Can the Grand River Dam Authority add private subcontractors as additional insureds on its builder's risk insurance policy?

Plain-English summary

Article X, § 23 of the Oklahoma Constitution forbids the State from creating debt or obligations beyond current revenue. A 2007 AG opinion read that prohibition broadly to bar state agencies from naming private contractors as additional insureds on agency-paid insurance policies, the theory being that doing so amounted to indemnifying private parties with state money.

The Grand River Dam Authority asked the AG to revisit that conclusion. GRDA was building a new natural-gas-fired electricity generation unit at the Grand River Energy Center. As the general contractor on the EPCM project, GRDA needed builder's risk insurance, and its subcontractors, following standard industry practice, wanted to be added as additional insureds.

AG Drummond looked at two old Oklahoma Supreme Court cases: Sheldon v. GRDA (1938) and State ex rel. Kerr v. GRDA (1945). Both held that GRDA is a "self-liquidating" agency. It does not collect taxes and its enabling statute (82 O.S. § 861) explicitly says GRDA cannot pledge the State's credit or create indebtedness payable from State tax revenue.

Because GRDA is not within the class of agencies whose obligations could ever become State debts under art. X, § 23, the constitutional debt limit does not apply to GRDA. So GRDA can add subcontractors as additional insureds on its builder's risk policy.

The 2007 AG opinion is overruled, but only for GRDA. Other state agencies funded by tax revenue are still subject to the constitutional prohibition and cannot use public funds to indemnify private contractors.

What this means for you

If you contract with GRDA on a construction project

You can be added as an additional insured on GRDA's builder's risk policy. This matches the industry standard and removes a friction point in negotiating with GRDA on EPCM and similar projects. Note this is first-party coverage for materials and property during construction; you remain responsible for your own commercial general liability covering third-party negligence claims.

If you are GRDA general counsel or a procurement officer

You can write contracts that name subcontractors as additional insureds on builder's risk policies for first-party construction-period coverage. The opinion expressly authorizes this because GRDA is self-liquidating. Document the contract clearly: builder's risk policy is for property and materials during construction; it does not pay for third-party claims, which the subcontractor must cover separately.

If you contract with another state agency (ODOT, OMES, university, etc.)

The 2007 opinion still controls you. State agencies funded by appropriations from tax revenue cannot include private entities as additional insureds on insurance policies purchased with public funds. The prohibition is grounded in art. X, § 23's bar on creating state debt or obligations.

If you are an insurance broker for state contracts

Distinguish carefully between GRDA and other state agencies. For GRDA construction projects, builder's risk policies with subcontractor additional insureds are now lawful. For other state agency projects, structure the program to avoid additional-insured endorsements paid for by the agency.

If you are an attorney for a state agency considering similar self-liquidating arguments

The opinion is narrow. The Sheldon/Kerr framework requires (a) a statutory bar on pledging State credit or creating indebtedness from tax revenue, and (b) operations entirely supported by self-generated revenue. Quasi-governmental agencies that meet both tests may have a basis to argue they are also outside art. X, § 23.

Common questions

Q: Why is GRDA different from other state agencies?
A: GRDA generates and sells electricity. Its revenue comes from electric customers, not from state appropriations. The legislature explicitly forbade GRDA from pledging the State's credit. Both Sheldon (1938) and Kerr (1945) held that this puts GRDA outside the class of agencies whose obligations could ever become State debts.

Q: Does this mean GRDA can take on unlimited debt?
A: Not unlimited, but its bond authority and operating constraints come from its enabling statute, not from art. X, § 23. The constitutional debt limit just doesn't apply to GRDA.

Q: What types of insurance policies does this opinion cover?
A: The opinion specifically addresses builder's risk policies: first-party property coverage during construction. The same logic likely extends to other property and casualty policies where GRDA is the named insured and the construction project is the covered risk.

Q: Is this a major change in Oklahoma public-construction practice?
A: Yes for GRDA projects. The 2007 opinion blocked an industry-standard practice for nearly 17 years, forcing GRDA-side workarounds that complicated subcontractor negotiations. This opinion realigns GRDA with national construction-industry norms.

Q: Could this be extended to public trusts and similar quasi-governmental entities?
A: Possibly, on a case-by-case analysis. The test is whether the entity is genuinely self-liquidating and whether its enabling statute bars it from pledging State credit. Public trusts vary widely in their structure and funding sources.

Background and statutory framework

GRDA was created in 1935 as a "conservation and reclamation district" to develop the water resources of the Grand River basin. It now operates as a public power authority, generating electricity from hydropower (Pensacola Dam, Kerr Dam, Salina Pumped Storage), coal (until recent retirement of GRDA-2), and natural gas.

