DISTRICTS ‑- SCHOOLS ‑- INSURANCE POLICIES ‑- COMPETITIVE BIDS

DISTRICTS ‑- SCHOOLS ‑- INSURANCE POLICIES ‑- COMPETITIVE BIDS.

 School districts may, but are not required to advertise for bids under chapter 224, Laws of 1961 (RCW 28.58.135), when purchasing public liability or fire insurance policies even though the anticipated premiums may exceed $2500.

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                                                                  March 21, 1962

Honorable Elmer W. Stanley
Executive Secretary
Washington State School
Directors Association
201 Capitol Park Building
Olympia, Washington

                                                                                                              Cite as:  AGO 61-62 No. 103

 Dear Sir:

            By letter previously acknowledged, you requested an opinion of this office on several questions which have arisen concerning the interpretation of § 1, chapter 224, Laws of 1961 (RCW 28.58.135).  Specifically, you desired to know:

            "1. Must a school district, purchasing fire insurance, obtain bids on that insurance if it is anticipated that the premium will be more than $2500?

            "2. If the answer to question 1 is 'Yes' and a district, to effect economies in purchasing, buys three 3-year policies (one expiring each year on a staggered term basis) and the premium for any one expiring policy comes to less than $2500 but the sum of the premium for all three contracts is more than $2500, then must the district obtain bids on each contract?

            "3. Must school districts purchasing liability insurance obtain bids on those liability contracts if they develop an annual premium in excess of $2500?"

            We answer questions 1 and 3 in the negative, thereby rendering unnecessary any answer to question 2.

             [[Orig. Op. Page 2]]

                                                                     ANALYSIS

            During its last session, our legislature passed chapter 224, Laws of 1961, which relates generally to the requirement that school districts follow certain competitive bidding requirements in the operation, administration and maintenance of the public schools.  See AGO 61-62 No. 83 [[to Prosecuting Attorney, Spokane County on December 14, 1961]].

            Section 1, chapter 224, Laws of 1961, reads as follows:

            "When, in the opinion of the board of directors of any school district, the cost of any furniture, supplies, equipment, building, improvements or repairs,or other work or purchases will equal or exceed the sum of twenty-five hundred dollars, complete plans and specifications for such work or purchases shall be prepared and notice by publication given in at least one newspaper of general circulation within the district, once each week for two consecutive weeks, of the intention to receive bids therefor and that specifications and other information may be examined at the office of the board:  PROVIDED, That the board may without giving such notice make improvements or repairs to the property of the district through the shop and repair department of such district when the total of such improvements or repair do not exceed the sum of two thousand five hundred dollars.  The bids shall be in writing and shall be opened and read in public on the date and in the place named in the notice and after being opened shall be filed for public inspection.  The contract for the work or purchase shall be awarded to the lowest responsible bidder as defined in RCW 43.19.1911.  Any or all bids may be rejected for good cause.  On any work or purchase of more than five hundred dollars, the board shall provide bidding information to any qualified bidder or his agent, requesting it in person, and if more than one supplier is available, it shall seek competitive bidding in such manner as it deems in the best interests of the district.

            "In the event of any emergency when the public interest or property of the district would suffer material injury or damage by delay, upon resolution of the board declaring the existence of such an emergency and reciting the facts constituting the same, the board may waive the requirements of this section with reference to any purchase or contract:  PROVIDED,   [[Orig. Op. Page 3]] That an 'emergency', for the purposes of this section, means a condition likely to result in immediate physical injury to persons or to property of the school district in the absence of prompt remedial action."  (Emphasis supplied.)

            Initially a comparison of chapter 224, Laws of 1961, should be made with the only statute which formerly dealt with the subject of competitive bidding by school districts.  It should be noted that RCW 28.62.170, repealed by § 2, chapter 224, Laws of 1961, applied only to school districts of the first class.  The wording of the prior statute, now repealed, was not as broad in scope in that it did not contain the terms "equipment," or "other work or purchases" which are found in § 1, chapter 224, Laws of 1961,supra.

            It is self-evident that insurance, as the term is generally understood, is not furniture, supplies, equipment, building, improvements or repairs, or other work.  This raises the question as to whether or not an insurance contract can be termed a "purchase" as contemplated by chapter 224, Laws of 1961,supra.

            In an earlier opinion of this office (see AGO 57-58 No. 116) [[to Prosecuting Attorney, King County on August 28, 1957]]where the question raised was whether a school district of the first class must advertise for bids on contracts of fire or liability coverage, where the premiums were in excess of $1,00.00 we said:

            "It is a general rule that a municipal corporation, in the absence of statutory constitutional or charter provisions to the contrary, is not required to advertise or call for bids or let a contract to the lowest bidder.  Dalton v. Clarke, 18 392, 396.

