Do Texas state agencies and universities need State Office of Risk Management approval to buy insurance?

Plain-English summary

Jonathan Bow, the Executive Director of the State Office of Risk Management, asked the Attorney General a clean question about who controls insurance buying for the state. SORM was set up under Chapter 412 of the Labor Code to act as a full-service risk and insurance manager for state agencies. As part of that job it sponsors specific lines of insurance, such as property, directors-and-officers, automobile liability, and volunteer coverage, and it runs an administrative process for agencies that want to buy their own policies. Some agencies, though, had bought insurance outside that program, without SORM approval, or even after SORM said no. So the question was whether a state agency, including a public university, could purchase property, casualty, or liability insurance without SORM's approval.

The AG said the statute settles it. Subsection 412.011(e) of the Labor Code says a state agency subject to Chapter 501, with a narrow exception, "may not purchase property, casualty, or liability insurance coverage without the approval of the [SORM] board." Reading "may not" as a prohibition, the AG concluded the text is unambiguous: an agency in that category can buy those kinds of insurance only with SORM approval. Chapter 501 is the state workers' compensation chapter, and it defines "state agency" broadly to include departments, boards, commissions, and institutions of the state, which is why the rule sweeps in many universities.

The AG also walked through the carve-outs written into the statutes. The approval requirement does not reach an agency that is not subject to Chapter 501, an agency that already carried workers' compensation insurance before January 1, 1989, the Texas A&M System (covered by its own chapter), or component institutions of the Texas Tech University System (subject to section 501.022). It also yields to other specific statutory exceptions, such as the ones for the Employees Retirement System and the Teacher Retirement System. Finally, the AG flagged a factual fight it could not resolve: the Texas State University System had submitted a brief arguing SORM was making it buy excessively costly insurance that did not fit its needs. The AG explained that an opinion cannot resolve disputed facts, but noted that SORM's own rules require it to weigh whether coverage is necessary to protect the state's interests and economically advantageous, so if the University were right, SORM might have a duty to let it obtain better, cheaper coverage.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later Attorney General 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.

What the opinion meant for those who asked

The State Office of Risk Management (as the opinion described it): The opinion described subsection 412.011(e) as prohibiting a covered state agency from buying property, casualty, or liability insurance without SORM's approval, so SORM's approval requirement rested on the statutory text. It also described SORM's rules as requiring SORM to consider whether coverage is necessary to protect the state and economically advantageous.

State agencies subject to Chapter 501 (as the opinion described it): The opinion described these agencies as able to purchase property, casualty, or liability insurance only with SORM approval, because Chapter 501 defines "state agency" broadly and subsection 412.011(e) bars purchases without approval.

Institutions of higher education (as the opinion described it): The opinion treated universities that are state agencies under Chapter 501 as subject to the approval requirement, while identifying the Texas A&M System and component institutions of the Texas Tech University System as outside it under their own provisions.

Excluded and exempted agencies (as the opinion described it): The opinion described agencies not subject to Chapter 501, agencies insured before January 1, 1989, and agencies exempted by other statutes (for example, the Employees Retirement System and the Teacher Retirement System) as not bound by the SORM-approval requirement.

Common questions

Can a Texas state agency buy its own property or liability insurance without SORM's approval?
Generally no, under this opinion. The AG concluded that subsection 412.011(e) of the Labor Code bars a covered state agency from purchasing property, casualty, or liability insurance without the approval of the State Office of Risk Management.

Does this apply to public universities?
Often, yes. The AG explained that Chapter 501 defines "state agency" broadly to include institutions of the state, so universities that fall under it need SORM approval, except for the Texas A&M System and Texas Tech University System component institutions, which the opinion placed outside the requirement.

Which agencies are exempt from the SORM-approval rule?
The AG listed agencies not subject to Chapter 501, agencies that had workers' compensation insurance before January 1, 1989, the Texas A&M System, Texas Tech University System component institutions under section 501.022, and agencies exempted by other laws such as the Employees Retirement System and the Teacher Retirement System.

What did the AG do about the Texas State University System's complaint that SORM forced it into costly insurance?
The AG declined to resolve it, explaining that an attorney general opinion cannot settle disputed facts. It noted that SORM's rules require it to weigh whether coverage is necessary and economically advantageous to the state.

Why does "may not" matter here?
The AG explained that, absent context showing a different meaning, "may not" is construed as a prohibition, so the statute prohibits a covered agency from buying the listed insurance without SORM's approval.