Its enabling statute, 82 O.S. § 861, says nothing in the Act authorizes the District to "levy or collect taxes or assessments, or to create any indebtedness payable out of taxes or assessments, or in any manner to pledge the credit of the State of Oklahoma, or any subdivision thereof."

In Sheldon v. GRDA (1938), the Oklahoma Supreme Court held that GRDA is a self-liquidating agency. In State ex rel. Kerr v. GRDA (1945), the Court held that as a self-liquidating agency, GRDA "is not within the class of agencies embraced within the terms of article X, section 23 and thus not subject to the provisions of the amendment restricting its power to incur indebtedness of its own volition."

Article X, § 23 prohibits creating State "debt or obligation, or fund or pay any deficit, against the state, or any department, institution or agency thereof." Read with Sheldon and Kerr, GRDA is outside that prohibition because GRDA's obligations never become debts of the State.

The 2007 AG opinion (2007 OK AG 41) had relied on the broader reading of art. X, § 23 to bar state agencies from indemnifying private contractors. The 2024 opinion overrules 2007 OK AG 41 only as to GRDA; for other tax-supported agencies, the 2007 opinion remains in effect.

Citations and references

Constitution:
- Okla. Const. art. X, § 23: State debt limitation

Statutes:
- 82 O.S.2021, § 861: GRDA enabling statute (no pledge of State credit)

Cases:
- Sheldon v. Grand River Dam Auth., 1938 OK 76, 76 P.2d 355, GRDA is self-liquidating
- State ex rel. Kerr v. Grand River Dam Auth., 1945 OK 9, 154 P.2d 946, GRDA outside art. X, § 23

Prior AG opinions:
- 2006 OK AG 11 (limited overruling)
- 2007 OK AG 41 (overruled as to GRDA only)
- 2012 OK AG 18 (limited overruling of 2006 opinion)

Source

• Landing page: https://oklahoma.gov/oag/opinions/ag-opinions/2024/ag-opinion-2024-9.html
• Original PDF: https://oklahoma.gov/content/dam/ok/en/oag/opinions/ag-opinions/2024/AG Opinion 2024-9 AGO-24-10.pdf

Original opinion text

GENTNER DRUMMOND
ATTORNEY GENERAL
ATTORNEY GENERAL OPINION
2024-9
Daniel S. Sullivan
Chief Executive Officer
Grand River Dam Authority
9933 E. 16th St.
Tulsa, OK 74128

June 14, 2024

Dear Mr. Sullivan:
This office has received your request for an official Attorney General Opinion in which you ask,
in effect, the following question:
Consistent with Oklahoma law, may the Grand River Dam Authority
(“GRDA”) include private entities as additional insureds on a builder’s risk
insurance policy as consideration for the goods and services that the private
entities will be providing under contracts?
I.

SUMMARY
Nearly eighty years ago, the Oklahoma Supreme Court held that GRDA is a self-liquidating agency
not within the class of agencies subject to article X, section 23 of the Oklahoma Constitution and
thus not subject to the indebtedness restriction in section 23. State ex rel. Kerr v. Grand River Dam
Auth., 1945 OK 9, ¶ 15, 154 P.2d 946, 950. However, 2007 OK AG 41 (the “2007 opinion”)
determined that the indebtedness restriction in article X, section 23 of the Oklahoma Constitution
prohibits state agencies from insuring suppliers in state contracts. Through its limited overruling
of 2006 OK AG 11, 2012 OK AG 18 (the “2012 opinion”) did not affect the 2007 opinion and, in
fact, reaffirmed the constitutional prohibition on third-party indemnification of private entities.
Nonetheless, this office now concludes that GRDA may include private entities as additional
insureds on a builder’s risk insurance policy when GRDA acts as the general contractor and only
provides first-party coverage to materials and property during the period of construction. As a
result, the 2007 opinion is overruled as to GRDA only.
II.
BACKGROUND
Your request details GRDA’s plan to construct a natural gas-fired electricity generation unit at the
Grand River Energy Center. GRDA will serve as the general contractor under an EPCM 1
1

The acronym, EPCM, stands for engineering, procurement, and construction management.
313 N.E. 21ST STREET • OKLAHOMA CITY, OK 73105 • (405) 521-3921 • Fax: (405) 521-6246

