Untitled Texas Attorney General Opinion ( 1981 )

The. Attorney General of Texas
May 28, 1981
MARKWHITE
Attorney General
Honorable Oscar Ii. Mauzy, Chairman Opinion No. Ku-342
Senate Education Committee
Texas Senate, State Capitol Re: Whether insurance contracts
P. 0. Box 12068 purchased by school districts must
Austin, Texas 787ll be let on competitive bids
Dear Senator Mauzy:
You have requested our opinion as to whether section 2LSOl of the
Texas Education Code requires that contracts for the purchase of school
insurance, excluding policies which are part of teacher employment
contracts, be awarded through the competitive bidding process If we
answer this question in the afftimative, you wish to know the status of a
contract which is not bid. Finally, you have asked whether a motion to
approve and a vote to accept an insurance contract made by a school board
member with an interest in the group providing the contract creates a
conflict of interest sufficient to void the contract.
505 naedww. suw312
Lubbxk.n.75401 Section 2L901 provides in pertinent part:
2m747-2222
(a) Except as provided in Subsection (e) of this
section, all contracts proposed to bs made by any
Texas public school board for the purchase of any
personal property shall be submitted to oompetitive
bidding, if the average daily attendance during the
amM.i”Pla4.SuiN
400 previous school year Im that school district exceeded
SanAnmnio.
TX.75205 3,000 pupils, when said property is valued at $5,000 or
51-191 more, and if the average daily attendance durfng the
previous school year in that school district was 3,000
pupils or leas, when aaid propertg is valued at $2,000
or more+
. . . .
(c) Nothfng fn this section shall apply to fees.
received for professional services rendered, including
but not limited to architects fees, attorney’s~feea,
and fees for fiscal agent%
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1. 4,. .-
. Honorable Oscar Ii. Maamy - Page Two . (1oF342)
l
In McBroom+Bennett Plumbing, hlc. V. Villa PranCe. h%, 615 SW. 2d 32, 36
(Tex. Civ. App. - Dallas 1974, writ reM “lnswanCB”was dnfhed as:
an mdertaking by one party, usually called the %wurer,’ to
protect the other party, generally desipated as the ‘insrrred’or
bsured,’ from loss arising from named risk, for the eorrpidera-
tion and cn the terms and under the conditlom recited. An
insurance policy is a contract entered into between the insurer
and the insured, by which each party becomes bound to perform
the obligations assumed in the policy of insurance.
If Ynsurancen involve;nothing more than the insurance policy which is fhally
negotiated, we would conclude that the purchase of insurance involved the purchase of
property. See e. Brown v. Lee, 371 S.W.2d 694 (Tex. 1963); B
414 S.W. 2d--&703 ex. Civ. App. - Austin 1967, no writh It is clear, however, that
insurers do much more than write policies. A purchaser of property insurance+ for
example, will be vitally interested in such things as the professionahsm exhibited by
the insurer, the frequency and thoroughness with which he inspects the insured
property, and the promptness, efficiency and honesty with which he services claims
and provides assistance. An insurer’s ability to provide certain services in a competent
manner, in other words, is a dominant, if not the primary, consideration in any
purchase of hwurance-.
Contracts for the purchase of professional services have long been held to be
exempt from competitive bidding requirements. The policy considerations underlying
this exemption were well stated in Hunter v. Whiteaker & WsshiMon, 230 S.W. 1096
(Tex. Civ. App. -San Antonio 1921, writ reP@ wherein the court held that article
22684 V.T.C.S., did not require a contract ’for the purchase of bchnical and
professional services provided by an @new in connection with the construction of a
highway to be awarded through the competitive bidding process The court reasoned as
follows:
To hold that the act would require that the services of a man
belotlging to a profession such as that of the law, of medicine,
of teaching, civil e@neering, or architecture should be
obtained.. . only through competitive bidding would give a
ridiculous meaning to the act. . . . Such a construction would
require the selection of attorneys, physiclarrs, school teachers,
and civil e&neers by competitive bids, the only test being the
lowest bid for the services of such me& Such a test would
prcbably be the best that could be conceived for obtaining the
services of the least competent man.. . .
230 SW. at 1098. This reasoning hss been applied in subsequent cases. See, e..&,
548 S.W.2d 158 (KY. l677) (contract for insurance and bankmg
be bid); Vilbk Brce. v. City of Dallas, 91 SW. 2d 336 (‘I’ex. l636)
(public construction contract); Stephens Ccunty v. J.N. McCammon, Inc., 52 S.W.2d
53 f’l’ex. 1932) (contract to hire architect to prepare platw for jail and supervise
p. 1126
-.
c .
