Can the State of Oklahoma or one of its political subdivisions (counties, cities, school districts) form and own a captive insurance company to self-insure against its own risks, without violating the Oklahoma Constitution's bans on state ownership of private companies?

Plain-English summary

Insurance Commissioner Glen Mulready and Representative Jason Blair asked the AG whether Oklahoma's Constitution allows the State and its political subdivisions (counties, cities, school districts) to own "captive insurance companies."

A captive insurance company is a subsidiary insurer covering the risks of its parent and related entities. The opinion cites laws in Arkansas, Illinois, and Iowa permitting public entities to use captives. The Oklahoma Captive Insurance Company Act, 36 O.S. §§ 6470.1 through 6470.35, regulates captives in the state.

The constitutional question arose because article X, section 15 says the State "shall not become an owner or stockholder in, nor make a donation by gift, subscription to stock, by tax, or otherwise, to any company, association, or corporation," and section 17 imposes a parallel ban on political subdivisions.

Attorney General Drummond's answer: section 15 does not bar the State from creating and owning such a captive, and section 17 does not bar the Legislature from permitting political subdivisions to do so. The point of sections 15 and 17 is to "prevent the investment of public funds in private enterprises." A wholly state-owned captive does not divert public funds to a private interest; it manages public risk with public funds.

The AG's reasoning leans on Lawrence v. Schellstede, 1960 OK 10, where the Oklahoma Supreme Court held that mere membership in a mutual insurance company by the City of Tulsa did not violate section 17. The Court refused to "unduly extend[] the scope of the constitutional limitation" to disallow standard public business that does not risk public funds being used for private benefit. The AG read that as fitting the captive insurance situation.

The opinion comes with three significant caveats:

1. Avoid private-interest entanglement. If a public-entity captive includes private interests, sections 15 and 17 may apply. AGs in Ohio (2021), Nebraska (1994), and Mississippi (1987) reached opposite conclusions when private parties were involved. The State and political subdivisions must carefully structure a captive to avoid private participation or entanglement.

2. State-credit concerns for subdivision captives. If the State's credit is used to facilitate a political subdivision's captive insurer, a separate section 15(A) concern may arise. Footnote 5 cites In re Okla. Cap. Improvement Auth. and Reherman v. Okla. Water Res. Bd. as cautions about State financing for municipalities.

3. Statutory trusts are different. Footnote 3 says trusts are not listed in sections 15 and 17 and that 60 O.S. § 176 authorizes public trusts for proper public functions. It leaves other questions about a trust providing captive insurance unresolved.

The opinion does not approve any specific transaction or decide whether other statutory or constitutional provisions apply. It also does not choose an entity form for a public captive.

What this means for you

If you work for a State agency considering a captive

The opinion says article X, section 15 does not, by itself, prohibit the State from creating and owning a captive that insures its own risks. The analysis assumes public ownership and no use of public funds for private interests. Examine the proposed ownership, insured risks, and any participation by private parties before relying on that conclusion. The opinion leaves other statutory and constitutional provisions, licensing details, and the choice of entity form for separate review.

Footnote 5 raises a particular caution if State credit would support a captive benefiting a political subdivision. It cites decisions concerning State bonds issued for a municipality and a State instrumentality's guarantee of a municipal obligation. The opinion does not assess any proposed financing structure.

If you advise a county, city, or school district

The opinion concludes that article X, section 17 does not prevent the Legislature from enacting laws permitting political subdivisions to create and own captives for their own risks. Footnote 4 says the term includes school districts for this analysis. Check whether applicable law authorizes the specific public body and transaction; the opinion expressly does not decide that question. It cautions against participation by or entanglement with private interests.

If you work on proposed legislation

The requesters said the opinion might inform a bill permitting public captives. The Attorney General says no draft bill was reviewed. The constitutional analysis addresses State and subdivision ownership of captives for their own risks, while leaving other legal requirements open. A bill's chosen entity form, ownership rules, and any State backing for subdivision captives require their own review under the limits the opinion describes.

