When a North Carolina insurance corporation files a conversion plan, can the Commissioner of Insurance hire outside experts to review it without going through the state's normal consultant-contract approval process?
Plain-English summary
In 1998 the General Assembly added a provision to the insurance code that lets the Commissioner of Insurance hire experts when an insurance corporation files a conversion plan (the legal vehicle by which a mutual or nonprofit insurer reorganizes into a stock company or otherwise changes its structure). Conversion-plan reviews are technically demanding, sometimes requiring actuarial, financial, and legal expertise the Department of Insurance does not have on staff. The General Assembly's solution: the corporation that wants to convert reimburses the Department for the actual cost of review, and the Commissioner is free to bring in outside experts on personal professional service contracts.
The 1998 statute included a sentence that mattered for this advisory opinion: "These contracts are personal professional service contracts exempt from Articles 3 and 3C of Chapter 143 of the General Statutes." Articles 3 and 3C are the chunk of state law that governs how state agencies buy goods and services, including the requirement that the Department of Administration's Office of Purchase and Contract sign off on consultant contracts and the requirement that the Governor approve consultant contracts in writing before they are awarded.
The question was a clean one. The Department of Insurance General Counsel asked whether the Commissioner could really skip the Department of Administration's contracting machinery, or whether another statute, N.C.G.S. § 58-2-25(a) which generally subjects DOI consultant contracts to Article 3C, defeated the exemption. Section 58-2-25(a) does carve out Articles 36 and 37 of Chapter 58 from Article 3C, but it does not mention Article 65, which contains the conversion-plan provisions.
The AG said yes, the Commissioner is exempt. Two reasons. First, the statutory language is unambiguous: "These contracts . . . are . . . exempt from Articles 3 and 3C." Under the long-standing North Carolina rule from Frye Regional Medical Center v. Hunt, when a statute is clear, courts give it its plain meaning. Second, even if there was a conflict between § 58-65-131(e) (specific) and § 58-2-25(a) (general), Food Stores v. Board of Alcoholic Control governs: where a specific statute and a general statute treat the same subject, the specific one wins, "a fortiori" when the specific statute was enacted later in time. Section 58-65-131(e) was added in 1998, more than twenty years after the consultant-contract scheme in Article 3C and seven years after the last revision of § 58-2-25(a).
The only obligation left on the Commissioner: keep the cost of the personal professional service contracts "reasonable and appropriate for the review of the plan." That is the explicit limit in § 58-65-131(e) itself, and it backstops the lost procedural oversight.
Currency note
This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The insurance code has been amended significantly since 2001, and the conversion plan provisions in N.C.G.S. § 58-65-131 may have been renumbered or revised. Verify the current language of § 58-65-131(e), § 58-2-25(a), and Articles 3 and 3C of Chapter 143 before relying on the exemption.
Background and statutory framework
The insurance conversion plan and why review is expensive. A "conversion plan" in this context is the legal restructuring document filed by a nonprofit, mutual, or hospital service corporation when it wants to convert into a stock company or otherwise change its corporate form. North Carolina's conversion review is meant to protect the value built up under the nonprofit or mutual form (often dedicated to public benefit) from being captured by the new ownership structure. The review accordingly demands actuarial valuation of the insurer's reserves, financial modeling of the post-conversion entity, and legal analysis of the public interest considerations. A state insurance department's permanent staff cannot routinely cover all of that internally. So the General Assembly created a mechanism that lets the regulator hire experts on a project basis, with the cost borne by the converting corporation.
Articles 3 and 3C of Chapter 143, and why the General Assembly bypassed them. Article 3 of Chapter 143 sets out the general statutory framework for state purchasing through the Department of Administration's Office of Purchase and Contract. Article 3C deals specifically with consultant contracts and adds a layer: no state agency may contract for consultant services unless the Governor approves the contract in writing, after finding (among other things) that the Department of Administration's rules have been complied with. Both regimes are oriented toward routine state purchasing and oversight; both are slow.
