December 29, 1986
Mr. Duane C. Anderson
Assistant City Attorney
509 S. Dakota
Sioux Falls, South Dakota 57102
OFFICIAL OPINION NO. 86-46
Re: Law enforcement risk pool
Dear Mr. Anderson:
You have asked my opinion concerning whether the City of Sioux Falls is authorized to enter into a self-insured risk pool for protection from liability claims. You have provided copies of law enforcement officer professional liability coverage available through THE STAR POOL and the Intergovernmental Contract for becoming a member of THE STAR POOL.
SDCL 9-12-7 provides:
Every municipality shall have the power to obtain and pay for all forms of liability insurance protecting and insuring the municipality against such acts or omissions for which the municipality may be legally liable. The liability insurance coverage obtained shall provide protection for the municipal officers and employees in the performance of official duties and against acts committed by them that could be reasonably considered to be within the scope of their official duties.
SDCL 9-24-2 to 9-24-5 provided for claims and actions against municipalities and these statutes have now been repealed and replaced by SDCL 3-21.
SDCL 3-21-2 provides:
No action for the recovery of damages for personal injury, property damage, error or omission or death caused by a public entity or its employees may be maintained against the public entity or its employees unless written notice of the time, place and cause of the injury is given to the public entity as provided by this chapter within one hundred eighty days after the injury.
Claims, on proper notice, have long been recognized in South Dakota and the right to purchase 'traditional' insurance was later statutorily authorized by SDCL 9-12-7 as set forth above.
Prior to the statutory authority to purchase 'traditional' insurance, municipalities were 'self' insurors of valid claims. Inherent in the grant of authority to purchase insurance is the right not to purchase it. A decision not to purchase, or inability to find, 'traditional' insurance makes a municipality a 'self' insuror where not immune. This 'self' insurance is not an activity regulated by the insurance laws of the State.
SDCL ch. 1-24 on joint exercise of government powers provides that governmental entities may join together to do collectively what they may do individually.
SDCL 1-24-2 provides:
Any power or powers, privileges or authority exercised or capable of exercise by a public agency of this state may be exercised and enjoyed jointly with any other public agency of this state and jointly with any public agency of any other state or of the United States to the extent that the laws of such other state or of the United States permit such joint exercise or enjoyment. Any agency of South Dakota state government when acting jointly with any public agency may exercise and enjoy all of the powers, privileges, and authority conferred by § § 1-24-2 to 1-24-9, inclusive, upon a public agency. The provisions of this section do not apply to the power to tax. (Emphasis added).
SDCL 1-24-3 provides for a written agreement pursuant to ordinance or resolution and the contents of the agreement are set out in SDCL 1-24-4 as follows:
Any such agreement shall specify the following:
(1) Its duration;
(2) The precise organization, composition, and nature of any separate legal or administrative entity created thereby together with the powers delegated thereto, provided such entity may be legally created;
(3) Its purpose or purposes;
(4) The manner of financing the joint or cooperative undertaking and of establishing and maintaining a budget therefor;
(5) The permissible method or methods to be employed in accomplishing the partial or complete termination of the agreement and for disposing of property upon such partial or complete termination; and
(6) Any other necessary and proper matters.
Your submittal shows the 'Star Pool' to be a legal entity under the laws of the State of Michigan and validly created. The City or Sioux Falls may legally purchase insurance for law enforcement officer professional liability coverage and by choice, or because such coverage is not available, may be a 'self' insuror of such activities. The City may exercise this authority jointly with other governmental entities in this State or other states pursuant to SDCL ch. 1-24. The City may legally join the 'Star Pool.'
In answer to your question, a municipality has the authority to enter into a form of 'self' insured pool arrangements to protect it from liability claims by the power granted under SDCL ch. 1-24 if those provisions are followed.
The questions of cost, assessment, withdrawal penalties and liability to the municipality are policy decisions to be considered by the governing body, pursuant to SDCL 1-24-4(4).
The greater difficulty will be one of choice of laws as to the determination of questions under the policy or agreement. I presume these matters will be determined under the laws of Michigan.
I would further caution you that no case has been decided by the Supreme Court of our State on this issue. The Court might well rule that the City may not join a foreign governmental entity such as the 'Star Pool.' In such case, the expenditure of City funds would be unlawful.
The best route, it would seem, is to have 'the PEPL Fund' (see SDCL ch. 3-22) contract with the 'Star Fund' and pass the coverage through to the South Dakota governmental entities. The 'PEPL' Board could adopt the 'Star Fund' and thereby eliminate any legal questions concerning the sizable expenditure on insurance which is vital to the operation of law enforcement.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