If you are an insurance or risk adviser

The opinion describes the Oklahoma Captive Insurance Company Act as requiring a license, organizational documents, financial information, a feasibility study, and a business plan, followed by reporting and examination. It does not decide whether a specific public applicant qualifies for a license. The opinion also identifies a public trust as a different legal form: footnote 3 says sections 15 and 17 do not list statutory trusts, but other questions about a trust used for captive insurance may remain.

Common questions

Q: Does this opinion authorize a county to form a captive immediately? A: It holds that article X, section 17 does not bar the Legislature from permitting a county or other political subdivision to do so. It does not decide what other statutory authority a county needs or whether a particular plan qualifies.

Q: May the State itself create a captive for its own risk?
A: Article X, section 15 does not prohibit that ownership by itself, according to the opinion. Other laws and the design of the specific captive still need examination.

Q: What if private parties take part in the captive?
A: The opinion warns that a captive involving private interests can raise the constitutional concerns addressed by sections 15 and 17. It cites other states' opinions involving private captives or private interests and directs public bodies to avoid participation by or entanglement with private interests.

Q: Does the opinion approve pooling among several public bodies?
A: It does not evaluate a specific multi-owner arrangement. Its analysis assumes a captive wholly owned by the State or a political subdivision and insuring that body's risk. It also warns about State credit used to facilitate a subdivision captive.

Q: Is a statutory trust treated the same as a corporation?
A: No. Footnote 3 says statutory trusts are absent from the entity lists in sections 15 and 17 and can be formed for authorized public functions under 60 O.S. § 176. The opinion says other questions may remain if a public trust is used to provide captive insurance.

Q: Did the Attorney General decide licensing under the Captive Insurance Company Act? A: No. The opinion describes that Act but says it addresses only the requested constitutional provisions. It neither reviews a license application nor decides whether another statute permits a proposed captive.

Background and statutory framework

The Oklahoma Captive Insurance Company Act licenses and regulates captives. The opinion describes a captive as a subsidiary insurer that covers the risks of its parent and related entities. It says the Act requires applicants to provide organizational and financial information, a feasibility study, and a business plan, and subjects licensed captives to annual reporting and examination.

Article X, section 15 restricts State credit, ownership, and donations to specified entities; section 17 places a parallel limit on political subdivisions. The opinion reads these provisions through Oklahoma cases that describe their purpose as preventing public investment in private enterprises. It relies especially on Lawrence v. Schellstede, which held that a city's membership in a mutual insurer did not itself violate section 17.

For a captive wholly owned by the State or a political subdivision to insure its own risks, the opinion reasons that the public money serves the owner's insurance needs rather than a private interest. It concludes that section 15 does not prohibit State ownership and section 17 does not prevent the Legislature from authorizing subdivision ownership. It warns that private participation and some State-credit arrangements can change the analysis, and expressly leaves other legal questions open.

Citations and references

Constitutional provisions:

• Okla. Const. art. X, § 15 (State credit and ownership prohibition)
• Okla. Const. art. X, § 17 (Political subdivision parallel)

Statutes:

• 36 O.S. §§ 6470.1 to 6470.35 (Oklahoma Captive Insurance Company Act)
• 60 O.S. § 176 (Public trusts)
• 74 O.S. § 85.58A (OMES risk management)

Cases:

• Lawrence v. Schellstede, 1960 OK 10, 348 P.2d 1078
• Tulsa Stockyards, Inc. v. Clark, 2014 OK 14, 321 P.3d 185
• In re Okla. Dev. Fin. Auth., 2004 OK 26, 89 P.3d 1075
• In re Okla. Cap. Improvement Auth., 2012 OK 99, 289 P.3d 1277

Other state AG opinions (cited as cautionary contrasts):

• Ohio Op. Atty. Gen. No. 2021-24 (2021)
• Neb. Op. Atty. Gen. No. 94045 (1994)
• Miss. A.G. Opin., 1987 WL 121805 (1987)

Source

• Landing page: https://oklahoma.gov/oag/opinions/ag-opinions/2025/18.html
• Original PDF: https://oklahoma.gov/content/dam/ok/en/oag/opinions/ag-opinions/2025/AG%20Opinion%202025-18.pdf

Original opinion text

GENTNER DRUMMOND
ATTORNEY GENERAL
ATTORNEY GENERAL OPINION
2025-18

The Honorable Glen Mulready
December 16, 2025
Insurance Commissioner
Oklahoma Insurance Department
400 N.E. 50th St.
Oklahoma City, OK 73105

