NC NC AG Advisory Opinion (1996-01-24) 1996-01-24

Community colleges have to pay tort claims out of their local-funding stream, but can they at least use state funds to buy the liability insurance that covers those claims?

Short answer: Yes. Section 115D-31.1 directly says community colleges may use state funds to pay liability-insurance premiums, even though § 115D-32(a)(2)b2 ordinarily makes tort awards a local-funding responsibility. The legislature carved out an exception so the actual insurance premium does not have to come out of the local pot.

Disclaimer: This is an official North Carolina Attorney General advisory opinion. AG opinions are persuasive authority but not binding precedent like a court ruling. This summary is for informational purposes only and is not legal advice. Consult a licensed North Carolina attorney for advice on your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official AG opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

Plain-English summary

Coastal Carolina Community College's attorney wrote to the AG with a funding question about liability insurance. Under the North Carolina Tort Claims Act (§ 143-291 et seq.), community and technical colleges are treated as state agencies, can be sued before the Industrial Commission for the negligence of their officers and employees, and face damages of up to $150,000 per claim. Separately, § 115D-32(a)(2)b2 makes the local tax-levying authority (typically the county) responsible for funding any tort-claim award against the institution.

That created a structural concern: if the college bought liability insurance to cover those awards, did the cost of the insurance also have to come from local funds, or could the college pay the premiums from its state-funded budget?

Section 115D-24 and § 115D-58.12 separately authorize community colleges to buy liability insurance. Section 115D-58.12(e) specifically authorizes the board of trustees "to pay as a necessary expense the lawful premiums of liability insurance provided in this section." The harder question was which funds (state or local) could pay those premiums.

Section 115D-31.1 settled it cleanly. The statute reads:

Notwithstanding the provisions of G.S. 115D-32(a)(2)b2 and any other provision of the law to the contrary, boards of trustees of all institutions in this Chapter may use State funds to pay the lawful premiums of liability insurance as provided in this section.

The "notwithstanding" clause expressly overrides § 115D-32(a)(2)b2's local-funding direction for purposes of insurance premiums. So while tort awards themselves remain a local-funding responsibility when not insured, the premium payments for the insurance that would cover such awards can come from state funds. The AG read this as a deliberate legislative choice to make liability-insurance protection financially feasible for community colleges without straining local appropriations.

Currency note

This opinion was issued in 1996. 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 Tort Claims Act damages cap has changed since 1996 (the $150,000 figure has been raised multiple times), and the community-college funding statutes have been amended. Anyone working through a current insurance-purchase question should look at the current text of §§ 115D-24, 115D-31.1, 115D-32, and 115D-58.12.

Background and statutory framework

North Carolina community colleges operate on a hybrid funding model. The state provides operating-budget support through the State Board of Community Colleges; counties (or the local tax-levying authority) provide capital, plant, and certain operating costs including, by statute, tort-claim awards. The split-funding model goes back to the original community-college legislation and reflects the dual character of community colleges as both state institutions and county institutions.

Tort liability has always been a stress point in that funding split. When a college employee causes injury (e.g., a campus driver hits a pedestrian, a chemistry lab accident injures a student), the claim flows through the Tort Claims Act to the Industrial Commission with up to $150,000 in exposure per claim. Without insurance, that award lands on the county. With insurance, the carrier pays the award up to policy limits, but someone has to pay the premium.

Before § 115D-31.1, the natural reading of § 115D-32(a)(2)b2 was that since local funds were responsible for the awards, local funds also had to fund the prevention (insurance premiums). That created a perverse incentive: counties might decline to buy insurance to avoid the up-front premium cost, leaving themselves exposed to occasional large awards. Section 115D-31.1 solved that problem by letting the college use state funds for the premium, which effectively shifts most of the insurance-purchase cost from county to state.

The "notwithstanding" drafting is also worth a moment. Statutory "notwithstanding" clauses are the legislature's clean way of overriding another provision without amending it. Section 115D-32(a)(2)b2 stays on the books unchanged, and the local-funding rule continues to apply to the tort awards themselves. Section 115D-31.1 just carves out the premium-payment piece. It is a precise, narrowly targeted override rather than a wholesale repeal.

