Opinion
Opinion By: Chris Gorman, Attorney General; Amye B. Majors, Assistant Attorney General
OPEN RECORDS DECISION
This appeal originated in requests to inspect public records submitted by Mr. David Heath and Mr. David McGinty, business writers for The Courier-Journal, to the Department of Insurance in October 1993. The requested records relate generally to the rehabilitation of Kentucky Central Life Insurance Company, and are identified as:
1) Documents reflecting the identities of corporations and/or individuals who submitted bids for Kentucky Central or subsidiaries;
2) The bids submitted by these corporations and/or individuals;
3) The 1986 to 1990 examination report of Kentucky Central and the 1990 and 1991 examination report signed by James Butler and Ronald Bezold;
4) Any appraisals done for Kentucky Central under KRS 304.2-240.
The Department denied these requests on various grounds.
With respect to the identities of corporations and individuals who submitted bids for Kentucky Central or its subsidiaries, the Department maintained that this information is not a public record as defined in KRS 61.870(2), and that Kentucky Central is not a public agency as defined in KRS 61.870(1). The Department advanced the same argument relative to the contents of bids submitted by corporations and individuals, noting that even if Kentucky Central were considered a public agency, this information would be exempt pursuant to KRS 61.878(1)(h) "because it is a preliminary document which has passed between the agency and private individuals."
The Department released an excerpt from the examination report relating to the insurance company's current financial condition, asserting that the remainder of the report is made confidential by KRS 304.2-270. Similarly, the Department denied the reporters' request for appraisals, arguing that they "were performed pursuant to KRS 304.2-240 and are part of the examination which is confidential under KRS 304.2-270."
In a followup letter to this Office, Ms. Suetta Dickinson, General Counsel for the Department of Insurance, elaborated on the Department's position. She explained that the Department has appealed 93-ORD-113 to the Franklin Circuit Court. In that open records decision, this Office held that documents revealing the identities of the corporations or individuals who submitted bids for Kentucky Central are public records for purposes of the Open Records Law, and are subject to disclosure. Although we did not resolve the issue, we questioned whether the disclosure of the contents of the bids would jeopardize the bid process, given the fact that each qualified bidder was given access to the bids of all other qualified bidders. Because the question was not raised, we did not address the propriety of the nondisclosure of portions of examinations reports and appraisals. Ms. Dickinson furnished us with a copy of the Department of Insurance's brief in which the Department refutes that decision.
Turning to the issue of examination reports and appraisals, Ms. Dickinson explained:
The Department only reviews or requests appraisals as part of an examination. The appraisals are considered part of the work papers upon which the examination report and the examiners' comments and recommendations are based. The Department denies access to work papers for domestic or foreign insurers because (1) the work papers are not available to the public under KRS 304.2-250 or 304.2-260 and (2) granting access to the underlying documents of the examination report and examiners' comments and recommendations would effectively circumvent the prohibition of KRS 304.2-2701.
In support of the Department's decision to withhold certain portions of the examination reports and release other portions, Ms. Dickinson observed:
The examination report form recommended by the National Association of Insurance Commissioners contains a section entitled "Statement of Financial Condition" which the Department routinely discloses under KRS 304.2-270. This balance sheet is the only section which shows the current financial condition of an insurance company[.]
All other sections of the examination report, Ms. Dickinson explained, are withheld.