Daniel S. Sullivan, Chief Executive Officer
Grand River Dam Authority

A.G. Opinion
Page 2

agreement during the construction. As the general contractor, GRDA will contract directly with
the subcontractors to supply services, equipment, and materials supporting the construction
project. To this end, GRDA asserts that it, as the property owner and general contractor, is
responsible for maintaining builder’s risk insurance coverage. According to your request, the
subcontractors demanded to be included as additional insureds to GRDA’s builder’s risk insurance
policy. Your request also asserts that including subcontractors as additional insureds to a builder’s
risk insurance policy is a standard industry practice and an expectation of the subcontractors. In
your request, you further stated all subcontractors will be required to maintain their own
commercial general liability insurance to cover third-party claims arising from their negligence.
In 2007, this office determined that GRDA may not include a private entity as an additional insured
on an insurance policy purchased with public funds. 2007 OK AG 41, ¶ 27. That opinion relied on
a 2006 opinion, which you assert was “largely overruled” in 2012. Accordingly, you asked whether
the conclusion reached in the 2007 opinion is correct, and more specifically, if the GRDA can
include a subcontractor as an additional insured on GRDA’s builder’s risk insurance policy. As a
result, this office must examine article X, section 23 of the Oklahoma Constitution (a focal point
for the 2007 opinion’s determination), 2006 OK AG 11, the 2012 opinion, and two Oklahoma
Supreme Court cases.
III.
DISCUSSION
Your request inquires whether the 2007 opinion incorrectly determined that GRDA’s inclusion of
an additional insured violates article X, section 23 of the Oklahoma Constitution, which states:
The state shall never create or authorize the creation of any debt or obligation, or
fund or pay any deficit, against the state, or any department, institution or agency
thereof, regardless of its form or the source of money from which it is to be paid,
except as may be provided in this section and in Sections 24 and 25 of Article X of
the Constitution of the State of Oklahoma.
OKLA. CONST. art. X, § 23.
The Oklahoma Supreme Court found in Sheldon v. Grand River Dam Authority that GRDA is a
self-liquidating agency. 1938 OK 76, ¶ 20, 76 P.2d 355, 362. The Court based this determination
on GRDA’s enabling statute, which states:
[N]othing in this Act or in any other Act or law contained, however, shall be
construed as authorizing the District to levy or collect taxes or assessments, or to
create any indebtedness payable out of taxes or assessments, or in any manner to
pledge the credit of the State of Oklahoma, or any subdivision thereof.
Id. (citing Act of Apr. 26, 1935, ch. 70, art. IV, Sess. L. 1935 (codified at 82 O.S. § 861). Further,
the Court found that GRDA’s enabling act does not pledge “any revenues derived from taxation,
either on an ad valorem basis or by special taxes” and that “[i]n the event of the failure of revenues
from the properties to be acquired by the District, the state is under no obligation to make up the
loss.” Id. The same language cited by the Court to reach this conclusion in GRDA’s enabling statute
remains law today. See 82 O.S.2021, § 861.

Daniel S. Sullivan, Chief Executive Officer
Grand River Dam Authority

A.G. Opinion
Page 3

In Kerr, the Oklahoma Supreme Court held that as a self-liquidating agency, GRDA is not within
the class of agencies embraced within the terms of article X, section 23 and thus not subject to the
provisions of the amendment restricting its power to incur indebtedness of its own volition. Kerr,
1945 OK 9, ¶¶ 14–18, 154 P.2d at 950. The Court held that revenue as used in article X, section
23 refers to “revenue provided under the taxing power of the State, and the word ‘obligations’ has
reference to an indebtedness for the payment of which resort, previous to such amendment, might
properly be had to the taxing power of the State.” Id. ¶ 15. As such, GRDA does not “operate in
whole or in part on State revenue as defined and [its] obligations cannot become debts of the State
[and thus] are not within the purview of said provisions of the amendment inhibiting creation of
indebtedness in excess of current revenue.” Id.
Unlike other state agencies supported by appropriations sourced from the State’s taxing power,
GRDA is a self-liquidating agency. As set forth above, the Oklahoma Supreme Court’s rulings in
Kerr and Sheldon declare that GRDA does not fall within the class of government agencies subject
to article X, section 23 and is thus not constrained by its limitations.2 Though the office concludes
in this opinion that GRDA should not be subject to the 2007 opinion, all government agencies
supported by the State’s taxing power, and are thus bound by the debt limitation restrictions under
article X, section 23, remain subject to the 2007 opinion.
It is, therefore, the official Opinion of the Attorney General that:
The Sheldon and Kerr holdings preclude application of article X, section 23,
including its debt limitation restrictions, on GRDA. The 2007 opinion is
overruled to the extent that it conflicts with this opinion’s conclusion as to
GRDA only. The 2007 opinion remains in effect for all other government
agencies supported by the State’s taxing power and thus bound by the debt
limitation restrictions of article X, section 23.

GENTNER DRUMMOND
ATTORNEY GENERAL OF OKLAHOMA
JAMES L. CRAWFORD
ASSISTANT ATTORNEY GENERAL

As a result of this conclusion, GRDA would be permitted to add subcontractors as additional insureds on a
builder’s risk policy.
2