Did Tennessee's 2022 amendment about insurance producers free local governments from competitive bidding when they buy insurance?
Subject
Requirement that Local Governmental Entities Seek Competitive Bids for the Purchase of Insurance Following Passage of Chapter 719 of the 2022 Tennessee Public Acts
Plain-English summary
State Comptroller Jason E. Mumpower asked whether the 2022 General Assembly's amendment of Tenn. Code Ann. § 12-3-1209(a), specifically Public Chapter 719, freed local governments from competitive bidding when buying insurance. The AG's answer required separating two different transactions.
The amendment added "services from an insurance producer, as that term is defined in § 56-6-102," to the existing list of professional services that local governments can procure without competitive bidding. The existing list already covered legal services, fiscal-agent services, financial advisory services, educational consultant services, and "similar services by professional persons or groups of high ethical standards." The 2022 addition put insurance-producer services into that same category.
So when a county or city hires a licensed insurance producer to design a comprehensive insurance program, identify risks, recommend ways of reducing risks, or perform analyses to minimize cost while maximizing protection, those professional services are exempt from competitive bidding. The local government can hire the producer based on "recognized competence and integrity" rather than running a low-bid process.
But the underlying insurance itself, the policy the local government actually buys, is a "good," not a service. § 12-3-201(8)(A) explicitly defines "goods" to include "insurance." Only "services" are exempted from competitive bidding under § 12-3-1209(a). So the purchase of the insurance product itself still has to go through competitive bidding.
This means a local government can hire an insurance producer (no bidding required for the producer's services), but if the producer then helps the government buy a policy, the policy purchase itself goes out to bid. Tenn. Att'y Gen. Op. 13-65 (Aug. 23, 2013) had reached the same conclusion under the prior version of the statute, distinguishing between liability insurance (a product) and the producer's services. The 2022 amendment confirmed but did not expand that distinction.
The AG also flags an exception: § 29-20-407 lets local governments buy liability insurance without competitive bidding "if such insurance is purchased through a plan authorized and approved by any organization of governmental entities representing cities and counties." Cooperative purchasing plans (such as those run through the Tennessee Municipal League or county-association pools) can sidestep competitive bidding for the policy itself, separate from the insurance-producer service question.
What this means for you
If you are a county purchasing agent or city finance director
Two transactions, two different rules. Hiring the insurance producer (broker or agent who designs your insurance program, identifies risks, helps with claims management) is now expressly exempt from competitive bidding under § 12-3-1209(a). Pick the producer on competence and integrity, document your selection rationale. The actual insurance purchase is a different story: the policy itself is a "good," and you must use competitive bidding unless you fit a specific exception (like § 29-20-407's cooperative-purchasing exception or another statutory carve-out for your specific entity type).
If you are a municipal attorney
Review your local procurement policies to make sure they cleanly distinguish insurance-producer services (no bid) from insurance-product purchases (bid required, unless an exception applies). Don't let an insurance producer steer your client into a bid-free policy purchase by characterizing the entire transaction as "professional services." The policy is a good. § 29-20-407 cooperative plans are an option for liability insurance specifically.
If you are an insurance broker or producer working with Tennessee local governments
The 2022 change is good news for selling your services: counties, cities, and other local entities can hire you without competitive bidding for advisory and administrative services. But you cannot bypass competitive bidding on the underlying policy by bundling it with your services. If you are quoting a policy, that piece must go to bid (or fit § 29-20-407 or another bidding exception). Structure your engagement carefully: a clear retainer or fee for advisory services, separate from the eventual policy procurement process.
If you are a school district administrator or other local-entity buyer
The same goods/services distinction applies. Many school districts use insurance brokers; the brokers' services can now be procured without competitive bidding. The actual property, liability, workers' comp, or health insurance policies the district buys still need to go through your district's competitive-bidding process unless an exception covers the specific line.
Common questions
Q: Can my county hire an insurance broker without competitive bidding?
A: Yes. As of Public Chapter 719 (2022), the broker's services fit within § 12-3-1209(a)'s professional-services exemption. Pick on competence and integrity, document the selection.
Q: Does this mean I can buy insurance without bids?
A: No. The insurance product itself is a "good" under § 12-3-201(8)(A), and the goods/services distinction in § 12-3-1209(a) means only services are exempt. Bid the policy out unless a separate exception applies.
Q: What about workers' compensation insurance through TML or a county pool?
A: § 29-20-407 lets a local government purchase liability insurance "through a plan authorized and approved by any organization of governmental entities representing cities and counties" without competitive bidding. Cooperative pools may fit this exception. Check the specific authority for the pool you're considering.
Q: Does this change apply to public-university or state-agency procurement?
A: § 12-3-1209(a) and the cited cooperative bidding statutes are local-government provisions. State universities and state agencies have their own procurement frameworks (Title 12, Chapter 3 generally and the Department of Finance and Administration rules); the analysis there is separate.
