June 5, 1984
Representative Royal J. 'Bud' Wood
Rural Route 1
Box 4
Warner, South Dakota 57479
OFFICIAL OPINION NO. 84-23
Purchase of life insurance for state employees
Dear Representative Wood:
You have requested an official opinion from this office in regard to the following factual situation:
FACTS:
The State of South Dakota through the South Dakota Retirement System Board of Trustees and Division of Insurance and Retirement pursuant to the provisions of SDCL Chapter 3-12A has administered and arranged for the purchase of a group life insurance policy for all state employees. Generally speaking, most State purchases are handled through the Bureau of Administration, Purchasing and Printing under SDCL Chapter 5-23 and are done on competitive bid procedures of that chapter. In addition, the Legislature under SDCL Chapter 5-18 has adopted a general requirement that all State purchases, other than those done through the Bureau of Administration, Purchasing and Printing for the purchase of materials, supplies and equipment and Department of Transportation be done through a competitive bid procedure. The current life insurance contract, however, purchased by the South Dakota Retirement System Board of Trustees was not purchased under a competitive bid procedure but rather was negotiated based upon SDCL 3-12A-5 and 3-12A-6.
Based upon the above factual situation, you have asked the following questions:
QUESTIONS:
1. Is the purchase of life insurance for state employees governed by the provisions of SDCL Chapter 5-23, SDCL Chapter 5‑18, or SDCL Chapter 3‑12A?
2. Does the purchase of life insurance for state employees need to be made through a competitive bid procedure?
3. If a competitive bid procedure is required, when and how often does an insurance contract need to go through the bidding process?
IN RE QUESTION NO. 1:
The statutory provisions that are relevant to your inquiry are:
SDCL 3-12A-2 which states:
The board of trustees may establish a group health insurance plan for employees of the state and its political subdivision. The plan may provide for group health insurance against the financial cost of hospital, surgical and medical treatment and care, and such other coverage or benefits, including a group life insurance plan, as may be deemed appropriate and desirable by the board.
The board may adopt such rules as may be necessary to establish uniform procedures for the administration of the plan and to provide for uniform application of the plan. The rules may be adopted in the following areas:
(1) Participation in the plan by employees, retired employees, and dependents;
(2) Procedures for election of coverage;
(3) Effective dates of coverage where not specified by statute;
(4) Termination of coverage;
(5) Changes in dependent coverage; and
(6) Collection of premiums.
SDCL 3-12A-5 states:
The board is hereby authorized to execute a contract or contracts necessary to carry out the provisions of this chapter to provide the benefits under the plan or plans of health insurance coverage determined in accordance with the provisions of this chapter, such contract or contracts to be executed with one or more insurance carriers duly licensed in this state.
SDCL 3-12A-6 states:
The board may invite bids from all insurance carriers who are licensed to do business in South Dakota and who may wish to offer plans for the insurance coverage desired. In awarding the contract or contracts the board shall take into account, among other things, the financial stability and experience of the offering carrier in the group health insurance field, and carrier facilities for the handling of claims. In evaluating these factors, the board may employ the services of impartial, professional insurance analysis or actuaries or both.
SDCL 5-18-2 states:
All contracts of any public corporation, whether for the construction of public improvements or contracts for the purchase, lease or rental of materials, supplies or equipment, when such contracts involve an expenditure equal to or in excess of the amount provided for in § 5-18-3, must be let to the lowest responsible bidder. The governing body shall have the right to reject any and all bids and to readvertise for proposals if none of the bids are satisfactory, or if they believe any agreement has been entered into by the bidders to prevent competition.
SDCL 5-18-18:
The provisions of § § 5-18-1 to 5-18-17 inclusive, may not be construed to regulate or apply to contracts entered into and purchases made by the department of transportation or by the bureau of administration or to the purchase of electric power, light, water or gas; or any municipal corporation for the purchase of materials, supplies or replacements for any utility owned or operated by such municipal corporation, provided that such purchase may not exceed the sum of seven thousand dollars; or to contracts of any municipal corporation in time of war to acquire, establish, construct, own, control, lease, equip, improve, maintain, operate, or regulate and airport or landing field for the use of airplanes or other aircraft, of the United States armed forces or its members, students and mechanics; or to contracts of any public corporation for the purchase of materials, supplies or equipment from the United States or its agencies; or to equipment repair contracts; or to the purchase of surplus property from another public corporation; or to the purchase by one local government entity from lowest responsible bidder of an item competitively bid by another at the accepted bid price.