On behalf of his clients, The Courier-Journal, Mr. Heath, and Mr. McGinty, Mr. Jon L. Fleischaker appealed the Department's partial denial of these requests to the Attorney General. He noted that the Department asserted the same grounds for denying those portions of the requests relating to the identities of bidders that it had asserted in its earlier denial of a similar request, resulting in the decision in 93-ORD-113, without attempting to distinguish that decision or even acknowledging its existence. Mr. Fleischaker maintains that under the reasoning of 93-ORD-113, his clients are entitled to access to documents containing the identities of bidders for Kentucky Central. Citing the dicta in 93-ORD-113 relative to the contents of the bids, Mr. Fleischaker next argues that the Department improperly denied Mr. Heath and Mr. McGinty's request for the bids themselves. Based on this dicta, Mr. Fleischaker concludes that "any concerns that disclosure of the bids would jeopardize the bid process are obviated by the fact that the terms of the Kentucky Central bidding process gives all qualified bidders access to the bids of other qualified bidders. "
In response to the Department's partial denial of the reporters' requests for "the 1986 to 1990 examination of Kentucky Central Life Insurance Co. as it existed before the company was permitted to make any changes[,]" and "[t]he copy of that [1990 and 1991] exam, signed by [James] Butler and Ronald Bezold, an examiner for the Ohio Insurance Department, in which Kentucky Central's mortgage loan assets and/or real estate assets and/or joint venture assets had been written down by the examiners [,]" Mr. Fleischaker asserts that the Department has interpreted the prohibition on release of portions of an examination report, contained in KRS 304.2-270, too broadly. He observes:
While KRS 304.2-270 would prohibit the disclosure of part of the requested examinations, it clearly mandates public accessibility to another, potentially more voluminous, part -- that relating to the financial condition of Kentucky Central at the time the particular exam was completed.
He notes that since the requested records are past examinations, "the statute would clearly only exempt from inspection those portions unrelated to the insurer's current financial condition as it existed at the time the requested exam was filed. " (Emphasis in original.) By extension, Mr. Fleischaker argues that records in the possession of or used by the Commissioner, in his capacity sofas Rehabilitator, which concern the Department's examination of Kentucky Central and show the insurer's current financial condition, must be released.
It is Mr. Fleischaker's position that the Department failed to meet its statutory burden of proof relative to its denial of Mr. Heath's and Mr. McGinty's request for examination reports, with the exception of "a couple of excerpts. . . ." Notwithstanding the requirements of KRS 61.880(1) 1 and KRS 61.882(3), 2 "the Department would just have us 'trust' its assessment that the vast majority of these exams are totally unrelated to Kentucky Central's financial condition at the time of the exam. " (Emphasis in original.)
Mr. Fleischaker challenges the Department's assertions that appraisals are performed pursuant to KRS 304.2-240, as part of the examination, and are therefore made confidential by operation of KRS 304.2-270. He comments:
There is no indication from the statute that a 304.2-240 appraisal necessarily becomes a part of the examination report. Indeed, 304.2-240 requires that a copy of the appraisal be furnished to the Commissioner and to the person being examined.
Even if the appraisal is a part of the examination, Mr. Fleischaker argues, appraisals of an insurer's assets are "clearly related to that insurer's 'current financial condition' " and must be disclosed.
In a subsequent letter, Mr. Fleischaker's associate, Ms. Deborah H. Patterson, noted some additional irregularities in the Department's response. Contrary to Ms. Dickinson's assertion that the "Statement of Financial Condition" is the only section of the examination report which shows the current financial condition of an insurance company, and must be disclosed, Ms. Patterson observes:
[T]he examination report in fact contains several other sections that show "the insurer's current financial condition" and hence are open for public inspection pursuant to KRS 304.2-270. Specifically, we refer to the various "comparative" sections that contrast the insurer's current financial condition with that of years past: "Comparative Statement of Financial Conditions," "Comparative Summaries of Operations," "Comparative Statement of Gross and Net Investment Earned," "Comparative Reconciliation of Capital and Surplus Accounts," etc.
Ms. Patterson maintains that the public is entitled to inspect all portions of the examination report that show the insurer's current financial condition, and not just the two-page "Statement of Financial Condition. "
We are asked to determine if the Department of Insurance violated the Open Records Law in partially denying Mr. Heath's and Mr. Ginty's request for various records relating to the rehabilitation of Kentucky Central Life Insurance Company. For the reasons set forth below, we conclude that the Department's actions constitute a violation of the Law.
