August 22, 1988

Mr. Jeff Stroup 
Commissioner 
Bureau of Administration 
State Capitol 
Pierre, South Dakota 57501

Official Opinion No. 88-38

Re:  Purchase of Insurance

Dear Commissioner Stroup:

You have requested an official opinion concerning the following:

FACTS: 

Since December of 1985, the State has had no general liability insurance coverage but rather, continues to rely upon the doctrine of sovereign immunity.  As a result, there are some state boards and commissions, for example, the State Soybean Council and the Cosmetology Board, that have attempted to purchase their own liability and personal property insurance coverage independent from the Bureau of Administration.

Based upon the foregoing facts, you have asked the following question:

QUESTION: 

Should all insurance, either for general liability, personal property, or vehicular insurance coverage, be purchased for state government entities, including boards, commissions and councils, exclusively through the Bureau of Administration pursuant to SDCL 5-23-2 and 21-32-15?

RESPONSE:

Although you ask only one question, it deals with three specific types of insurance.  These are liability, personal property, and vehicular insurance.  In actuality, there are only two types of insurance involved and they are liability insurance and property insurance.  In my opinion, you must necessarily distinguish between these two areas.

In Re Liability Insurance:

The question you propose is based upon the premise that the State is without liability insurance coverage and is relying upon sovereign immunity to insulate employees, officers, board and commission members from liability.  In the specific case of some state boards and commissions such as the Soybean Council and the other industry councils which may have their expenses paid by fees or contributions of members and may or may not have their officers appointed by the governor, it is extremely difficult to reliably determine whether a court would decide that the particular entity was entitled to the shield of sovereign immunity.  It is, however, my opinion that under the present situation it is not necessary to conduct an extensive analysis of this sort.

As of July 1, 1988, an Agreement was entered into between the Board of Directors for the Public Entity Pool for Liability (PEPL) and the Governor of the State of South Dakota pursuant to SDCL Ch. 3-22.  This Agreement provides liability coverage for employees of the State of South Dakota.  The word "employees" is defined in statute and in the Agreement to include board and  commission members.  Accordingly, it is my opinion that it is very likely that coverage has now been extended to employees or officers of all these boards, commissions, and agencies through the Agreement between the PEPL fund and the State of South Dakota.

Rather than determine on a case-by-case basis whether the employee of each particular board or commission is entitled to raise the defense of sovereign immunity, I recommend that the Governor submit a letter to the Governing Board of the Public Entity Pool for Liability inquiring whether liability coverage is afforded to each of the boards or commissions receiving funds from the Treasury of the State of South Dakota.  If the PEPL Board determines that coverage is afforded to any particular board or commission it would appear to be a waste of public funds for such board or commission, to expend funds for private liability insurance.  It is further my opinion that if the PEPL Board determines that liability coverage is afforded then that determination is not subject to challenge by any person.  Accordingly, the board or commission could feel assured that it would have available the one million dollar coverage limits presently existing under the PEPL Fund.

Based upon the foregoing discussion, I choose not to answer the direct question you have posed.  In the event it is determined that some boards or commissions are not afforded coverage under the terms of the PEPL Agreement, I would then be willing to respond regarding whether those particular entities  were authorized to purchase liability insurance with public funds with or without the approval of the Commissioner of the Bureau of Administration.

In Re Property Insurance

SDCL 5-23-2 provides: 

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.

In Gridley v. Englehardt (an unreported Circuit Court Opinion) then Circuit Judge Miller determined that insurance was a "commodity" within the meaning of South Dakota's bid law.  Although certain aspects of that case were appealed to the Supreme Court resulting in an opinion reported as Gridley v. Englehardt, 320 N.W.2d 3 (S.D. 1982) the issue of whether insurance constitutes a commodity was not appealed and remains the law of the case.  In ordinary circumstances the State, as a party to that action, could be bound by the law of that case.  Accordingly, since it has been determined that insurance is a commodity and is subject to the bid law unless exempted by statute, (See SDCL 3-22-5), it is my opinion that SDCL 5-23-2, as presently written, requires that the "commodity" of property insurance be purchased by the Bureau of Administration.

Accordingly, as to property insurance, the answer to your question is "yes."

In Re Automotive Insurance

I recognize that you have distinguished the familiar terms "property" insurance and "liability" insurance from automobile coverage.  Automobile coverage consists of either liability insurance or property insurance or both. As to the liability aspects of automotive insurance, the foregoing discussion regarding liability insurance should apply.  As to the property insurance aspects of automobile coverage, the foregoing discussion on property insurance applies.

In conclusion, I decline the opportunity to answer the direct question you pose as it relates to liability insurance;  however, as it relates to property insurance, my answer to your question is YES.

Respectfully submitted,

Roger A. Tellinghuisen
Attorney General