Did a Kentucky local agency have to bid out an insurance broker contract?

Plain-English summary

Kentucky's Attorney General concluded in 2013 that the bidding rule for an insurance broker contract depended on whether the local public agency had adopted the Model Procurement Code. An agency that had not adopted the code could contract with a broker to seek insurance bids without competitive bidding under the statute the opinion analyzed. The AG still described competitive bidding as the preferred method where feasible.

An agency that had adopted the code had to follow its applicable procurement procedures when hiring a broker. The AG distinguished a contract for insurance from a contract with an insurance broker: the code's exception for certain insurance purchases did not automatically cover hiring the broker. Other code procedures, including competitive negotiation, noncompetitive negotiation, or small purchases, could apply when their own conditions were met.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a local agency that had not adopted Kentucky's Model Procurement Code use an insurance broker without bidding out that contract?

The AG said yes under the law it analyzed. It treated insurance as a professional service under KRS 424.260(1) and concluded that the agency could contract with a broker to solicit and receive insurance bids. It still favored competitive bidding when feasible.

Did the code's insurance exception automatically cover hiring a broker?

No. The opinion distinguished buying specified types of insurance from contracting with a broker. A code-adopting agency had to use the applicable broker-contract procedure; the insurance-purchase exception alone did not resolve it.

What about a school district?

The opinion said a school board had statutory contracting power to hire a broker to obtain insurance bids. The procurement procedure depended on whether the local agency had adopted the Model Procurement Code.

Background and statutory framework

Two legislators asked about local agencies and school districts using brokers to collect insurance bids. The opinion explained that KRS 45A.343(1) allowed local public agencies to adopt the Model Procurement Code. For adopters, it described the default sealed-bid rule in KRS 45A.365(1) and the limited alternative procedures, including KRS 45A.380. For agencies outside the code, it analyzed KRS 424.260(1) and the distinction between advertised contracts and professional services. The opinion relied on McCloud v. City of Cadiz for treating insurance as a professional service under that statute.

Citations and references

Statutes: KRS 45A.343(1); KRS 45A.365(1); KRS 45A.380; KRS 424.260(1).

Case: McCloud v. City of Cadiz, 548 S.W.2d 158 (Ky. Ct. App. 1977).

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Pages/Opinions.aspx
• Original Word document: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG13-006.doc

Original opinion text

OAG 13-006

April 26, 2013

Subject: Whether a local public agency may contract with a broker to procure insurance bids without competitive bidding

Requested by: Rep. Ryan Quarles

Rep. Steve Riggs

Written by: Matt James

Syllabus: A local public agency that has not adopted the Model Procurement Code may contract with a broker to procure insurance bids without competitive bidding. A local public agency that has adopted the Model Procurement Code must follow all applicable provisions in seeking contracts with insurance brokers.

Statutes construed: KRS 45A.343; KRS 45A.345; KRS 45A.365; KRS 45A.370; KRS 45A.380; KRS 45A.385; KRS 424.260

OAGs cited: OAG 80-279; OAG 82-170; OAG 92-144

Opinion of the Attorney General

Rep. Ryan Quarles has requested an opinion of this office on whether a local public agency may contract with an insurance broker to receive bids on insurance. Rep. Steve Riggs has requested an opinion of this office on whether a school district may select an insurance agent to receive bids on insurance without competitive bidding consistent with the Model Procurement Code. Since the underlying issue is the same in both requests, they are consolidated in this opinion. At the request of this office, the Finance and Administration Cabinet, Department of Education, and Department of Insurance have provided their analysis. We advise that a local public agency that has not adopted the Model Procurement Code may contract with a broker to procure insurance bids without competitive bidding. A local public agency that has adopted the Model Procurement Code must follow all applicable provisions in seeking contracts with insurance brokers.

The Kentucky Model Procurement Code (“MPC”), KRS chapter 45A, provides a comprehensive scheme for public procurement contracts and what procedures must be followed for contracts, depending upon the goods or services contracted for and the total cost of the contract. KRS 45A.020(1) provides that the MPC applies to all state contracts unless otherwise specified. KRS 45A.343(1) provides that “any local public agency may adopt the provisions of KRS 45A.345 to 45A.460,” which comprise the MPC for local public agencies. Local public agencies thus have the option whether or not to adopt the MPC. Board of Educ. of Woodford County v. D.W. Wilburn, Inc., Nos. 2008–CA–2422, 2009–CA–50, 2010 WL 2010760 at *8 (Ky. Ct. App. May 21, 2010); OAG 80-279.