In 93-ORD-113, a copy of which is attached, this Office engaged in a lengthy analysis of the first issue raised in this open records appeal. As we have noted, in that decision we held that documents revealing the identity of the corporations or individuals who submitted bids for Kentucky Central are public records for purposes of the Open Records Law, and are subject to disclosure. It is instructive to quote that decision at length:
We are not . . . persuaded that "neither Kentucky Central Life Insurance Company nor its Rehabilitator fall within the definition of 'public agency' contained in KRS 61.870(1)." Clearly, the Commissioner is a state government officer, within the meaning of KRS 61.870(1)(a). (Footnote omitted.) Admittedly, he "wears two hats" in his dual roles as Rehabilitator and Commissioner. In our view, his appointment as Rehabilitator is a direct consequence of the fact that he occupies the position of Commissioner, and it is only through his actions as Commissioner, in seeking rehabilitation of a troubled insurer, that he is so appointed. Simply stated, Rehabilitator Stephens cannot completely disassociate himself from Commissioner Stephens.
Records which are "prepared, owned, used, in the possession of or retained by . . ." the Commissioner must be treated as "public record[s]" as defined in KRS 61.870(2). There can be little doubt that Commissioner Stephens is intimately involved in the bidding process for Kentucky Central Life Insurance Company, and has therefore "used" or at one time "possessed" the bidding documents which disclose the names of the bidders. While those documents may not be housed at the Department of Insurance, they are public records of a public agency, to wit, the Commissioner of the Kentucky Department of Insurance.
93-ORD-113, p. 6, 7.
With respect to the bidding process, we opined:
Were this a typical solicitation for bids under the Kentucky Model Procurement Code, KRS 45A.005, et seq., resolution of the issues presented in this appeal would be a simple matter. The Model Procurement Code expressly provides that bids must be publicly opened at a time and place designated in the invitation for bids, and that each bid must be recorded and be open to public inspection. KRS 45A.365. This Office has consistently recognized that once bids are open, they are subject to public inspection. OAG 80-327; OAG 84-284; OAG 89-31; 93-ORD-5.
While we acknowledge that the solicitation for bids for Kentucky Central cannot properly be characterized as "public bidding, " we believe that the public has a demonstrable interest in the rehabilitation of the insurer and in knowing the identity of the bidders. As we noted in 93-ORD-67, at p. 6:
After its February 12 takeover, Kentucky Central forfeited certain attributes of a private individual which it formerly enjoyed. . . . Like a contractor to a governmental entity, an insurance company which has been taken over by the state 'must accept certain necessary consequences of involvement in public affairs.' OAG 90-7, at p. 4. Among these is 'the risk of closer public scrutiny than might otherwise be the case.' Id.
In view of the fact that the Commissioner interceded at the request of the financially troubled insurer by petitioning the court for an order directing rehabilitation, we do not believe the insurer can now expect to conduct its affairs without some public oversight. Nor do we believe that disclosure of the identities of the bidders is "the kind of publicity that would needlessly damage or destroy the insurer [.]" KRS 304.33-010(4)(a).
93-ORD-113, p. 9. We therefore concluded that the narrow issue raised in that appeal, to wit, whether documents revealing the identities of corporations or individuals who submitted bids for Kentucky Central are subject to disclosure under the Open Records Law must be answered in the affirmative.
93-ORD-113 was appealed to the Franklin Circuit Court pursuant to KRS 61.880(5)(a). On August 15, 1994, the Court issued an order dismissing the appeal. In so doing, the Court held "that Commissioner Stephens, while functioning as rehabilitator of Kentucky Central, is subject to the Open Records Act." Order Dismissing Appeal, No. 93-CI-01751 (Franklin Circuit Court Division II - entered August 15, 1994) p. 7. It is unclear whether that order will be appealed to the Kentucky Court of Appeals. Accordingly, the issue has not been finally resolved. Nevertheless, we believe we are bound to issue a decision under the statutory mandate found at KRS 61.880(2). 3 We cannot indefinitely postpone resolution of an appeal pending final action by the courts. We will continue to abide by our decision in 93-ORD-113 unless and until that decision is reversed in a final, unappealable judgment. Based on the Franklin Circuit Court's order of August 15 and the reasoning articulated in our decision, we conclude that the Department of Insurance improperly denied that portion of Mr. Heath and Mr. McGinty's request pertaining to documents revealing the identities of bidders for Kentucky Central.