The Honorable Jason Blair
Oklahoma House of Representatives, District 53
2300 N. Lincoln Blvd., Rm. 546
Oklahoma City, OK 73105

Dear Commissioner Mulready and Representative Blair:

This office has received your request for an Attorney General Opinion in which you ask, in effect, the following questions:

1. Does article X, section 15 of the Oklahoma Constitution prohibit the State of
   Oklahoma from creating and owning a captive insurance company, as the
   term is used in the Oklahoma Captive Insurance Company Act, 36 O.S.2021
   & Supp.2022, §§ 6470.1–6470.35?

2. Does article X, section 17 of the Oklahoma Constitution prohibit the
   Legislature from enacting laws to permit a political subdivision of the State of
   Oklahoma to create and own a captive insurance company, as the term is used
   in the Oklahoma Captive Insurance Company Act, 36 O.S.2021 & Supp.2022,
   §§ 6470.1–6470.35?

                                             I.
                                        SUMMARY
   

The answer to both questions is no. While sections 15 and 17 of Article X of the Oklahoma Constitution prohibit the State and its political subdivisions from owning a “company, association, or corporation,” this prohibition is intended to prevent public aid to or investment in private entities. A captive insurance company wholly owned by the State or a political subdivision, and existing only to insure against that body’s risk exposure, does not implicate these concerns. However, this Opinion is subject to the caveats set forth in Section III, infra.

313 N.E. 21ST STREET • OKLAHOMA CITY, OK 73105 • (405) 521-3921 • FAX: (405) 521-6246

The Honorable Glen Mulready and Jason Blair A.G. Opinion Insurance Commissioner and Oklahoma House of Representatives Page 2

II.
BACKGROUND

A general definition of “captive insurance company” is as follows:

A “captive insurance company” is a risk-financing method or form of self-insurance involving the establishment of a subsidiary corporation or association organized to write insurance. Captive insurance companies operate just like ordinary insurers in nearly every respect, however, their distinguishing feature is that they may only cover the risks of their parent companies and related entities.

JORDAN PLITT, ET AL., COUCH ON INSURANCE § 39:2 (3d ed. Dec. 2025 update), Westlaw COUCH. See also Captive insurance, BLACK’S LAW DICTIONARY (12th ed. 2024) (defining “captive insurance” as “[i]nsurance that provides coverage for the group or business that established it”). Utilizing a captive insurance company “can bring tax, economic, and commercial benefits including access to reinsurance markets,” while at the same time providing a means “to insure risks that are otherwise difficult to insure on the traditional insurance market.” COUCH ON INSURANCE § 39:2; ROBERT PERSONS & KEN BROWNLEE, EXCESS LIABILITY: RIGHTS AND DUTIES OF COMMERCIAL RISK INSUREDS AND INSURERS pt. 1, § 3:24 (Apr. 2025 update), Westlaw EXLINS (listing the reduction of administrative and legal costs, predictability of premiums, and control over claims-handling philosophy as benefits of captive insurance companies).

Oklahoma is one of several states that license and regulate captive insurers. The Oklahoma Captive Insurance Company Act (“Act”) requires captive insurance companies 1 seeking to do business in Oklahoma to obtain a license from the Insurance Commissioner (“Commissioner”) and maintain a registered office and agent in Oklahoma. 36 O.S.Supp.2022, § 6470.3(B). To obtain a license, a captive insurer must file with the Commissioner, among other things, its organizational documents, 2 evidence of its financial condition, a feasibility study, and a business plan. Id. § 6470.3(C)(1). Once licensed, that captive insurer is subject to oversight by the Commissioner, including annual reporting and regulatory examination. 36 O.S.2021, §§ 6470.11, 6470.13.

In your request, you state that public bodies—both state entities and political subdivisions—have increasingly considered forming their own captive insurance companies as an alternative to the private insurance market or other providers. Indeed, several states have enacted statutes specifically allowing the state or its political subdivisions to do exactly that. See, e.g., ARK. CODE ANN. § 19-3-506; 215 ILL. COMP. STAT. 5/123C-1(B), (I); IOWA CODE § 521J.1(31). To determine whether Oklahoma can do the same, you have asked whether certain provisions of the Oklahoma Constitution prohibit the State or its political subdivisions from owning a captive insurance company.

