Was the 1992 contract awarding NCDOT employees' supplemental-insurance payroll deduction slot to Colonial Life valid, given that the NCDOT Insurance Committee's members were not appointed on rotating terms and the contract was signed by both the Committee and the Department, with third-party Agents of Record listed as parties?

Plain-English summary

Garland Garrett, Deputy Secretary for Highways at NCDOT, asked the AG to review an agreement Colonial Life and Accident Insurance Company had with NCDOT employees for whole life, accident, cancer, sickness, and salary continuation coverage. The question was whether the award of the payroll deduction slot to Colonial and the underlying agreement were valid. Senior Deputy AGs Reginald L. Watkins and Eugene A. Smith answered with a three-part assessment.

Part one: the Employee Insurance Committee. G.S. § 58-31-60 sets up an Employee Insurance Committee at NCDOT and gives it the statutory authority to competitively select insurance products and award payroll deduction slots. Subsection (b) makes the Committee "completely autonomous in its selection of insurance products and insurance companies." The Committee has nine members serving three-year terms, with three members' terms expiring each year on a rotating basis. The current Committee was problematic: most members were appointed June 30, 1991, none appeared to have been appointed for a specific term as the statute required, and several members were holding over after their terms expired or were about to expire on June 30, 1993. The Department had been previously advised that existing appointees could be assigned terms as of their appointment dates to retrofit compliance with the rotating-term scheme. The AG concluded the irregularity could be corrected and that the Committee was acting "de facto" as constituted, even with several over-term members. De facto status means actions taken by the Committee in this irregular form are not void simply because of the appointment defects.

Part two: the payroll deduction slot. Under subsection (c), the Committee may select only one company per payroll deduction slot. It does so by determining which proposal best meets employees' needs and desires, then awarding the slot to that company. Subsection (c1) sets out the procedure. Subsection (c) also provides that the company receiving the slot is to be afforded an adequate opportunity to solicit employees, "pursuant to a written agreement setting out the rights and duties of the insurance company."

Part three: the Colonial Life contract itself. The June 22, 1992 agreement was between the Employee Insurance Committee, NCDOT, two third-party Agents of Record (Little, Pendleton and White, Inc. and George Willoughby), and Colonial Life. The agreement was signed by the Committee Chairman, the NCDOT Deputy Secretary, the two Agents of Record, and Colonial. The AG flagged two problems.

First, NCDOT itself was a party to the contract. The AG read § 58-31-60 to contemplate that product selection and slot award belong to the Committee, not the Department; the Committee is autonomous. NCDOT therefore was not a proper party to the agreement. But this irregularity did not, in the AG's view, make the contract void or voidable. The substantive selection process appeared to have been followed; NCDOT's signature was an extra, not a substitution.

Second, the contract appointed two specific Agents of Record. Paragraph 2 stated: "The Agents of Record are appointed as the agents of record for all accident, cancer, sickness, salary continuation and whole life insurance provided by Colonial to the Department's employees during the term of the Agreement." The AG read § 58-31-60 to give the Committee no authority to contract about Agent of Record designation. The Agent of Record is an insurance-company matter under Chapter 58 generally, not a slot-award matter under § 58-31-60. The Agents-of-Record clause exceeded the Committee's (and NCDOT's) statutory authority and was therefore void. The Insurance Company was free to select its own Agents of Record under Chapter 58.

The opinion is a useful study in the difference between "irregular but de facto" and "ultra vires and void." Appointment defects in a committee can be corrected; the committee's actions are not retroactively invalidated. Inclusion of an extra party (NCDOT) in a contract that should have been just Committee-and-company is irregular but does not vitiate the substantive selection. Contractual clauses that purport to bind on matters outside the statutory authority of the contracting body are void to the extent of the overreach.

Currency note

This opinion was issued in 1993. 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.

The state employee insurance committee framework in G.S. § 58-31-60 has been amended over the past three decades, and state-level coordination of supplemental-insurance offerings has shifted in various ways. The de facto officer doctrine remains good NC law. Anyone facing a current question about a state agency employee insurance committee, a payroll deduction slot award, or an Agent of Record clause should consult current Chapter 58, current State Personnel Office guidance, and counsel familiar with NC state-employee benefits law.