In 93-ORD-113, we were not asked to determine, nor did we decide, if the contents of the bids themselves were subject to disclosure. Although the issue is hotly contested, as a threshold matter we believe that these records are public records, within the meaning of KRS 61.870(2), 4 for the same reasons that documents revealing the identities of bidders are public records. Specifically, the bids are "used, in the possession of or retained by a public agency, " i.e., the Commissioner of the Department of Insurance, in his role as Rehabilitator, and in the discharge of his duties relative to the bidding process. Whether these public records are also nonexempt "open" records is a closer question.
At page 9 of 93-ORD-113, we cautioned:
It is possible that premature disclosure of the contents of the bids could jeopardize the bid process. We question even this proposition, given the fact that "[e]ach qualified bidder will be given access to the bids of all other qualified bidders. . . ." July 2[, 1993 Memorandum from Commissioner Stephens to Parties Interested in Financial Participation in Rehabilitation Plan in Appendix K].
(Emphasis added.) In our view, it is somewhat disingenuous to assert that the bid process might be jeopardized by premature disclosure of the contents of the bids when the bidders themselves are afforded access to all other bids. Access prior to the acceptance of a bid or the rejection of all bids is inconsistent with the underlying purpose of competitive bidding, i.e., to prevent favoritism and fraud and to promote actual, honest, and effective competition. 64 Am Jur2d Public Works and Contracts, § 37. 5
As we have noted, on the issue of public bidding, this Office has taken the position that once bids are opened they are subject to inspection. See, e.g., OAG 80-327; OAG 84-284; OAG 87-4; OAG 89-31; 93-ORD-5. This position insures that the bid contents are not disclosed to competing bidders, or others, until the process has been concluded by the acceptance of a bid or the rejection of all bids. Because these concerns are in large part obviated by the fact that bidders for Kentucky Central are given full access to the details of competing bids and an opportunity to amend their bids, we see no reason why those bids should not be disclosed.
We are, as noted, cognizant that the solicitation for bids for Kentucky Central is not "public bidding. " Nevertheless, the public is entitled to monitor the rehabilitation of Kentucky Central, the financially troubled insurer having requested state intercession through the mechanisms provided for in Chapter 304.33 of the Kentucky Revised Statutes, so long as the records disclosed do not needlessly destroy or damage the insurer. Just as we do not believe that disclosure of the identities of the bidder is "the kind of publicity that would needlessly damage or destroy the insurer [,]" KRS 304.33-010(4)(a), so we do not believe that disclosure of the bid contents would imperil the company. This does not mean that the bids must be disclosed in their entirety. Portions of the bids may be withheld, pursuant to KRS 61.878(4), if the Department can justify exclusion of those particular portions in terms of the requirements of the statute, i.e., by reference to a specific statutory exception.
Mr. Fleischaker next argues that in withholding all but the two page "statement of Financial Condition" contained in the KRS 304.2-210 examination of Kentucky Central Life Insurance Company, the Department of Insurance has interpreted too broadly the confidentiality provision found at KRS 304.2-270, which is incorporated in the Open Records Law by operation of KRS 61.878(1)(k). 6 KRS 304.2-210 provides:
For the purpose of determining financial condition, ability to fulfill and manner of fulfillment of its obligations, the nature of its operations and compliance with the law, the commissioner [of insurance] shall examine the affairs, transactions, accounts, records and assets of each authorized insurer not less frequently than every four (4) years.