Common questions

Could a college still pay tort awards directly out of local funds without buying insurance?

Yes. Section 115D-31.1 authorized state funds for premiums but did not require colleges to buy insurance. A college could go uninsured, in which case § 115D-32(a)(2)b2 makes the local tax-levying authority responsible for any awards. That self-insurance approach saves the premium but bears the full claim cost.

What if the premium exceeds the average expected claim cost?

The opinion did not address policy economics. From a public-finance perspective, the premium reflects the insurer's expected payout plus loading; over the long run, premiums exceed expected claims by the loading factor. The legislative choice to authorize state funds for premiums reflected a judgment that the risk-transfer benefit (predictable cost, large claims absorbed) was worth the loading.

Does this rule cover all kinds of liability insurance, or just tort-claim coverage?

Section 115D-58.12 governs insurance "to insure the community college against damages for injuries caused by its agents or employees acting within the scope of their employment." That language is broad enough to cover most general-liability and professional-liability coverages. Specialty coverages (cyber, directors-and-officers, etc.) might or might not fall under the same authority depending on how the policy is written and whether the damages it covers fit within the statutory scope.

Are public universities (UNC system) covered by the same rule?

No, this opinion addresses Chapter 115D community colleges specifically. Public universities are governed by separate statutes and have separate funding and insurance authority.

Source

Landing page: https://ncdoj.gov/opinions/community-college-use-of-state-funds-to-purchase-liability-insurance/

Citations

N.C. Gen. Stat. § 115D-24
N.C. Gen. Stat. § 115D-31.1
N.C. Gen. Stat. § 115D-32(a)(2)b2
N.C. Gen. Stat. § 115D-58.12
N.C. Gen. Stat. § 143-291 et seq.

Original opinion text

January 24, 1996

John Carter
P. O. Box 766
Jacksonville, NC 28541

Re: Advisory Opinion; Community Colleges Use Of State Funds To Purchase Liability Insurance; N.C. Gen. Stat. § 115D-31.1

Dear John:

Sometime ago you wrote on behalf of Coastal Carolina Community College to ask whether community colleges could use state funds to purchase liability insurance to cover, among other things, damages awarded against the community college for claims filed under the Tort Claims Act, N.C. Gen. Stat. § 143-291 et seq. It is our opinion that community colleges may use state funds to purchase such insurance.

Pursuant to N.C. Gen. Stat. § 143-291(a), community colleges and technical colleges are deemed to be State agencies for purposes of the Tort Claims Act. Accordingly, these colleges are subject to suit before the Industrial Commission for their negligent acts and the negligent acts of their officers, employees, agents and involuntary servants and may be held liable to claimants for up to $150,000 in damages. N.C. Gen. Stat. § 115D-32(a)(2)b2 provides that the tax-levying authority for each community college is responsible for appropriating funds to pay for "[a]ny tort claims awarded against the institution due to the negligence of the institutional employees."

Pursuant to N.C. Gen. Stat. § 115D-24 and § 115D-58.12, community colleges are authorized to purchase liability insurance to insure the community college against damages for injuries caused by its agents or employees acting within the scope of their employment. N.C. Gen. Stat. § 115D-58.12(e) expressly authorizes the board of trustees of a community college "to pay as a necessary expense the lawful premiums of liability insurance provided in this section."

The question of whether the board of trustees may use state funds as opposed to local funds to purchase such insurance is addressed in N.C. Gen. Stat. § 115D-31.1. That statute states:

Notwithstanding the provisions of G.S. 115D-32(a)(2)b2 and any other provision of the law to the contrary, boards of trustees of all institutions in this Chapter may use State funds to pay the lawful premiums of liability insurance as provided in this section.

It is our opinion that despite the fact N.C. Gen. Stat. § 115D-32(a)(2)b2 specifically obligates the community colleges to pay any tort claims awarded against them from local funds, in passing N.C. Gen. Stat. § 115D-31.1 the General Assembly intended to permit community colleges use state funds to purchase liability insurance to cover those awards.

Edwin M. Speas, Jr.
Senior Deputy Attorney General

Thomas J. Ziko
Special Deputy Attorney General