Common questions

Q: What is a "payroll deduction slot"?
A: It is an arrangement under which employees can have premiums for a particular supplemental insurance product deducted directly from their paycheck. The state agency processes the deduction and remits the funds to the insurance company. Slot awards are valuable to insurance companies because they give access to a captive employee market with simplified billing, so the slot is competitively awarded.

Q: What does "autonomous" mean in the Committee context?
A: It means the Committee makes its decisions about which insurance products to offer and which company to award the slot to independently of the host agency. The host agency (NCDOT) cannot direct the Committee's choices and is not, properly speaking, a party to the resulting contract. The statute uses "completely autonomous" to underscore the independence.

Q: What is a "de facto" committee, and why does it matter?
A: A de facto committee is one whose members hold their positions in fact, even if their appointments are technically defective. NC follows the de facto officer doctrine: actions taken by a person whose appointment is irregular are generally treated as valid for the public, provided the appointment defects are remediable. The doctrine protects the public from disruption when officials' tenures are challenged after the fact. Here, the Committee's appointment defects (missing rotating terms, holdovers) could be corrected, and the Committee's prior actions were not invalidated.

Q: Why is the Agent of Record clause void?
A: Because the Committee's statutory authority under § 58-31-60 is to select insurance products and award the payroll deduction slot. The Agent of Record is the agent appointed by an insurance company to represent it in dealings with the policyholder. Choosing an Agent of Record is the insurance company's call, not a feature of the slot award. When the contract purported to appoint specific Agents of Record, it reached beyond the Committee's statutory authority. A contract that purports to bind on matters the contracting body has no authority to bind is void to the extent of the overreach.

Q: Does voiding the Agent of Record clause unwind anything else in the contract?
A: No. The AG's analysis treats the clause as severable: the rest of the contract (product selection, slot award, employee solicitation rights) stands; only the Agent of Record appointment falls. The insurance company is free under Chapter 58 to select its own Agents of Record. The voided clause does not invalidate either the slot award or the underlying coverage.

Q: Why does the AG flag NCDOT's signature on the contract?
A: Because the contract should reflect the actual contracting parties under the statute: the Committee and the insurance company. NCDOT's signature does not match that structure. It is not fatal to the contract here, but a more careful drafting practice going forward would not list NCDOT as a party. The Committee is the contracting entity for these purposes.

Background and statutory framework

NC state agencies have long offered supplemental insurance products to employees through payroll-deduction arrangements with private insurance companies. The competitive-selection process is supposed to keep these arrangements fair and to protect employees from sole-source pricing. G.S. § 58-31-60 is the statutory framework: an autonomous Insurance Committee at the agency selects products and companies, awards payroll deduction slots, and signs a written agreement with the awarded company governing solicitation rights.

The 1993 opinion is a useful primer on three recurring issues in this framework. First, appointment compliance: agencies often let committee membership drift, with members holding over past their nominal terms. The de facto doctrine accommodates that drift while allowing prospective correction. Second, party identity: the contract should be between the Committee and the company, not the host agency. Including the agency as a party is sloppy but not fatal. Third, scope of contractual authority: a clause that reaches beyond the Committee's statutory authority (here, Agent of Record appointment) is void to the extent of the overreach, but does not bring down the rest of the contract.

Citations

• N.C.G.S. § 58-31-60 (Employee Insurance Committee; competitive selection of insurance products; payroll deduction slot awards)
• N.C.G.S. § 58-31-60(b) (Committee composition, term structure; Committee "completely autonomous" in selection of insurance products and insurance companies)
• N.C.G.S. § 58-31-60(c) (Committee shall select only one company per payroll deduction slot; written agreement setting out rights and duties of insurance company)
• N.C.G.S. § 58-31-60(c1) (procedure for selection and slot award)

Source

• Landing page: https://ncdoj.gov/opinions/employee-insurance-committee/

Original opinion text

May 20, 1993

Mr. Garland Garrett Deputy Secretary for Highways Department of Transportation PO Box 25201 Raleigh, NC 27611

Re: Advisory Opinion Employee Insurance Committee

G.S. 58-31-60

Dear Mr. Garrett:

This is in response to your request of this office to review the Agreement to provide coverage for NCDOT employees for whole life insurance, accident, cancer, sickness and salary continuation provided for by Colonial Life and Accident Insurance Company. You further requested advice on the validity of the award of the payroll deduction slot and the Agreement.