That examination report:
[A]lthough filed in the department [of insurance] as provided in KRS 304.2-260 shall nevertheless not be for public inspection except as to those portions of the report showing the insurer's current financial condition. The comments and recommendations of the examiner (s) shall be deemed confidential information and shall not be available for public inspection, except that the commissioner may in his discretion furnish the complete report to any other supervisory official of another state upon request.
KRS 304.2-270 (emphasis added). Clearly, the disputed records are public records, within the meaning of KRS 61.870(2), insofar as they are "prepared, owned, used, in the possession of or retained by a public agency. " The issue of whether these records are open records turns on the proper construction of KRS 304.2-270.
We begin by noting that these provisions must be read in tandem. KRS 304.2-210 provides for the examination of the affairs, transactions, accounts, records and assets of authorized insurers as often as reasonably necessary, but in any event not less frequently than every four years. The stated purpose of the examination is to "determin[e] financial condition, ability to fulfill and manner of fulfillment of its obligations, the nature of its operations and compliance with law. . . ." KRS 304.2-210. Although the report is filed in the Department of Insurance, 7 only "those portions of the report showing the insurer's current financial condition []" are available for public inspection. KRS 304.2-270. The examiners' comments and recommendations are expressly excluded from inspection.
The Department of Insurance asserts that the portion of the examination report entitled "Statement of Financial Condition, " a balance sheet which it routinely discloses, "is the only section which shows the current financial condition of an insurance company." The Courier-Journal argues that these bare assertions fall short of the agency's obligation under KRS 61.880(2) and KRS 61.882(3) to sustain its action by proof. The Courier-Journal suggests that the various comparative portions of the report also reflect the insurer's current financial condition, and therefore must be disclosed.
We have inspected the 1989-1990 examination report, signed by William W. Barton, Jr., Ronald Bezold, and James J. Butler, 8 which apparently conforms to the form recommended by the National Association of Insurance Commissioners. Although we cannot disclose the contents of the report, pursuant to KRS 61.880(2), we can describe it in general terms. The report is a 52-page document prefaced by a two-page table of contents. The first page of the table of contents consists of a breakdown of those subjects which can properly be characterized as relating to the insurer's "ability to fulfill and manner of fulfillment of its obligations, the nature of its operations and compliance with law." 9 The second page of the Table of Contents consists of a series of documents which are grouped under the general heading, "Financial Statements," and are identified as: Statement of Financial Condition; Comparative Statement of Financial Condition; Comparative Summaries of Operations; Comparative Reconciliation of the Capital and Surplus Accounts; Comparative Statements of Gross and Net Investment Income; Comparative Statements of General Expenses; Comparative Statements of Taxes, Licenses and Fees; and Comparative Statements of Assets and Liabilities. The Department of Insurance argues that the public is entitled to inspect the "Statement of Financial Condition" only. We do not agree.
As noted, KRS 304.2-270 mandates disclosure of those "portions" of the examination report showing the insurer's current financial condition. It is significant that the General Assembly employed the plural, rather than the singular, of that term. The various statements are grouped under the general heading, "Financial Statements," and are clearly interrelated. The succeeding comparative financial statements for the years 1986 to 1990 supplement and enlarge upon the information contained in the "Statement of Financial Condition. " In our view, these portions of the report must be taken as a whole insofar as each financial statement has a direct bearing on the insurer's current financial condition. It is the opinion of this Office that the Department of Insurance erred in failing to make these records available to Mr. Heath and Mr. McGinty. The final portions of the report, to wit, the Summary of Examination Charges, General Comments, Conclusion, and Subsequent Events, also have a direct bearing on the insurer's financial condition and should be disclosed.
With respect to any appraisals conducted on behalf of the Department relative to its examination of Kentucky Central, we reach the same conclusion. Again, we find that these appraisals are public records within the meaning of KRS 61.870(2) because they are "prepared, owned, used, in the possession of or retained by a public agency. " Again, the closer question is whether they are also nonexempt "open" records.
