, insurance company shareholders and insurance company policyholders. V. Conclusion: Insurance Examiner II's are public employees within the meaning of the Ethics Act. They must file Statements of Financial Interest as required by Section 4 of the Act. The Advice of Counsel oreviously issued in this matter is affirmed. These Statements slould be filed within thirty (30) days of this Opinion. Pursuant to Section 7(9)(i), this opinion is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any civil or Lencioni, Palermo and Seidel June 24, 1981 Page 4 criminal proceeding, providing the requestor has disclosed truthfully all the material facts and committed the acts complained of in reliance on the advice given. This letter is a public record and will be made available as such. PJS /rdp cc: Tracy Pontius Personnel Officer Insurance Department William R. Kennedy, Chief Personnel Management Review Division Office of Budget & Administration