Q: My city has been procuring insurance from the same broker for ten years without bidding. Is that OK now?
A: As of the 2022 amendment, the broker's professional services are exempt from bidding. Whether your prior practice was problematic under the law as it stood before is a separate question (the AG's prior opinion 13-65 had drawn the same goods/services distinction). Going forward, the producer-service contract is bid-free; the insurance-product purchase is not.
Q: Can the broker's commission be paid directly by the insurer?
A: That's a structural question about your procurement contract, not addressed in this AG opinion. Some local governments structure broker compensation as a flat fee paid by the government; others let commissions ride with the policy. If you intend to take advantage of the bid-free professional-services treatment, document the fee structure for your procurement records.
Background and statutory framework
Local-government contracts in Tennessee generally must be let by competitive bidding. Tenn. Code Ann. §§ 5-14-101 to -116, 5-14-201 to -207, 5-21-101 to -130, 6-56-301 to -307, and 12-3-1201 to -1212 are the principal local-government competitive-bidding statutes.
§ 12-3-1209(a) creates an exception for certain professional services, requiring local governments to award those contracts on the basis of "recognized competence and integrity" rather than competitive bidding. The list, after the 2022 amendment in Chapter 719, reads:
legal services, fiscal agent, financial advisor or advisory services, services from an insurance producer, as that term is defined in § 56-6-102, educational consultant services, and similar services by professional persons or groups of high ethical standards
The italicized addition is the 2022 amendment. § 56-6-102(7) defines "insurance producer" as "a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance."
The goods/services distinction matters because § 12-3-1209(a) only exempts professional "services." § 12-3-201(8)(A) defines "goods" to include "insurance":
"Goods" means all personal property, including, but not limited to supplies, equipment, materials, printing, and insurance.
So the insurance product itself is a good and is not within the professional-services exemption. The producer's services are within the exemption.
The AG cites Daul Insurance Agency, Inc. v. Parish of Jefferson, 489 So. 2d 364, 367 (La. App. 1986), as illustrative of the kinds of services an insurance producer provides for a local-government client (designing comprehensive insurance programs, identifying risks, recommending ways to reduce risks, performing cost-benefit analyses).
Tenn. Att'y Gen. Op. 13-65 (Aug. 23, 2013) had reached the same conclusion under the pre-2022 version of § 12-3-1209(a): liability insurance is a product, not a service, so its purchase must go through competitive bidding even when an insurance producer is involved.
§ 29-20-407 is a separate statutory carve-out that lets local governments purchase liability insurance without competitive bidding "if such insurance is purchased through a plan authorized and approved by any organization of governmental entities representing cities and counties." This is the legal hook for cooperative pools and group-purchasing arrangements.
Citations
Statutes:
- Tenn. Code Ann. § 12-3-1209(a) (professional-services bidding exemption, as amended)
- Tenn. Code Ann. § 12-3-201(8)(A) (definition of goods includes insurance)
- Tenn. Code Ann. § 56-6-102(7) (definition of insurance producer)
- Tenn. Code Ann. § 29-20-407 (cooperative-plan liability insurance)
- Tenn. Code Ann. §§ 5-14-101 to -116; 5-14-201 to -207; 5-21-101 to -130; 6-56-301 to -307; 12-3-1201 to -1212 (local-government competitive-bidding statutes)
- 2022 Tenn. Pub. Acts, ch. 719 (insurance-producer amendment)
Cases:
- Daul Insurance Agency, Inc. v. Parish of Jefferson, 489 So. 2d 364, 367 (La. App. 1986) (illustrative of services provided by insurance producers)
Prior AG opinion:
- Tenn. Att'y Gen. Op. 13-65 (Aug. 23, 2013) (liability insurance is a product, not a service)
Source
- Landing page: https://www.tn.gov/attorneygeneral/opinions.html
- Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2022/op22-10.pdf
Original opinion text
STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
July 25, 2022
Opinion No. 22-10
Requirement that Local Governmental Entities Seek Competitive Bids for the Purchase of
Insurance Following Passage of Chapter 719 of the 2022 Tennessee Public Acts
Question 1
If a local governmental entity is using the professional services of an insurance producer
under 2022 Tennessee Public Acts, chapter 719, may it purchase insurance from a private
corporation without requiring competitive bids?
Opinion 1
No. Tennessee Code Annotated § 12-3-1209(a), as amended by 2022 Tennessee Public
Acts, chapter 719, does not relieve a local governmental entity from complying with competitive-
bidding requirements when it purchases insurance.
Question 2
If not, to what extent may an insurance producer assist a local governmental entity in
obtaining insurance?