KRS 304.2-240 relates to the appraisal of assets and provides in part:
(1) If the commissioner deems it necessary to value any asset involved in such an examination, he may make written request of the person being examined to appoint one or more appraisers who by reason of education, experience or special training and disinterest, are competent to appraise the asset. . . .
(2) Any such appraisal shall be expeditiously made, and a copy thereof furnished to the commissioner and to the person being examined.
Contrary to Mr. Fleischaker's assertion, we believe that the appraisal is clearly a part of the examination report, and subject to the confidentiality provision found at KRS 304.2-270. However, like the comparative financial statements which supplement the Statement of Financial Condition, we believe that the appraisals relate to the insurer's current financial condition, and must be disclosed. It cannot reasonably be argued that the value of the insurer's assets has no bearing on its financial condition. Accordingly, we find that these records were also improperly withheld, and must be disclosed.
We are not unmindful of the complexity of the issues raised in this appeal, the debate which surrounds them, and the far-ranging implications of our resolution of them. As we have recently observed, this Office's role in an open records appeal is, of necessity, a limited one. "Unlike a court, we must resolve the issue[s] on the basis of a brief written record and without the opportunity to consider the testimony [of the parties]." 94-ORD-97, p. 9. Simply stated, the written record here is insufficient to support the Department's denial of the requests submitted by Mr. Heath and Mr. McGinty. We therefore conclude that the Department violated the Open Records Act in denying these requests.
The Department of Insurance may challenge this decision by initiating action in the appropriate circuit court. Pursuant to KRS 61.880(3), the Attorney General must be notified of any action in circuit court, but may not be named as a party in that action or in any subsequent proceedings.
Footnotes
Footnotes
1 KRS 61.880(2) provides, "The burden of proof in sustaining the action shall rest with the agency[.]"
2 -
KRS 61.882(3) provides, "In an original action or an appeal of an Attorney General's decision, . . . the burden of proof shall be on the public agency. "
3 Recently recodified as KRS 61.880(2)(a).
4 KRS 61.870(2) was slightly modified by an amendment which took effect on July 15, 1994, and now includes the term "software."
5 In any event, the Department cannot now reasonably argue that the bidding process would be jeopardized by premature release of the bids, the Rehabilitator/ Commissioner having accepted a bid, and the Franklin Circuit Court having approved that decision.
6 KRS 61.878(1)(k) was recently recodified and now appears at KRS 61.878(1)(1). It exempts from disclosure:
Public records or information the disclosure of which is prohibited or restricted or otherwise made confidential by enactment of the General Assembly.
7 KRS 304.2-260(3) provides:
[T]he examination report, with such modifications, if any, thereof as the commissioner deems proper, shall be accepted by the commissioner and filed in the department for public inspection upon expiration of the review period provided for in subsection (1) of this section. The report shall in any event be so accepted and filed within six (6) months after final hearing thereon, except that the commissioner may withhold from public inspection any examination report for so long as he deems such withholding to be necessary for the protection of the person examined against unwarranted injury or to be in the public interest.
8 Pursuant to KRS 61.880(2) this Office requested access to those records identified in Mr. Heath and Mr. McGinty's open records request. We were provided with the 1989-90 examination report and appraisals on four properties owned by Kentucky Central. We were advised that these were the only documents available within the Department which satisfied our request.
9 The following subject matter listings appear on page one of the table of contents: Salutation; Scope of Examination; History; Corporate Affiliations; Management and Control; Conflict of Interest; Corporate Records; Fidelity Bonds and Other Insurance; Employees' and Agents' Benefit Plans; Territory; Plan of Operation; Underwriting; Reinsurance; Statutory Deposits; Growth of Company; Service and Cost Sharing Agreement; Life Insurance in Force by States; Mortality and Loss Experience; Continuity of Operations; NAIC Insurance Regulatory Information System; Accounts and Records.