For conversion-plan review, the speed problem is real. A conversion plan triggers statutory deadlines (the corporation files at least 120 days before the proposed conversion date), and the regulator's review must be substantive enough to protect the public interest within that window. Running outside-expert contracts through Department of Administration approval and Governor sign-off would slow the process to the point of paralysis, especially for novel financial expert hires. The 1998 amendment to § 58-65-131 was designed to remove that bottleneck.
The rule of statutory construction at work. The AG opinion is a clean illustration of two principles North Carolina courts apply repeatedly: (1) plain meaning controls when the statute is clear, and (2) the specific governs the general. The opinion did not need to choose between these principles; both pointed the same way. But the second principle does most of the work when the conflict is between two statutes that seem to address the same thing. The Food Stores rule traces back to general common-law canons of construction and is uncontroversial in North Carolina jurisprudence.
The "a fortiori when the special act is later in point of time" addition matters because legislators rarely renumber or repeal older general statutes when they add specific exemptions. The result is a layered code where the latest specific provision sits on top of an older general provision that still appears to cover the same ground. Without the specific-controls-general rule, every such addition would require the General Assembly to also amend every other statute that touches the subject. The Food Stores principle saves the legislature that drafting burden.
Why § 58-2-25(a)'s omission did not defeat the exemption. The clever counterargument the opinion addressed was that § 58-2-25(a) (in which the Commissioner of Insurance is generally subjected to Article 3C for non-staff contracts) carves out only Articles 36 and 37 of Chapter 58, not Article 65. By naming some Article exceptions and not others, the General Assembly arguably signaled that Article 65 contracts were still within § 58-2-25(a)'s general rule. The opinion answered this by pointing out the timing: § 58-2-25(a) had not been amended since 1991, and the Article 65 exemption did not exist until 1998. The General Assembly cannot be deemed to have "omitted" a reference to a statutory exemption that did not exist when § 58-2-25(a) was last revised. Drafting silence, in other words, requires temporal awareness; you cannot read into a 1991 statute a deliberate refusal to mention a 1998 exemption.
The cost-reasonableness limit. The opinion was careful to note that the exemption is not unlimited. Section 58-65-131(e) itself caps "Contract costs for these personal professional services" at an amount that is "reasonable and appropriate for the review of the plan." This is the substantive limit that replaces the procedural Department of Administration oversight. It puts the Commissioner on the hook to defend the cost of any expert contract, presumably to legislative oversight committees and to the courts if challenged. It is not a strong constraint compared to the Article 3 / Article 3C machinery, but it is more than nothing.
Common questions
Q: What is a "conversion plan" in this context?
A: It is the legal restructuring document a mutual or nonprofit insurance corporation files when it wants to convert to a stock company or otherwise change its corporate form. The plan describes the new structure, how policyholder or member interests will be treated, and how value built up under the prior form will be allocated. North Carolina law requires the plan to be filed with the Commissioner and submitted to the Attorney General at least 120 days before the proposed conversion date.
Q: What kinds of experts does the Commissioner typically hire to review a conversion plan?
A: Actuaries (to value reserves and assess the financial soundness of the post-conversion entity), investment bankers or financial advisors (to value the corporation and assess the fairness of the share allocation), and outside counsel with insurance-conversion expertise (to advise on legal sufficiency of the plan). Specific hires depend on the size and complexity of the proposed conversion.
Q: Who pays for the expert review?
A: The corporation filing the conversion plan, or the new corporation that results from the conversion, must reimburse the Department of Insurance and the Attorney General's office for actual review costs. N.C.G.S. § 58-65-131(e). The cost is not paid out of general appropriations.
Q: Does this exemption mean the Commissioner can hire whomever, at whatever price, with no oversight?
A: No. The statute itself caps the cost at "an amount that is reasonable and appropriate for the review of the plan." That cap is enforceable through legislative oversight and, in principle, through litigation if the converting corporation believes it has been over-billed. The exemption removes the Department of Administration's procedural pre-approval, not all accountability.