1
The Act defines “captive insurance company” simply by reference to the seven types of captive insurers that may be formed and/or licensed under the Act. 36 O.S.Supp.2022, § 6470.2. Broadly speaking, the types differ based on their business structure and the entities they insure. Id.
2
A captive insurance company may be organized as a corporation, limited liability company, partnership, statutory trust, or any other lawful form approved by the Commissioner. 36 O.S.2021, § 6470.10(A).

The Honorable Glen Mulready and Jason Blair A.G. Opinion Insurance Commissioner and Oklahoma House of Representatives Page 3

III.
DISCUSSION

Before turning to this question, it is important to understand what this Opinion does not address. First, you advised that this Opinion may inform proposed legislation to specifically allow the State or a political subdivision to form and own a captive insurance company. However, this office has not reviewed or provided input on any draft bills. Second, this Opinion does not address whether any other statutory or constitutional provisions bear upon the question of a State or a political subdivision forming and owning a captive insurance company. Only the provisions you asked this office to consider are addressed in this Opinion. And third, this Opinion does not reach the question of whether any particular entity form—e.g., stock or nonstock corporation, LLC, or similar— would be more or less appropriate to serve as a captive insurance company for the State or a political subdivision.3

Turning now to the constitutional provisions referenced in your request, article X, section 15 of the Oklahoma Constitution provides, in pertinent part, as follows:

[T]he credit of the State shall not be given, pledged, or loaned to any individual, company, corporation, or association, municipality, or political subdivision of the State, nor shall the State become an owner or stockholder in, nor make a donation by gift, subscription to stock, by tax, or otherwise, to any company, association, or corporation.

OKLA. CONST. art. X, § 15(A) (emphasis added). Similarly, article X, section 17 prohibits the Legislature from “authoriz[ing] any county or subdivision thereof, city, town, or incorporated district, to become a stockholder in any company, association, or corporation, or to obtain or appropriate money for, or levy any tax for, or to loan its credit to any corporation, association, or individual.” OKLA. CONST. art. X, § 17. These are simply two versions of the same prohibition: section 15 applies against the State, and section 17 against political subdivisions. 4 In re Okla. Dev. Fin. Auth., 2004 OK 26, ¶ 21 n.12, 89 P.3d 1075, 1082 n.12; In re Pet. Of Univ. Hospitals Auth., 1997 OK 162, ¶ 19, 953 P.2d 314, 320. Together, they operate to “prevent[] the investment of

3
Your request refers to several entity forms, including statutory trusts. However, statutory trusts present different questions than the other business forms you reference because (1) they are not among the entities listed in article X, sections 15 and 17 of the Oklahoma Constitution, and (2) their formation to perform “authorized or proper” public functions has been enabled by statute since at least the 1950s. See, e.g., Bd. of Cty Comm’rs of Okla. Cnty. v. Warram, 1955 OK 198, ¶¶ 34-36, 285 P.2d 1034, 1040 (citing 60 O.S.1951, § 176). In its present form, title 60, section 176 of the Oklahoma Statutes authorizes the creation of public trusts “to issue obligations, enter into financing arrangements…and to provide funds for the furtherance and accomplishment of any authorized and proper public function or purpose of the state or of any county or municipality or any and all combinations thereof[.]” 60 O.S.Supp.2025, § 176(A). So while there may be other questions as to the propriety of utilizing a statutory trust to provide captive insurance to the trust beneficiary, that arrangement does not run afoul of the constitutional provisions at issue in this Opinion.
4
In your request, you also mention school districts. This office has opined that the term “incorporated district” in article X, section 17 includes local school districts. 2003 OK AG 21, ¶ 3. Accordingly, where this Opinion uses the term “political subdivision” as shorthand for entities subject to article X, section 17, the term includes school districts.

The Honorable Glen Mulready and Jason Blair A.G. Opinion Insurance Commissioner and Oklahoma House of Representatives Page 4

public funds in private enterprises.” Lawrence v. Schellstede, 1960 OK 10, ¶ 24, 348 P.2d 1078, 1082 (interpreting investment clause of article X, section 17).

