Can a South Dakota school board buy group insurance that pays its employees a wage substitute when they are out with a disability or sickness, or is that off-limits because the board's enabling statute only mentions 'health' insurance?
Plain-English summary
A school superintendent (Dr. Barnhart) wanted to know whether a South Dakota school board could buy insurance that would supplement an employee's wages when the employee was out with a covered injury or sickness. SDCL 13-10-3 authorized school boards to enter into "life and group health insurance contracts" for employees and their families and to pay part or all of the premiums, but it did not say "disability" or "wage protection."
A prior opinion from 1967-68 (AGR 448) had read SDCL 13-10-3 narrowly and concluded that a wage-replacement product was not authorized because it wasn't a pure health-care product. AG Gordon Mydland overruled that opinion. He pointed out that SDCL 58-9-3, the Insurance Code's definition of "health insurance," already encompassed "insurance of human beings against bodily injury, disablement, or death by accident or accidental means, or the expense thereof, or against disablement or expense resulting from sickness." Disability that pays a wage substitute is "insurance against disablement," so it is health insurance for purposes of SDCL 13-10-3.
Two doctrines drove the analysis. First, school districts only have the spending power the Legislature gives them, and the Strict Construction Doctrine (Streich, Haas) requires that authority be express or implied by necessity. Second, when one statute uses a term and another defines it, the Insurance Code definition controls. Reading 13-10-3 against 58-9-3 produced an authorization broad enough to cover disability and wage-loss products.
Currency note
This opinion was issued around 1970. 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. SDCL 13-10-3 and SDCL 58-9-3 have been amended in the decades since. School-employee benefits law has also been shaped by federal ERISA, ACA, and FMLA developments that did not exist when Mydland wrote.
What the opinion meant at the time
For school business officials, the opinion opened a benefit line that had previously looked off-limits. A school board could go to market for a group disability policy without worrying that the premiums would be flagged as ultra vires expenditures.
For school board members and superintendents, the opinion confirmed that the Strict Construction Doctrine did not require every benefit type to be enumerated by name in the enabling statute. As long as the product fit within an Insurance Code definition the Legislature had already supplied, the spending power was implied.
For the broader administrative-law framework, the opinion stands as a clear example of one AG opinion overruling another. Mydland did not paper over the prior opinion or distinguish it on facts. He said in plain text: "The prior opinion, 1967-68 AGR 448, is hereby overruled as it failed to take into consideration SDCL 58-9-3." This is a clean illustration of how AG opinions, while persuasive rather than binding, get superseded by later AG analysis.
Background and statutory framework
SDCL 13-10-3 read at the time:
"Any school board shall have the power to enter into life and group health insurance contracts for the protection and benefit of its employees, and the immediate families of such employees, and to pay any part or all of the necessary premiums therefor."
SDCL 58-9-3 defined health insurance as:
"insurance of human beings against bodily injury, disablement, or death by accident or accidental means, or the expense thereof, or against disablement or expense resulting from sickness or childbirth, or against expenses incurred in prevention of sickness, or dental care, and every insurance appertaining thereto. Health insurance does not include Workmen's Compensation Insurance."
The structural argument was that "disablement" appears twice in 58-9-3 (once for accidents, once for sickness) and is broad enough to cover loss of earnings as well as medical expense. Wage-protection insurance is the kind of policy that pays when an insured is unable to work because of a disabling condition. That fit the definition.
The Strict Construction Doctrine, applied in Streich v. Board of Education (1914) and Haas v. Independent School District (1943), meant school district funds could be expended only for purposes authorized by statute "either expressly or by necessary implications." The implication chain here is short: 13-10-3 expressly authorizes "health insurance"; 58-9-3 expressly defines health insurance to include disablement coverage; therefore 13-10-3 implicitly authorizes disablement coverage.
Citations
- SDCL 13-10-3
- SDCL 58-9-3
- Streich v. Board of Education, 34 S.D. 169, 147 N.W. 779 (1914)
- Haas v. Independent School District, 69 S.D. 303, 9 N.W.2d 708 (1943)
- 1967-68 AGR 448 (overruled)
Source
Original opinion text
School boards authorized to purchase group disability and sickness insurance to supplement employees' wages.
Dear Dr. Barnhart:
You have asked for an official opinion on the following question:
Is a school board authorized to purchase group insurance to supplement the wages and salaries of their employees in case of disabling injury or disabling sickness to such employee?
SDCL 13-10-3 reads as follows:
Any school board shall have the power to enter into life and group health insurance contracts for the protection and benefit of its employees, and the immediate families of such employees, and to pay any part or all of the necessary premiums therefor.
In a decision of my predecessor, 1967-68 AGR 448, it was held that this enabling statute did not permit a school board to enter into a "wage protection" insurance plan as opposed to a "health" insurance plan.
The generally accepted rule regarding expenditures is found in court decisions of most states: "School districts' funds can be expended only for purposes authorized by statute either expressly or by necessary implications." Our Supreme Court has adopted the Doctrine of Strict Construction in Streich v. Board of Education (1914), 34 S.D. 169, 147 N.W. 779, and in Haas v. Independent School District (1943), 69 S.D. 303, 9 N.W.2d 708.
The answer to your question then would depend upon whether wage protection insurance is a form of health insurance.
Our Legislature has defined "health insurance" in SDCL 58-9-3:
'Health insurance' is insurance of human beings against bodily injury, disablement, or death by accident or accidental means, or the expense thereof, or against disablement or expense resulting from sickness or childbirth, or against expenses incurred in prevention of sickness, or dental care, and every insurance appertaining thereto. Health insurance does not include Workmen's Compensation Insurance. (Emphasis added)
By reading the above statute, it can be fairly inferred that wage protection insurance can be classified as a form of health insurance. Therefore, the answer to your question is, YES.
The prior opinion, 1967-68 AGR 448, is hereby overruled as it failed to take into consideration SDCL 58-9-3.
Respectfully submitted,
Gordon Mydland
Attorney General