Q: Why didn't the General Assembly just amend Article 3C to add a general "expert review of insurance conversions" exception?
A: That approach would have required carving out a narrow exception in a statute of general application, which is technically harder and politically harder than adding a self-contained exemption to the specific insurance code provision. Drafters preferred a contained solution that lives next to the substantive conversion-plan statute. The result is the layered code that this AG opinion had to interpret.
Q: Does this opinion mean state agencies can exempt themselves from Article 3C whenever they say so?
A: No. The exemption here is a statutory exemption, enacted by the General Assembly. Only the General Assembly can exempt an agency or a class of contracts from Article 3C. A state agency cannot self-exempt by interpretation. The opinion's holding is narrow: where the General Assembly has enacted a specific statutory exemption (§ 58-65-131(e)), that specific exemption prevails over a more general statute (§ 58-2-25(a)) that does not mention it.
Q: How does this affect insurance companies considering conversion in North Carolina?
A: Practically, it means review timelines are not driven by Department of Administration contracting delays. The Commissioner can move quickly to retain the experts needed for review. The cost is reimbursed by the corporation, so the conversion process is somewhat self-funded from the regulator's perspective.
Citations
Statutes
- N.C.G.S. § 58-65-131(e) — filing of insurance conversion plans; reimbursement of review costs; personal professional service contracts exempted from Articles 3 and 3C of Chapter 143.
- N.C.G.S. § 58-2-25(a) — general rule subjecting Department of Insurance contracts to Article 3C of Chapter 143, with carve-outs for Articles 36 and 37 of Chapter 58.
- N.C.G.S. § 143-64.20(b) — general requirement that no state agency contract for consultant services without prior written approval of the Governor.
- N.C.G.S. § 143-64.21(5) — Governor must find that all Department of Administration rules have been or will be complied with before approving a consultant contract.
- Articles 3 and 3C of Chapter 143 — general state purchasing and consultant-contract statutes.
Cases
- Frye Regional Medical Center v. Hunt, 350 N.C. 39, 510 S.E.2d 159 (1999) — North Carolina Supreme Court rule that statutes with clear language must be given their plain meaning.
- Food Stores v. Board of Alcoholic Control, 268 N.C. 624, 151 S.E.2d 582 (1966) — specific statute prevails over general statute when both deal with the same subject, especially when the specific statute is later in time.
Source
Original opinion text
Reply to: SUE Y. LITTLE INSURANCE SECTION
(919) 716-6610 FAX: (919) 716-6757
August 24, 2001
Peter A. Kolbe
General Counsel
North Carolina Department of Insurance
Post Office Box 26387
Raleigh, North Carolina 27611-6387
Re: Advisory Opinion; Exemption of Department of Insurance from Articles 3 and 3C, Chapter 143 of the North Carolina General Statutes
Dear Mr. Kolbe:
In a memorandum, dated August 2, 2001, and addressed to Ted Williams, Special Deputy Attorney General, you requested the assistance of this Office in resolving an issue "concerning the Department of Insurance's engagement of individuals under personal professional services contracts." Your specific question is whether certain language included within N.C.G.S. § 58-65-131(e) allows the Commissioner of Insurance to avoid the "requirements typically imposed by the Department of Administration's Office of Purchase and Contract."
Based upon the following analysis, it is our conclusion that the answer to your question is "yes."
N.C.G.S. § 58-65-131(e) provides as follows:
Filing Conversion Plan; Costs of Review.—A corporation shall file a plan for conversion with the Commissioner and submit a copy to the Attorney General at least 120 days before the proposed date of conversion. The corporation or the new corporation shall reimburse the Department of Insurance and the office of the Attorney General for the actual costs of reviewing, analyzing, and processing the plan. The Commissioner and the Attorney General may contract with experts, consultants, or other professional advisors to assist in reviewing the plan. These contracts are personal professional service contracts exempt from Articles 3 and 3C of Chapter 143 of the General Statutes. Contract costs for these personal professional services shall not exceed an amount that is reasonable and appropriate for the review of the plan.
(Emphasis added.)
