Request By:
Hon. William I. Markwell
Henderson County Attorney
Courthouse
Henderson, Kentucky 42420
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Asst. Deputy Attorney General
Your question relates to insurance coverage of county buildings and personal property. Your question was stated as follows:
"We are wondering whether it is necessary to bid our insurance coverages on an annual basis or whether it is possible to purchase a three year policy, which would result in substantial costs savings. We are further interested to know whether we can select an agent based upon his education, experience and expertise to represent us or whether we will have to bid the entire insurance package.
It is our opinion that the selection of a risk management insurance agent to place our coverage would afford a better service to the taxpayers, but we do not wish to violate any procurement code requirements."
You have indicated that the Henderson Fiscal Court has specifically adopted, pursuant to KRS 45A.350, KRS 45A.345 to 45A.460 of the Kentucky model procurement code.
It is our understanding that premium quotations on property insurance would not assume a uniform pattern. The bidding principle is framed around the concept of competition. The effective use of competition is to "protect the taxpaying public against the wasting of public funds and to prevent abuses such as fraud, favoritism, improvidence and extravagance." 72 C.J.S. Supp., Public Contracts, § 8, p. 182. "Competitive bidding statutes are primarily intended for the benefit of the public rather than for the benefit or enrichment of bidders, and consideration of advantages or disadvantages to bidders must be secondary to the general welfare of the public." Ibid., pp. 183-184.
The Court of Appeals, in McCloud v. City of Cadiz, Ky. App., 548 S.W.2d 158 (1977) ruled that a city was not required, under KRS 424.260, to let out the city's insurance coverage contracts under bidding procedure, for the reason that insurance services are "professional" and for the reason that "generally uniform rates" are involved in insurance. KRS 424.260 does except from its application "professional services." The Court, in McCloud, apparently had no evidence in front of it on the question of uniformity of insurance rates. It was a mere judicial assumption.
However, since Henderson County has adopted the pertinent sections of the model procurement code, KRS 424.260, a short skeletal statute, has no application. The model procurement code is a detailed statement of legislative policy on bidding procedures for local public agencies.
KRS 45A.365(1) provides that "all contracts or purchases shall be awarded by competitive sealed bidding, except as otherwise provided by KRS 45A.370 to 45A.385." (Emphasis added.) "Contract" is defined by KRS 45A.345(4) as meaning "all types of local public agency agreements, including grants and orders, for the purchase or disposal of supplies, services, construction, or any other item." (Emphasis added.) KRS 45A.345(23) defines "supplies" as meaning "all property, including but not limited to leases on real property, printing and insurance, except land or a permanent interest in land. (Emphasis added.)
In reading, all of the above statutes together, the range of procurement is very broad; and subsection (23) of KRS 45A.345 explicitly provides that the procurement code bidding procedures generally must be applied to insurance on property.
KRS 45A.380(3) provides that a local public agency may contract or purchase through noncompetitive negotiation only when a written determination is made that competition is not feasible and it is further determined by the local public agency, inter alia, that the contract is for a licensed professional.
The answer to your question is that if the Fiscal Court reasonably determines that competition in property insurance is actually competitive in that area, then the entire insurance package should be let out under KRS 45A.365, providing for competitive sealed bidding. There is nothing to prevent your purchasing a three year policy, if it can be funded from current revenues, as a properly budgeted item pursuant to KRS Chapter 68.
If the Fiscal Court reasonably determines that competition in property insurance is not feasible, and considering that the contract is for a licensed professional, i.e., licensed insurance agents, brokers or representatives, as broadly interpreted by the Court of Appeals in McCloud v. City of Cadiz, above, then the Fiscal Court may procure the property insurance by noncompetitive negotiation, as dealt with in KRS 45A.380. Some states, including Kentucky, have departed, in enacting legislation involving "professionals," from the narrow concept of "learned professions, " such as theology, medicine and law. The term "profession" has been enlarged to include other vocations such as denistry, teaching, architecture, and engineering. See Reich v. City of Reading, Pa., Commonwealth, 284A.2d 315 (1971) 320. The Supreme Court of Oregon in Multnomah County v. Oregon Auto. Ins. Co., 470P.2d 147 (1970), observed that "a professional act or service is one arising out of a vocation, calling, occupation or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual rather than physical or manual."
Note that small purchase procedures may be used where the aggregate contract amount does not exceed $5000. KRS 45A.385.