Untitled California Attorney General Opinion

TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
DANIEL E. LUNGREN
Attorney General
______________________________________
OPINION :
: No. 91-714
of :
: February 4, 1992
DANIEL E. LUNGREN :
Attorney General :
:
CLAYTON P. ROCHE :
Deputy Attorney General :
:
______________________________________________________________________________
THE HONORABLE DE WITT CLINTON, COUNTY COUNSEL, LOS ANGELES
COUNTY, has requested an opinion on the following question:
May two or more local public entities, by a joint powers agreement, provide the
initial capitalization for a California domiciled mutual insurer which will provide liability insurance
to the participating entities and other qualified local public entities?
CONCLUSION
Two or more local public entities, by a joint powers agreement, may provide the
initial capitalization for a California domiciled mutual insurer which will provide liability insurance
to the participating entities and other qualified local public entities.
ANALYSIS
It is proposed that a California domiciled mutual insurer will be established by natural
persons filing the requisite articles of incorporation. (See Corp. Code, § 200; Ins. Code, § 4010 et
seq.).1 The initial capitalization for the mutual insurer will be provided by two or more local public
1
"A `mutual' insurer is an insurance corporation without capital stock owned by its policyholders
collectively . . . ." (Ins. Code, § 4010.) "Any person, government or governmental agency, state
or political subdivision thereof, public or private corporation, board, association, estate, trustee or
fiduciary may be a policyholder member of a mutual insurer." (Ins. Code, § 4014.)
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entities under the terms of a joint powers agreement. (See Gov. Code, § 6500 et seq.).2 The entities
will receive in return for such capitalization a contribution certificate or surplus note. The mutual
insurer will provide liability insurance to the signatories to the agreement and other qualified local
public entities. The mutual insurer will be designated in the joint powers agreement as the entity
administering the agreement. (§ 6506.)
The question presented for resolution is whether local governmental entities have the
authority to enter into the proposed arrangement. We conclude that such arrangement would be
authorized under the Joint Exercise of Powers Act (§§ 6500-6599; "JPA") read in conjunction with
specified other statutory schemes.
The JPA authorizes two or more federal, state, or local agencies (§ 6500), when
authorized by their governing authority, to enter into agreements, to "jointly exercise any power
common to the contracting parties" (§ 6502). "The agency or entity provided . . . to administer or
execute the agreement may be one or more of the parties to the agreement or a commission or board
constituted pursuant to the agreement or a person, firm or corporation, including a nonprofit
corporation, designated in the agreement . . . ." (§ 6506.) For proposes of the JPA "the
[administering] agency is a public entity separate from the parties to the agreement" (§ 6507) and
"shall possess the common power specified in the agreement and may exercise it in the manner or
according to the method provided in the agreement" (§ 6508). However, the common power "is
subject to the restrictions upon the manner of exercising the power of one or more of the contracting
parties, which party shall be designated by the agreement." (§ 6509.)
As a general proposition, the JPA does not grant any new powers. In The City of
Oakland v. Williams (1940) 15 Cal. 2d 542, 549, the Supreme Court observed: "A statute thus
authorizing the joint exercise of powers separately possessed by municipalities cannot be said to
enlarge upon the charter provisions of said municipality. It grants no new powers but merely sets
up a new procedure for the exercise of existing powers." (See also 71 Ops.Cal.Atty.Gen. 266, 267
(1988).)
An exception to this rule appears in the Mark-Roos Local Bond Pooling Act of 1985
(§§ 6584-6599; "Mark-Roos"), a recent addition to the JPA. As stated in section 6587, "[t]his article
shall be deemed to provide a complete and supplemental method for exercising the powers
authorized by this article, and shall be deemed as being supplemental to the powers conferred by
other applicable laws."
The express purpose of Mark-Roos is "to assist local agencies in financing public
capital improvements, working capital, liability and other insurance needs, or projects whenever
there are significant public benefits [as specified therein] for taking that action." (§§ 6586.) Section
6588 sets forth various "additional powers" of public entities besides those set forth in the remainder
of the JPA, including the authority to:
"(c) Issue bonds, including, at the option of the authority, bonds bearing
interest, to pay the cost of any public capital improvement, working capital, or
liability or other insurance program.
". . . . . . . . . . . . . . . . . . . . . . . . . .
2
All further section references are to the Government Code unless otherwise indicated.
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"(i) Receive and accept from any source, loans, contributions, or grants,
in either money, property, labor, or other things of value, for, or in aid of, the
construction financing, or refinancing of public capital improvement, or any portion
thereof or for the financing of working capital or insurance programs, or for the
payment of the principal of and interest on bonds if the proceeds of those bonds are
used for one or more of the purposes specified in this section.
"(j) Make secured or unsecured loans to any local agency in connection
with the financing of capital improvement projects, working capital or insurance
programs in accordance with an agreement between the authority and the local
agency. However, no loan shall exceed the total cost of the public capital
improvements, working capital or insurance needs of the local agency as determined
by the local agency and by the authority.