Purchases and contracts made by State agencies in general are governed by Article 3 of Chapter 143 of the North Carolina General Statutes. Contracts entered into by a State agency to obtain consultant services are specifically addressed in Article 3C of that Chapter. Subsection (b) of N.C.G.S. § 143-64.20 mandates, in pertinent part, that "[n]o State agency shall contract to obtain services of a consultant or advisory nature unless the proposed contract has been justified to and approved in writing by the Governor of North Carolina . . .." The Governor must make certain findings before granting written approval of a contract to obtain consultant services, including a finding "[t]hat all rules and regulations of the Department of Administration have been or will be complied with." N.C.G.S. § 143-64.21(5).
There are exceptions to these requirements. One such exemption, in clear and unambiguous language, is found in N.C.G.S. § 58-65-131(e): "These contracts [with experts, consultants, or other professional advisors] are personal professional service contracts exempt from Articles 3 and 3C of Chapter 143 of the General Statutes."
"Where the language of a statute is clear, the courts must give the statute its plain meaning . . .." Frye Reg'l Med. Ctr. v. Hunt, 350 N.C. 39, 45, 510 S.E.2d 159 (1999). Subsection (e) of N.C.G.S. § 58-65-131, moreover, became effective in 1998, over twenty years after the enactment of Article 3C of Chapter 143.
It should be noted that a potential conflict exists between subsection (e) of N.C.G.S. § 58-65-131 and another provision of Chapter 58. N.C.G.S. § 58-2-25(a) provides, in pertinent part, as follows:
If the Commissioner considers it to be necessary for the proper execution of the work of the Department to contract with persons, except to fill authorized employee positions, all of those contracts, except those provided for in Articles 36 and 37 of this Chapter, shall be made pursuant to the provisions of Article 3C of Chapter 143 of the General Statutes.
(Emphasis added.)
Although subsection (a) of N.C.G.S. § 58-2-25 omits reference to Article 65, that omission is not fatal. The section of Article 65 that is the subject of this advisory opinion was not enacted until 1998. There has been no revision to subsection (a) of N.C.G.S. § 58-2-25 since 1991.
Assuming arguendo that a conflict exists between the two statutes, that conflict can be resolved by a well-established rule of statutory construction:
Where there is one statute dealing with a subject in general and comprehensive terms, and another dealing with a part of the same subject in a more minute and definite way, the two should be read together and harmonized, if possible, with a view to giving effect to a consistent legislative policy; but, to the extent of any necessary repugnancy between them, the special statute, or the one dealing with the common subject matter in a minute way, will prevail over the general statute . . . unless it appears that the legislature intended to make the general act controlling; and this is true a fortiori when the special act is later in point of time . . ..
Food Stores v. Board of Alcoholic Control, 268 N.C. 624, 628-29, 151 S.E.2d 582 (1966). (Emphasis in original.)
If N.C.G.S. § 58-2-25(a) is considered to be a general statute regarding the Department's contracts to obtain consultant services, and if N.C.G.S. § 58-65-131(e) is considered as a specific statute regarding such contracts, then the latter statute should prevail in this analysis. In accordance with the language of N.C.G.S. § 58-65-131(e), the personal professional service contracts described therein are exempt from the requirements of Articles 3 and 3C of Chapter 143 of the General Statutes.
In summary, we conclude that the Commissioner of Insurance has the statutory authority, pursuant to N.C.G.S. § 58-65-131(e), to contract with experts, consultants, or other professional advisors to review conversion plans without adhering to the requirements set forth in Articles 3 and 3C of Chapter 143 of the General Statutes. The only statutory requirement that must be met by the Commissioner is that the costs for the personal professional service contracts "shall not exceed an amount that is reasonable and appropriate for the review of the plan." N.C.G.S. § 58-65-131(e).
We hope that this advisory opinion will be useful to you. Please let us know if you have additional questions concerning this matter.
Very truly yours,
Reginald L. Watkins
Senior Deputy Attorney General
Sue Y. Little
Assistant Attorney General