If a local public agency has in fact adopted the MPC, “we believe competitive bidding for general liability insurance on buildings and vehicles, etc., is required absent a legitimate, written determination by the local public agency to the contrary.” OAG 82-170. KRS 45A.365(1) provides that “all contracts or purchases shall be awarded by competitive sealed bidding, which may include the use of a reverse auction, except as otherwise provided by KRS 45A.370 to 45A.385.” KRS 45A.370 provides for competitive negotiation in some circumstances, and KRS 45A.385 allows for the use of small purchase procedures for contracts under twenty-thousand dollars ($20,000). KRS 45A.380 provides for noncompetitive negotiation in specific circumstances:

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 in writing by a designee of the local public agency that . . .

(10) The contract is for group life insurance, group health and accident

insurance, group professional liability insurance, worker's compensa-

tion insurance, and unemployment insurance;

KRS 45A.380 thus specifies that certain insurance contracts may be purchased through noncompetitive negotiation, but only after “a written determination is made that competition is not feasible.” We have also previously advised that the exemptions enumerated in KRS 45A.380(10) are limited to those forms of insurance expressly enumerated, and do not extend to insurance generally. OAG 82-170. While KRS 45A.380 does countenance purchasing certain kinds of insurance without competitive negotiation, it does not countenance hiring an insurance broker without competitive negotiation; the contracts at issue are contracts with insurance brokers, and not contracts for insurance. If a local public agency that has adopted the MPC wishes to contract with an insurance broker, it must comply with the sealed bidding requirements in KRS 45A.365, unless the competitive negotiation requirements of KRS 45A.370, the noncompetitive negotiation requirements of KRS 45A.380, or the small purchase requirements of KRS 45A.385 apply, in which case it must comply with those.

If a local public agency has not adopted the MPC, then the governing provision is KRS 424.260. KRS 424.260(1) provides in relevant part:

. . . no city, county, or district, or board or commission of a city or county, or sheriff or county clerk, may make a contract, lease, or other agreement for materials, supplies except perishable meat, fish, and vegetables, equipment, or for contractual services other than professional, involving an expenditure of more than twenty thousand dollars ($20,000) without first making newspaper advertisement for bids.

KRS 424.260(1) provides that a local public agency may not contract for materials, supplies, or contractual services other than professional in excess of $20,000 without advertising for bids. In McCloud v. City of Cadiz, 548 S.W.2d 158 (Ky. Ct. App. 1977), the Court of Appeals summarized the distinctions in KRS 424.260 as being essentially between contracts “involving personal service of a manual or mechanical nature,” which must be advertised, and those involving professional services, which do not have to be advertised. Id. at 162. Following McCloud, we advised that “a school district following KRS 424.260 is not required to obtain bids for ‘professional’ services.” OAG 92-144. McCloud held that insurance was a professional service for the purposes of KRS 424.260. Id. at 162. Since insurance is a professional service under KRS 424.260, a local public agency is not required to competitively bid for it.

Given that a local public agency under KRS 424.260 is not required to competitively bid for insurance, the remaining question is whether a local public agency may contract with a broker to solicit and receive bids for insurance. Whether a local public agency may contract to do so may vary depending on the statute authorizing the local public agency to contract. School district boards are explicitly given the power to “make contracts” and “expend funds necessary for liability insurance premiums” in KRS 160.160(1), so they may contract with an insurance broker to solicit and receive insurance bids. However, even though local public agencies operating under KRS 424.260 are not required to use competitive bidding for insurance, we caution that the MPC and other statutes demonstrate a clear preference for competitive bidding where feasible, and competitive bidding should remain a preferred method for obtaining insurance contracts where feasible.

In summary, a local public agency that has not adopted the Model Procurement Code is not required to follow competitive bidding procedures for insurance, and may contract with an insurance broker to solicit and receive bids for insurance, although competitive bidding remains preferred. A local public agency that has adopted the Model Procurement Code must follow all applicable provisions in seeking contracts with insurance brokers.

JACK CONWAY

ATTORNEY GENERAL

Matt James

Assistant Attorney General