Employee Insurance Committee: Insurance for NCDOT employees is provided for by G.S. 58-31-60. That statute provides for the appointment of an Employee Insurance Committee, the competitive selection of insurance products, and the award of a payroll deduction slot to an insurance company. It is "completely autonomous in its selection of insurance products and insurance companies…." G.S. 58-31-60(b).

There are nine members on the NCDOT Insurance Committee, including one vacancy. The present Committee members do not appear to have been appointed on a rotating basis as is required by the statute. Most of the members were appointed June 30, 1991, but none appear to have been appointed for a specific term as required by G.S. 58-31-60(b). The members serve for three year terms with the terms of three members expiring each year. The Department has been previously advised that the existing appointees could be assigned terms as of the date of their appointments to comply with the terms of the statute calling for alternating terms of three years. This leaves several holdovers now on the Committee and several more whose terms will expire June 30, 1993. The Committee is irregular in that the appointments are not in accordance with the statute. Based upon the information available, it is our opinions that the irregularity of the Committee can be corrected and that it does act "de facto" as constituted with several members serving whose terms have expired.

Payroll Deduction Slots: Subsection (c) of G.S. 58-31-60 provides that the Committee "shall select only one company per payroll deduction slot." It also provides for a written agreement. The Committee determines the best proposal meeting the needs of the employees and "shall award a payroll deduction slot to the company submitting the proposal that meets those needs and desires." The procedure is set out in subsection (c1). Subsection (c) further provides that "the insurance company awarded a payroll deduction slot shall, pursuant to a written agreement setting out the rights and duties of the insurance company, be afforded an adequate opportunity to solicit employees…"

Contract with Colonial Life: The present contract with Colonial Life was entered into on June 22, 1992, for four years. The Agreement of June 22, 1992, was entered into between the Employee Insurance Committee of the Department of Transportation, the North Carolina Department of Transportation, Little, Pendleton and White, Inc. And George Willoughby (collectively Agents of Record), and Colonial Life and Accident Insurance Company. It appears that the Insurance Committee went through the statutory process to select the insurance products and award the payroll slot to Colonial. The Agreement was executed by the Chairman for the Employee Insurance Committee, by the Deputy Secretary for the North Carolina Department of Transportation, by George Little for Little, Pendleton and White, Inc., George Willoughby for George Willoughby (as Agents of Record), and by Colonial Life and Accident Insurance Company by its Vice President.

The selection of the insurance products and the award of the payroll slot to Colonial Life and Accident Insurance Company is not the function of the North Carolina Department of Transportation. The Agreement is to set out the rights and duties of the Insurance Company and to provide the Insurance Company an adequate opportunity to solicit employees. We believe the statute contemplates an autonomous Insurance Committee, and a contract between the NCDOT Insurance Committee and the Insurance Committee and the Insurance Company awarded the payroll slot. Since the Committee is an autonomous agency for the purpose of selecting insurance products and awarding payroll slots, the Department of Transportation is not a proper party to the contract. While the contract is irregular, we do not believe in this case it makes the contract void or voidable. It appears to be otherwise proper with the exceptions hereinafter discussed.

Agents of Record: The contract included as parties Agents of Record and it was also executed by these third parties as Agents of Record. Paragraph 2 of this Agreement provides that "The Agents of Record are appointed as the agents of record for all accident, cancer, sickness, salary continuation and whole life insurance provided by Colonial to the Department's employees during the term of the Agreement." There is a clear lack of authority under G.S. 58-31-60 to contract with reference to the Agents of Record. To the extent that the parties are appointed by the contract as Agents of Record and included as parties, the Agreement is void. The Agent of Record is an insurance company matter and not a matter subject to contract pursuant to G.S. 58-31-60. We therefore conclude that the part of the Agreement as it relates to the Agents of Record is not valid as to the NCDOT, the Insurance Committee, or the Insurance Company. Since the part of the contract involving Agents of Record exceeds the authority of the Committee and the NCDOT and is void, the Insurance Company is free to select its own Agents of Record pursuant to Chapter 58.

Our review of this Agreement has been made upon the basis of information available and on the assumption that the matters were otherwise proper.

Please advise if we can be of any further assistance.

Reginald L. Watkins Senior Deputy Attorney General

Eugene A. Smith Senior Deputy Attorney General