". . . . . . . . . . . . . . . . . . . . . . . . . . . .
"(r) Enter into any agreement or contract, execute any instrument, and
perform any act or thing necessary, convenient, or desirable to carry out any power
authorized by this article."
Section 6591 specifically provides:
"(a) The [joint powers] authority is authorized from time to time to issue
bonds to provide funds to achieve its purposes.
"(b) Bonds may be authorized to finance a single public capital
improvement, working capital, or insurance program for a single local agency, a
series of public capital improvements, working capital, or insurance program for a
single local agency, a single public capital improvement, working capital, or
insurance program for two or more local agencies, or a series of public capital
improvements, working capital, or insurance program for two or more local agencies
. . . ."
Thus, in addition to the JPA providing for a procedure for governmental agencies to
exercise a common power, Mark-Roos expressly provides that joint exercise of powers agencies
may jointly issue bonds to finance liability and insurance needs. We also note that the JPA is
cumulative to other express powers possessed by the contracting agencies. (In re City and County
of San Francisco (1923) 191 Cal. 172, 180-181.)3
3
Accordingly, "pooling agreements" authorized by section 990.8 do not constitute a limitation
upon other joint powers arrangements. Also, the express exception for pooling agreements added
in 1978 to Article XVI, section 6 of the California Constitution (prohibiting gifts of public funds or
lending of public credit) would not preclude other agreements. This constitutional provision
appears to have been added to clarify the law, not to provide an exclusive means for local entities
to jointly acquire liability insurance. (See Voters Pamp., Prim. Elec. (June 6, 1978) p. 34.) Indeed,
in 1975 we concluded that pooling agreements would be authorized under the JPA even without
specific legislation to that effect. (56 Ops.Cal.Atty.Gen. 411 (1973).)
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Moving from the JPA to other general laws, the Tort Claims Act (§§ 810-997.6)
authorizes a local public agency to insure itself and its employees against tort and inverse
condemnation liability (§ 990). Section 990.4 states:
"The insurance authorized by this part may be provided by:
"(a) Self-insurance, which may be, but is not required to be, funded by
appropriations to establish or maintain reserves for self-insurance purposes.
"(b) Insurance in any insurer authorized to transact such insurance in this
state.
"(c) Insurance secured in accordance with Chapter 6 (commencing with
Section 1760) of Part 2 of Division 1 of the Insurance Code.
"(d) Participation by a hospital district and its medical staff in a reciprocal
or interinsurance exchange as provided in Section 1284 of the Insurance Code.
"(e) Any combination of insurance authorized by subdivisions (a), (b), (c),
and (d)."
Section 990.8 keys into the JPA as follows:
"(a) Two or more local public entities, by a joint powers agreement made
pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7
may provide insurance authorized by this part or for any other purpose by any one
or more of the methods specified in Section 990.4. Where two or more hospital
districts have joined together to pool their self-insurance claims or losses, any
nonprofit corporation created pursuant to subdivision (p) of Section 32121 of the
Health and Safety Code, and affiliated with a hospital district which is a party to the
pool may participate in the pool.
"(b) Two or more local public entities having the same governing board
may be coinsured under a master policy and the total premium may be prorated
among those entities.
"(c) The pooling of self-insured claims or losses among entities as
authorized in subdivision (a) of Section 990.4 shall not be considered insurance nor
be subject to regulation under the Insurance Code."
Accordingly, under the Tort Claims Act a local entity has the power (1) to insure
itself against liability (§ 990); (2) to acquire such insurance from any insurer in this state, which
would include a mutual insurer (§ 990.4); and (3) to join with other local entities pursuant to the JPA
to provide such insurance by any means specified in section 990.4, which would include acquisition
from a mutual insurer (§ 990.8).
Juxtaposing the foregoing express powers of local agencies under the Tort Claims
Act with the extremely broad authorizations contained in Mark-Roos, we believe that two or more
local agencies are authorized to enter into a joint exercise of powers agreement to procure insurance
from a mutual insurer to be established by a private individuals (§§ 990, 990.4, 990.8) and to
accomplish this by providing the initial capitalization for such mutual insurer. (§§ 6588, 6591.)
Although the mutual insurer would be formed by private individuals, it would be owned by the local
4. 91-714
agencies as the policyholders. (Ins. Code, § 4010.) Additionally, under the JPA the mutual insurer,
a corporation, may be designated in the agreement as the entity to administer it. (§ 6506.)
Insofar as the proposed mutual insurer would provide insurance to local entities other
than those participants in the joint powers agreement, its charter would be the controlling authority,
not the joint powers agreement. In short, such insurance to other public agencies would be an
incidental effect of the total arrangement.
In answer to the question presented, therefore, we conclude that two or more local
public entities may, by a joint powers agreement, provide the initial capitalization for a California
domiciled mutual insurer which will provide liability insurance to the participating entities and other
qualified local entities.
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