            "A school district of the first class is required by statute to advertise for bids in certain cases.  The statute reads in pertinent part as follows.:

            "'When, in the opinion of the board, the cost of any furniture, supplies, building, improvements, or repairs will equal or exceed the sum of one thousand dollars, the board shall give due notice by publication . . . of the intention to receive bids therefor; and the board shall determine the specifications for such bids which shall be public . . .' (RCW 28.62.170)

            "The immediate question is whether or not the purchase of an insurance policy comes within the purview of the above statute.  In our opinion, it does not.  A contract of insurance is not 'furniture, supplies, building, improvements, or repairs'.  Moreover, it has been held that statutes much broader in their coverage than RCW 28.62.170 are not applicable to insurance policies purchased by a municipality.  SeeLondon & Lancashire Indemnity Co. v. Upper Darby Township, 28 Del. Co. 223 (Pennsylvania) and Lynn v. Heffernan, 146 N.Y.S. (2d) 113 (New York).

            "We conclude, therefore, that a school district of the first class is not required to advertise for bids under RCW 28.62.170 for the purchase of liability or fire insurance although the anticipated premiums for the insurance may be in excess of $1,000.00."

            The New York and Pennsylvania cases cited in our earlier opinion noted above, are of assistance in answering the questions under present consideration.

that a statute requiring that all contracts or purchases made by a township involving expenditures in excess of a certain amount should be made only at the notice of the secretary and that all specifications should be on file a given period off time prior to the opening of bids, had no application to a contract of public liability insurance obtained through a broker, the court stating:

            "Requirements generally imposed on public authorities as to competitive bidding do not apply any moreto an insurance broker or general insurance agent in obtaining municipal insurances, than they do to the selection of a architect.  Both are personal and professional services which the law does not recognize as necessary for competitive bidding, for, if it were otherwise, and as this municipality would desire us to hold in this action, then such a test would probably be the best that could be conceived for the obtaining the services of the least competent man, and would be most disastrous to the material interests of a county. . . ."  (Emphasis supplied.)

            Lynd v. Heffernan, 146 N.Y.S. (2d) 113 (N.Y.) deals with the provisions  [[Orig. Op. Page 5]] of a city charter calling for competitive bidding, which provided as follows:

            "'No contract exceeding or involving the sum of one thousand dollars ($1,000) shall be made by the city, the city council or any of the city departments unless it shall have caused to be published a notice in the official paper once a week for two weeks, inviting proposals for the same, according to the plans and specifications to be filed in the office of the department having charge of the work, and the contract shall be let to the lowest responsible bidder, who shall furnish security for its performance satisfactory to the council.'"  (Emphasis supplied.)

            It appears reasonable to conclude from the above‑quoted language that chapter 224, Laws of 1961,supra, is not as broad in scope.  The court went on to state:

            "In our opinion, the competitive bidding provision does not apply to the placing of an insurance contract.  The Charter section refers to 'plans and specifications to be filed in the office of the department having charge of the work'.  This language cannot reasonably be applied to the purchase of an insurance policy.  The language indicates that what was contemplated was competitive bidding with respect to the purchase of physical goods and the performance of public construction work.

            "The Charter section may be usefully compared with section 103 of the General Municipal Law, which requires that 'all contracts for public work' and 'all purchase contracts' involving more than specified amounts shall be let by competitive bidding.  It has been held by the Comptroller that a policy of fire insurance is not a 'purchase contract' within the meaning of this section.  10 Op. State Comptr. File No. 6527, p. 40, dated February 19, 1954.

            "In a well-considered Pennsylvania case, it has been held that a contract of public liability insurance does not come within a statute, 53 P.S. § 19092-1802, providing that 'All contracts or purchases made by any township, involving the expenditure of over five hundred dollars' shall be  [[Orig. Op. Page 6]] made only after competitive bidding and 'In every instance in which any contract for any public work, construction, materials, supplies, or other materials or things for any township shall be awarded upon competitive bids, it shall be the duty of the authorities authorizing the same bidder.'  London & Lancashire Indemnity Co. v. the Court pointed out in the cited case, 'The selection of an insurance company and the necessary adoption of the insurance company's attorney is o great importance to a municipality and they should have entire freedom of selection.' at page 230.  Furthermore, 'an efficient insurance company does more than write a policy.  The writing of such a contract * * * involves frequent and efficient inspection of the insured property, it involves prompt, honest, and efficient service in the settlement of claims, and it is well known that insurance companies differ greatly in their attitude between the settling of claims'.  At pages 230-31.