SDCL 5-32-2 states:
The bureau of administration shall purchase, or authorize the purchasing of, or the leasing, hiring or lease-purchasing of, all furniture and fixtures, equipment, supplies, printing and stationery, fuel, clothing, staple foodstuffs, utilities, and all other commodities for each and every department of the state government, state institutions, and state agencies, except when otherwise specifically provided by this law. Provided, however, that the purchase, leasing, hiring or leasing-purchase of motor vehicles shall only be from authorized dealers licensed by the state of South Dakota.
Based upon the review of the above legislative authority it is my opinion that the purchase of a life insurance policy for state employees is exclusively governed by the provisions of SDCL Chapter 3-12A. The provisions of SDCL 3-12A are far more specific than the general provisions of SDCL Chapter 5-23 or SDCL Chapter 5-18. Contained within SDCL Chapter 3-12A is the total authority and procedure for the purchase of group life insurance for state employees. It is a general principle of statutory construction that statutory provisions are to be read in harmony so as give effect to each and every provision enacted by the Legislature, but where there is a conflict between two or more provisions, the more specific statutory authority is to override. In my opinion to give effect to the specific provisions of SDCL Chapter 3-12A concerning the purchase of life insurance, these provisions override any conflicting provisions of Code.
IN RE QUESTION NO. 2:
It is general law that in absence of statutory requirements, public contracts need not be let under competitive bidding procedures. See 10 McQuillin, Municipal Corporations, (3rd Ed. Rev'd.) Section 29.31 (1981). Courts have further stated that since competitive bid statutes are in degradation of the common law they are to be interpreted narrowly and strictly construed. See R.E. Short Company v. City of Minneapolis, 269 N.W. 2d 331 (Minn. 1978); and Marino v. Town of Ramapo, 326 N.Y.S.2d 162 (1971).
A review of SDCL Chapter 3-12A indicates that there is no specific statutory requirement that competitive bids take place. Indeed, in SDCL 3-12A-6 there is a clear legislative pronouncement that competitive bidding is not required but rather is at the discretion of South Dakota Retirement System Board of Trustees. Given this statutory provision, it is my opinion that a group life insurance policy for the state need not be bid unless required by South Dakota Retirement System Board of Trustees. To the extent it can be argued that SDCL Chapter 5-18 and Chapter 5-23 require insurance to be bid, these provisions should be read to be overridden by the provisions of SDCL Chapter 3-12A.
It is also my opinion that the board of trustee's decision not to bid the group life insurance policy is not an arbitrary abuse of discretion or a breach of public trust. Attorney General Opinions from as far back as 1953 have continually stated that competitive bid statutes are not applicable to the purchase of insurance. See AGR 1953-54 at page 99; AGR 77-65 and AGR 77-76. It has been consistently the view of this Office that the purchase of insurance is more akin to the purchase of professional service contracts which the South Dakota Supreme Court in Foss v. Spitznagel, 97 N.W.2d 856 (S.D. 1959) specifically held were not required to be bid under the competitive bidding statutes. Though the Honorable Robert A. Miller did hold at the circuit court level that insurance was a 'commodity' under 5-23 that was required to be bid, the South Dakota Supreme Court declined to review the issue, merely holding that it was the law of the case. See Gridley v. Engelhart, 322 N.W.2d 3 (S.D. 1982). Thus, absent any Supreme Court decisions to the contrary and given the clear discretionary authority under 3-12A-6 which does not contain the word 'commodity,' the Board of Trustees may continue, if it so determines, to purchase life insurance on a negotiated basis.
In lieu of my answer to your second question, a determination of when and how often a life insurance contract needs to be rebid is irrelevant and as such I decline to answer.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