- Honorable08car 8. Mamy - Pv Tire0 W-342)
comtruction)i Cochran Camty v. Weat Audit Co., 10 S.W. 26 229 crcx. Civ. Ano. -
Amarillo 1928, writ reMI (oontract to employ county auditork Tat &ett v. Middh&,
1926 h Lynd v. Heffeman. 1416 N.Y.S. 2d ll3 (
9 N.Y.S. Pd 236 /mrney General Opiniokg
e Austin v. Housing Authority of 7hutford~l22 A. 2d
399 hnn. 19561
As this discuwdon ilhwtratea, the pwchase Of insurance cannot be neatly
characterized as the purchase of either “personal properT or nprofessional service,”
within the meaning of section 2LSOk to some eXteM, both categories are involved.
Section 2LSOl does not, however, indicate whether a purchase involving both property
and services must be made on the basis of competitive bids. But in our opinion, the
weight of authority compels us to conclude that, at least where insurance is involved,
such a purchase need not be so made. As we have shown, the relationship between an
insurer and his client is one of trust and confidence. Moreover, the kinds of services
routinely performed by an insurer and expected by the insured - which services
involve specklimed trainii, expertise, and experience - are analcgous to the services
involved in the contracts which were held to be exempt from the bidding process in the
cases cited above.
We therefore conclude that a contract for the purchase of insurance would most
accurately be described as one for the pmchase of servicer, and therefore, that it need
not be awarded through the competitive bidding process Compare V.T.C.S. art. SOlb,
S3.Ol(a) (purchase by state of supplies, materiak, services, and ec&mentL In light of
our conclusions, we need not address your secbnd question.
Your final question is whether a public school trustee% action in moving and then
voting for the school board to accept a contract with a group in which he has an
interest creates a conflict of interest sufficient to void the contract.
The general rule applicable to trsnsactions involving a conflict of interest on the
part of public officiak was set forth in Meyers v. WalkeG 276 8.W. 305, 307 (Tex. Civ.
App. - Eastland lS25, no writ):
If a public official directly or indirectly has a pecuniary interest
in a oontract, no matter how honest he may be, and although he
may not be influenced by the.intereat, such a contract so made
is violatJve of the spirit and letter of our Law, and is against
public policy.
See also City of Bdinburg v. Ellis, 59 S.W.2d 99 Rex. Comm’n App. lS33); Penal Code
s39.oL
Previous opinions of this office have applied this rule in an increasingly exacting
manner. See Attorney General Opinions M-1236 (l972); M-625~,(l97OL in Attorney
General Opmon H-916 (l976) this office cited various cases holding that any interest in
the business or welfare of a company that would tend to affect an officer’s judgment,
enhance his salary or position, or prevent him from exercising absolute loyalty and
p. 1127
.- Tii -. _,.
_ Honorable Gscu H. Maray 2~ Pw Four (151-342) ,.
rndivided alkghnce to the beat interests Of the gOVemmentd entity he berves would
be sufficient to prevent the entity from contracting with the company. Among the
cases cited was People ex reL Pearssll v. Sperry, 145 N.R. 344,345-46 OH l924), which
held that the employment of nine city council members bJ1 a company which
contracted with the city rendered the contract void. Tbs court flatly stated that the
council members
would be more than human if they could make the same fair and
impartial contract with the contractor, as they eould with
anotlpr party with whom they had no relation by way of
employment or otherwise.. (Emphasis added)
The opinion concluded that a school board could not contract with a company which
employs one Of its tNS&S in a managerial CSpaCity, even though the trustee derives
no direct financial benefit from the contract.
In our view the rule to be deduced from these opinions, and the cases cited
therein, is that if a trustee po55e55e5 a pecuniary interest in a contract or occupies a
position with a company with which the board has contracted which would tend to
prevent him from exeteishg absolute loyalty and undivided allegiance to the school
district, such interest is sufficient to void the contract on grounds of conflict of
interest Because we have not been fvnished any details regardirq the nature and
extent of the interest possessed.by the trustee in question, or for that matter, the
characteristics of the “group” in which he possesses the interest, we oannot say that
this contract is or is not prohibited on grounds of conflict of interest Hqv the
principles discussed apply to the particular situation about which you have inquired will
have to be determined on the basis of the facts involved.
SUMMARY
A contract for the purchase of school insurance need not ba
submitted to competitive bidding under section 21901 of the
Texas R&cation Code. Whether a school trustee’s interest in a
group with which the school board has contracted will render
the contract void depends upon whether the trustee possesses a
pecuniary interest in the contract or occupies a position with
the group which would tend to prevent him from exercising
absolute loyalty and undivided allegiance to the school district.
VW)’ tNly YOWS,
MARK WHITE
Attorney General of Texas
JOHN W. PAINTRR, JR.~
First Assistant Attorney General
p. 1128
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z HWWable 08c8r IL Ida&&y - Pqe Piv~ (W-342)
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RICHARD R. GRAY Ill
Executive Assistant Attorney General
Prepared by Jon Bible
Assistant Attorney General
APPROVED:
OPINION COMMllTEE
Susan L. Garrison, Chairman
Jon Bible
Walter Davis
Rick Gilpin
pa 1129