Opinion 2
While Tenn. Code Ann. § 12-3-1209(a), as amended by 2022 Tennessee Public Acts,
chapter 719, does not relieve a local governmental entity from complying with competitive-
bidding requirements when it purchases insurance products, by adding "services from an insurance
producer" to the other professional services that were already expressly exempt from competitive
bidding under Tenn. Code Ann. § 12-3-1209(a), Public Chapter 719 does relieve a governmental
entity from competitive-bidding requirements when it is procuring the services of an insurance
producer. To the extent that an insurance producer is providing services in assisting a local
governmental entity, competitive bids for those services are not required. Services rendered by an
insurance producer to a local governmental entity could include, for instance, designing a
comprehensive insurance program for the entire entity, identifying risks, recommending ways of
reducing risks, and performing analyses to minimize costs while maximizing protection.
ANALYSIS
Local governmental contracts must generally be let by competitive bidding, but there are
exceptions. One such exception is Tenn. Code Ann. § 12-3-1209(a), which requires local
governmental entities to award contracts for certain types of professional services on the basis of
recognized competence and integrity rather than by competitive bidding. Specifically, Tenn. Code
Ann. § 12-3-1209(a), as recently amended by Chapter 719 of the 2022 Tennessee Public Acts,
requires local governmental entities to award contracts for "legal services, fiscal agent, financial
advisor or advisory services, services from an insurance producer, as that term is defined in § 56-
6-102, educational consultant services, and similar services by professional persons or groups of
high ethical standards" on the basis of recognized competence and integrity rather than by
competitive bidding. The 2022 amendment added the italicized language, "services from an
insurance producer", to the list of professional-service contracts specified in § 12-3-1209(a) that
must be awarded on the basis of recognized competence and integrity rather than by competitive
bidding. An "insurance producer" is "a person required to be licensed under the laws of this state
to sell, solicit or negotiate insurance." Tenn. Code Ann. § 56-6-102(7).
Thus, the passage of Public Chapter 719 in 2022 removed any doubt that the services of an
insurance producer are covered under Tenn. Code Ann. § 12-3-1209(a). That is, by adding
"services from an insurance producer" to the other professional services that were already
expressly exempt from competitive bidding under Tenn. Code Ann. § 12-3-1209(a), Public
Chapter 719 relieves a governmental entity from competitive bidding requirements when it is
procuring the services of an insurance producer. The services rendered by an insurance producer
to a local governmental entity could include, for instance, designing a comprehensive insurance
program for the entire entity, identifying risks, recommending ways of reducing risks, and
performing analyses to minimize costs while maximizing protection. See Daul Ins. Agency, Inc.
v. Parish of Jefferson, 489 So.2d 364, 367 (La. App. 1986).
"[S]ervices from an insurance producer," however, do not include the purchase of the
product of insurance. The product of insurance is a "good," not a "service," under Title 12, chapter
3. See Tenn. Code Ann. § 12-3-201(8)(A) ("'Goods' means all personal property, including, but
not limited to supplies, equipment, materials, printing, and insurance.") (emphasis added). Only
professional "services" are exempted from legal competitive bidding requirements under Tenn.
Code Ann. § 12-3-1209(a). While a purchaser of an insurance product may be guided in the
purchase by the advice of an insurance producer as to which type or range of insurance would best
suit the governmental entity, that advice does not turn the transaction into the purchase of
professional services within the scope of Tenn. Code Ann. § 12-3-1209(a). See Tenn. Att'y Gen.
Op. 13-65 (Aug. 23, 2013) (making this observation and opining that because liability insurance
is a product, not a service, the purchase of that product by a local governmental entity did not fit
within § 12-3-1209(a), which exempts only "services" from otherwise controlling competitive
bidding requirements).
Because insurance coverage is a product, not a service, it follows that the addition of
insurance-producer services to § 12-3-1209(a) does not enable a local governmental entity to
purchase insurance from a private corporation without requiring competitive bids. Put another
way, Tenn. Code Ann. § 12-3-1209(a) as amended by Public Chapter 719, does not allow a local
governmental entity to obtain insurance without complying with legal competitive-bidding
requirements just because it also got assistance from an insurance producer in the course of the
purchase process. Other statutory provisions, though, may allow a local governmental entity to
purchase specific lines of insurance without seeking competitive bids under certain conditions.
For instance, Tenn. Code Ann. § 29-20-407 authorizes local governmental entities to purchase
liability insurance without the necessity of public bidding "if such insurance is purchased through
a plan authorized and approved by any organization of governmental entities representing cities
and counties."
In sum, Tenn. Code Ann. § 12-3-1209(a), as amended by Public Chapter 719, does not
relieve a local governmental entity from complying with competitive bidding-requirements when
it purchases insurance, but it does relieve a local governmental entity from complying with
competitive-bidding requirements when it is purchasing the professional services of an insurance
producer, as distinct from the insurance product itself.
HERBERT H. SLATERY III
Attorney General and Reporter
ANDRÉE SOPHIA BLUMSTEIN
Solicitor General
LAURA T. KIDWELL
Assistant Solicitor General
Requested by:
The Honorable Jason E. Mumpower
Comptroller of the Treasury
State Capitol
Nashville, TN 37243