At first blush, these provisions might seem to prohibit the State and its political subdivisions from owning, investing in, or otherwise contributing funds to any “company, association, or corporation” for any purpose. However, constitutional provisions “must be construed as a consistent whole in harmony with common sense and reason.” Cowart v. Piper Aircraft Corp., 1983 OK 66, ¶ 4, 665 P.2d 315, 317; see also Capital Steel & Iron Co. v. Fuller, 1952 OK 209, ¶ 11, 245 P.2d 1134, 1138 (stating that a constitutional provision must be interpreted so as to “carry out the manifest intention” of its framers, giving consideration to the “objects contemplated by its mandates, and the evils sought to be avoided”). Despite the broad language, courts have long interpreted these provisions to limit only the ability to redirect public funds to private entities by way of gift or direct investment. See Veterans of Foreign Wars v. Childers, 1946 OK 211, ¶¶ 30- 31, 171 P.2d 618, 625 (discussing the purpose of article X, section 15), Hawks v. Bland, 1932 OK 101, ¶¶ 19-25, 9 P.2d 720, 722-23 (same); see also Rural Water Dist. No. 3, Pushmataha Cty. v. Antlers Pub. Works Auth., 1993 OK CIV APP 185, ¶ 8, 866 P.2d 458, 460 (describing article X, section 17 as a “prohibition against some of the grosser forms of raids on public money perpetuated in the earlier history of this country”) (quoting Maurice H. Merrill, The Constitutional Rights of Oklahoma Cities, 21 OKLA. L. REV. 251, 259-60 (Aug. 1968)).

The formation and ownership of a captive insurance company by the State or a political subdivision does not, by itself, implicate these concerns. The purpose of a captive insurance company is to provide insurance coverage to its parent, and perhaps related entities. 36 O.S.Supp.2022, § 6470.3(A). If the only parent is the State or a political subdivision, no public funds would be used for the benefit of a private entity. 5 Rather, the public funds invested in or otherwise directed to the captive insurance company would be used in furtherance of insuring risk faced by the State or the political subdivision that owns it.

This conclusion is also consistent with the Oklahoma Supreme Court’s decision in Lawrence v. Schellstede, 1960 OK 10, 348 P.2d 1078. In that case, it was alleged that a City of Tulsa insurance policy violated article X, section 17 because the provider was a mutual insurer 6 whose policy stated that each insured “become[s] a member and owner of this mutual insurance corporation.” Id. ¶ 8,

5
While not explicitly part of your question, a separate article X, section 15 concern may arise if the credit of the State were to be used to facilitate the creation of a political subdivision’s captive insurer. See OKLA. CONST. art. X, § 15(A) (“[T]he credit of the State shall not be given, pledged, or loaned to any … municipality, or political subdivision of the State[.]”). For instance, the Oklahoma Supreme Court has held that section 15 prohibits a financing arrangement where a State instrumentality issues bonds for the benefit of a particular municipality, In re Okla. Cap. Improvement Auth., 2012 OK 99, 289 P.3d 1277, or serves as a contingent guarantor of a municipal obligation. Reherman v. Okla. Water Res. Bd., 1984 OK 12, 679 P.2d 1296. To be clear, this office has not been presented with any specifics about how a political subdivision’s captive insurance company might be structured. But, these decisions serve as a note of caution regarding State involvement in a captive insurance company that benefits one or more political subdivisions.
6
A mutual insurance company is “an incorporated insurer without capital stock or shares, and is owned by its policyholders.” 36 O.S.2021, § 2103 (emphasis added). Mutual insurers may charge membership fees in addition to premiums, and members are deemed to have the same rights as those of a stockholder (including payment of dividends). Id. §§ 2115, 2116, 2123.