            "The relationship between a competent insurance broker and his client is a relationship of personal trust and confidence.  The contract with the broker calls for the rendition of personal services of a type uniformly held to falloutside the scope of competitive bidding requirements.  See uniformly held to fall outside the scope of competitive biddng requirements.  See analogous cases collected in Annotations, 44 A.L.R. 1150; 142 A.L.R. 542."

            In the filed of municipal corporations and subdivisions thereof, the advisability of calling for bids as a declared public policy may be summarized as follows:

            "Generally, there are charter or statutory provisions requiring proposals for bids for certain municipal contracts to be advertised and the contract let to the lowest and best, or lowest responsible bidder.  Such requirements are for the purpose of inviting competition, to guard against favortism, improvidence, extravagance, fraud and corruption in the awarding of municipal contracts, and to secure the best work or supplies at the lowest prive practicable, and are enacted for the  [[Orig. Op. Page 7]] benefit of property holders and taxpayers, and not for the benefit or enrichment of bidders, and should be so construed and administered as to accomplish such purpose fairly and reasonable with sole reference to the public interest. . . ."  10 McQuillin, Municipal Corporations, 3rd Rd., § 29.29, p. 266.

            We note the language used by our supreme court in the case ofReiter v. Chapman, 177 Wash. 392, 397, 31 P. (2d) 1005 (1934), in which the court rejected a strict construction of statutes requiring public advertising for bids for municipal utilities, the court going on to state:

            "The principle of giving notice o proposed public contracts is, broadly speaking, in the public interest, and when the legislative authority has indicated, as has that of this state, that it has adopted the general policy of requiring that notice be given of proposed public contracts, the courts will not, by strict construction, narrow the scope of a statute and limit its application in cases where such a construction is apparently against the legislative policy.

            "Statutes controlling the making of contracts by the officers of municipal corporations are laws for the protection of the public and those who support public agencies by the payment of taxes.  Generally speaking, a sound public policy supports the proposition that a reasonable notice shall be given of the letting of public contracts, in order that, by competition in bidding, the public may receive the benefit of the greatest possible value for the least expenditure.  [Citation Committee]"

            Following this reasoning it is possible to argue that the phrase "or other work or purchases" contained in chapter 224, Laws of 1961, supra, could be expanded to include insurance contracts in so far as they have not been specifically excluded from the provisions of chapter 224, Laws of 1961, supra, by enactment o the legislature.  We note, however, that it is generally recognized that provisions requiring competitive bidding as a basis for entering into contractual relations with governmental body do not apply to contracts for personal services involving a peculiar skill or ability 10 McQuillin, Municipal Corporations, § 29.35.

             [[Orig. Op. Page 8][Orig. Op. Page 

            It is the opinion off this office that contracts involving personal or professional services, for example, those of an architect, attorney or engineer which the earlier-cited New York and Pennyslvania cases construed to include the services of an insurance broker or general ageny should not, absent a specific expression by the legislature, be presumed to include insurance contracts within the purview of the phrase "or other work or purchases" chapter 224, Laws of 1961, supra.

            In view of the language used by our supreme court in the case ofReiter v. Chapman,supra, it is appropriate to cite the court's later opinion in the case ofDalton v. Clarke, 18 Wn. (2d) 322, 330, 139 P. (2d) 291 (1943).  The court, discussing the subject of competitive bidding and legislative intent, stated as follows:

            "It is no doubt true that a requirement by the lawmaking body that public contracts be let only after competitive bidding is had, establishes a wholesome rule of public policy, but it is a matter solely within the discretion of that body and, if it does not see fit to establish such a rule in a particular situation, such is not the subject of judicial inquiry even though it may have established such a rule in other similar situations."

            From the foregoing we conclude that school districts when purchasing fire or liability insurance, the premiums of which exceed $2,500, are notrequired to follow the procedures prescribed in chapter 224, Laws of 1961 (chapter 28.58 RCW).

            While not required, there is nothing which would prevent districts from complying with thw 1961 act if the same would be in the best interest of the district.  Furthermore, in our opinion, we can think of no more effective method for school directors to demonstrate to the electors that they are discharging their duties in a manner calculated to provide the district with the most prudent investment.

            We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

JOSEPH B. LOONAM
Assistant Attorney General