The Honorable Glen Mulready and Jason Blair A.G. Opinion Insurance Commissioner and Oklahoma House of Representatives Page 5

348 P.2d at 1080. After reviewing the purpose of article X, section 17, the terms of the policy, and persuasive authority from other states, the court concluded that, notwithstanding the policy’s terms, “[m]ere membership in a mutual insurance company does not offend the constitutional limitation unless such membership would constitute a stockholder or create a liability or obligation not present in the case at bar.” Id. ¶ 24, 348 P.2d at 1082. To hold otherwise, according to the court, would “unduly extend[] the scope of the constitutional limitation,” to disallow standard business of a public entity that does not risk its funds being used to benefit private interests. Id. ¶ 25, 348 P.2d at 1082–83.

The court’s reasoning in Schellstede applies equally here. If the State or a political subdivision forms and owns a captive insurance company solely to manage its own risk, that does not, by itself, present an opportunity for public funds to be used to fund private interests. Of course, captive insurance structures can be complicated, and Attorneys General in other states have concluded that public entity participation in captive insurance programs violated their states’ analogous constitutional provisions where the captive insurer was a private company or included private interests. Ohio Op. Atty. Gen. No. 2021-24, 2021 WL 5299766, 4 (Nov. 2, 2021); Neb. Op. Atty. Gen. No. 94045, 1994 WL 243685, 2–3 (May 12, 1994); Miss. A.G. Opin., 1987 WL 121805, *1 (Aug. 7, 1987). Accordingly, the State and political subdivisions must carefully structure a public entity captive insurer in a way that avoids participation by or entanglement with private interests.

Finally, it is worth mentioning that state or local involvement in the insurance business would not be a new development. Both the State and its political subdivisions are given broad authority to procure insurance to mitigate risk. See 74 O.S.Supp.2024, § 85.58A (directing the Office of Management and Enterprise Services to establish a comprehensive risk management program for all State agencies); and 51 O.S.2021, §§ 167, 169 (authorizing municipalities and counties to purchase general liability insurance and deeming premiums to be “a proper expenditure”). Further, beginning in the 1930s, the State operated essentially as a private insurer providing worker’s compensation insurance for public and private employers. Tulsa Stockyards, Inc. v. Clark, 2014 OK 14, ¶¶ 3–4, 10, 321 P.3d 185, 188, 190. Indeed, the Oklahoma Supreme Court and the parties in Tulsa Stockyards seemed to accept without dispute “that the state may engage in private insurance business for a public purpose.” Id. ¶ 27, 321 P.3d at 196 (citing OKLA. CONST. art. II, § 31). This history supports the conclusion that article X, section 15 does not bar the State—and by similar logic, article X, section 17 does not bar political subdivisions—from insuring their own risk through the formation and ownership of a captive insurance company. 7

7
To be sure, the question in Tulsa Stockyards—i.e., the constitutionality of legislation requiring CompSource Oklahoma to be converted from a department of the State into a private mutual insurer independent of the State—is not a one-to-one comparison to the issue posed here. But the court’s approach to the question, and its recitation of the State’s history in the insurance business, is nonetheless instructive. For example, the court explains that “Oklahoma law is clear that CompSource … [was] created to conduct insurance business for employers as a private carrier might do so as to be fairly competitive with private insurance carriers and be nothing more than self-supporting.” Id. ¶ 19, 321 P.3d at 193. If these activities undertaken by the State are permitted by the Oklahoma Constitution, a State-owned captive insurance company to manage the State’s risk seems equally allowable.

The Honorable Glen Mulready and Jason Blair A.G. Opinion Insurance Commissioner and Oklahoma House of Representatives Page 6

It is, therefore, the official Opinion of the Attorney General that:

1. Article X, Section 15 of the Oklahoma Constitution does not prohibit the State
   of Oklahoma from creating and owning a captive insurance company, as the
   term is used in the Oklahoma Captive Insurance Company Act, 36 O.S.2021
   & Supp.2022, §§ 6470.1–6470.35.

2. Article X, Section 17 of the Oklahoma Constitution does not prohibit the
   Legislature from enacting laws to permit a political subdivision of the State of
   Oklahoma to create and own a captive insurance company, as the term is used
   in the Oklahoma Captive Insurance Company Act, 36 O.S.2021 & Supp.2022,
   §§ 6470.1–6470.35.

GENTNER DRUMMOND
ATTORNEY GENERAL OF OKLAHOMA

ETHAN SHANER
DEPUTY GENERAL COUNSEL