Background and statutory framework

Chapter 412 of the Labor Code directs SORM to operate as a full-service risk and insurance manager for state agencies (Tex. Lab. Code Ann. § 412.011(b)(1) (West Supp. 2013)), including purchasing insurance for agencies subject to Chapter 501 other than those subject to section 501.022 (id. § 412.011(c)(2)), and to phase in a requirement that agencies buy coverage only through SORM (id. § 412.011(d)). Agencies seek SORM approval through an administrative process (28 Tex. Admin. Code §§ 252.301-.313 (2013)).

Reading the statute to give effect to legislative intent (Zanchi v. Lane, 408 S.W.3d 373, 376 (Tex. 2013)), the AG found subsection 412.011(e) bars a state agency subject to Chapter 501, except an institution subject to section 501.022, from purchasing property, casualty, or liability insurance without SORM board approval (Tex. Lab. Code Ann. § 412.011(e) (West Supp. 2013)), with "may not" read as a prohibition (Tex. Gov't Code Ann. § 311.016(5) (West 2013)). Chapter 501, the state workers' compensation chapter, defines "state agency" broadly (id. §§ 501.001-.050 (West 2006 & Supp. 2013); id. § 501.001(6); id. § 412.001(4) (West 2006)). The AG identified exclusions for agencies not subject to Chapter 501, agencies insured before January 1, 1989 (id. § 412.052 (West 2006)), the Texas A&M System (id. §§ 502.001-.070), Texas Tech University System component institutions (id. § 501.022), and agencies exempted by other statutes such as the Employees Retirement System (Tex. Gov't Code Ann. § 811.008 (West 2012)) and the Teacher Retirement System (id. § 825.103 (West 2012)). The AG noted it could not resolve the Texas State University System's factual dispute (Tex. Att'y Gen. Op. No. GA-0750 (2009) at 2) and that SORM's rules require selecting lines of insurance based on factors including protection of and economic advantage to the state (28 Tex. Admin. Code § 252.301(b)(4)-(5) (2013)).

Citations

Statutory provisions:

• Tex. Lab. Code Ann. § 412.011(b)(1) (West Supp. 2013) (SORM as full-service risk and insurance manager)
• Tex. Lab. Code Ann. § 412.011(c)(2) (SORM purchases insurance for covered agencies)
• Tex. Lab. Code Ann. § 412.011(d) (phase-in of purchasing through SORM)
• Tex. Lab. Code Ann. § 412.011(e) (West Supp. 2013) (no covered-agency purchase without SORM approval)
• Tex. Lab. Code Ann. §§ 501.001-.050 (West 2006 & Supp. 2013) (state employee workers' compensation)
• Tex. Lab. Code Ann. § 501.001(6) (West Supp. 2013) (definition of "state agency")
• Tex. Lab. Code Ann. § 412.001(4) (West 2006) (chapter 412 definition of "state agency")
• Tex. Lab. Code Ann. § 501.022 (West Supp. 2013) (Texas Tech University System component institutions)
• Tex. Lab. Code Ann. § 412.052 (West 2006) (exclusion for pre-1989 workers' compensation insurance)
• Tex. Lab. Code Ann. §§ 502.001-.070 (Texas A&M System workers' compensation)
• Tex. Gov't Code Ann. § 311.016(5) (West 2013) ("may not" as a prohibition)
• Tex. Gov't Code Ann. § 811.008 (West 2012) (Employees Retirement System self-insurance/purchase authority)
• Tex. Gov't Code Ann. § 825.103 (West 2012) (Teacher Retirement System exception)
• 28 Tex. Admin. Code §§ 252.301-.313 (2013) (SORM reporting and obtaining insurance coverage)
• 28 Tex. Admin. Code § 252.301(b)(4)-(5) (2013) (factors for selecting lines of insurance)

Cases:

• Zanchi v. Lane, 408 S.W.3d 373, 376 (Tex. 2013)

Prior Attorney General opinions:

• Tex. Att'y Gen. Op. No. GA-0750 (2009)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1061
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2014/ga1061.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

May 21, 2014

Jonathan D. Bow, J.D. Opinion No. GA-1061
Executive Director
State Office of Risk Management Re: Whether state agencies, including
Post Office Box 13777 institutions of higher education, must obtain
Austin, Texas 78711-3777 approval from the State Office of Risk
Management prior to purchasing insurance
coverage (RQ-1169-GA)

Dear Mr. Bow:

You ask "[w]hether state agencies, including institutions of higher education, that purchase property, casualty or liability insurance coverage, are permitted to purchase such insurance without the approval of the State Office of Risk Management [(SORM)]."[1]

Under chapter 412 of the Labor Code, SORM is directed to "operate as a full-service risk manager and insurance manager for state agencies as provided by Subsection (c)." TEX. LAB. CODE ANN. § 412.011(b)(1) (West Supp. 2013). One of SORM's duties under subsection (c) is to "purchase insurance coverage for a state agency subject to Chapter 501,[2] except for an institution subject to Section 501.022, under any line of insurance other than health or life insurance ...." Id. § 412.011(c)(2). SORM must also "develop an implementation schedule for the purchase under this section of insurance for state agencies by [SORM and] phase in, by line of insurance, the requirement that a state agency purchase coverage only through [SORM]." Id. § 412.011(d). Pursuant to these provisions, you tell us that SORM "sponsors specific lines of insurance" for state agencies, such as property, directors and officers, automobile liability, and volunteer. Request Letter at 2 & n.2. You indicate that SORM has adopted an administrative procedure through which state agencies seek SORM approval of their own insurance purchases. See id. at 2; see also 28 TEX. ADMIN. CODE §§ 252.301-.313 (2013) ("Reporting and Obtaining Insurance Coverage"). You state that there are instances when a state agency has either purchased insurance outside of SORM's sponsored purchase program or without the approval of SORM or purchased insurance in spite of SORM's disapproval of an exception.[3] Request Letter at 3. In this context, you ask whether state agencies, including institutions of higher education, that purchase property, casualty or liability insurance coverage, may purchase such insurance without the approval of SORM. Id. at 4.

As we consider your question, we are mindful that the cardinal rule of statutory construction is to ascertain and give effect to the Legislature's intent as expressed in the statutory text. See Zanchi v. Lane, 408 S.W.3d 373, 376 (Tex. 2013). Subsection 412.011(e) provides that "[a] state agency subject to Chapter 501, except for an institution subject to Section 501.022, may not purchase property, casualty, or liability insurance coverage without the approval of the [SORM] board." TEX. LAB. CODE ANN. § 412.011(e) (West Supp. 2013). Subsection 412.011(e) uses the phrase "may not." Id. Absent context indicating a contrary meaning, "may not" is usually construed as a prohibition. TEX. GOV'T CODE ANN. § 311.016(5) (West 2013). Here, the prohibition is accompanied by a condition. A state agency is prohibited from purchasing its own property, casualty, or liability insurance "without the approval" of SORM. TEX. LAB. CODE ANN. § 412.011(e) (West Supp. 2013). The statutory text is unambiguous. State agencies subject to section 412.011 may only purchase the identified types of insurance with SORM approval.

The plain language of subsection 412.011(e) contains some exclusions, however. Subsection 412.011(e) expressly does not apply to a state agency that is not subject to chapter 501. See id. § 412.011(e); id. § 412.052 (West 2006) (providing that chapter 412 does not apply to state agencies that had workers' compensation insurance prior to January 1, 1989); see, e.g., id. §§ 502.001-.070 ("Workers' Compensation Insurance Coverage for Employees of the Texas A&M System and Employees of Institutions of the Texas A&M System"). By its plain terms, subsection 412.011(e) also does not apply to an institution subject to section 501.022. See id. §§ 412.011(e), 501.022 (West Supp. 2013) ("Employees of Component Institutions of Texas Tech University System"). Nor would it apply in the event of an applicable exception elsewhere in Texas statutes. See, e.g., TEX. GOV'T CODE ANN. §§ 811.008 (West 2012) (providing that the Employees Retirement System of Texas may "[n]otwithstanding any other law, ... self-insure or purchase any insurance in amounts the board considers reasonable and prudent"); 825.103 (West 2012) (excepting, with certain provisos, the Teacher Retirement System from chapter 412).

In summary, under subsection 412.011(e), except for those agencies excluded by chapter 412 or some other law, a state agency subject to chapter 501 of the Labor Code must have SORM approval to purchase property, casualty, or liability insurance.

SUMMARY

Under subsection 412.011(e) of the Labor Code, except for those excluded by chapter 412 or some other law, a state agency subject to chapter 501 of the Labor Code must have State Office of Risk Management approval to purchase property, casualty, or liability insurance.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee

[1] Request Letter from Jonathan D. Bow, J.D., to Honorable Greg Abbott, Tex. Att'y Gen. at 1 (Nov. 22, 2013), http://www.texasattorneygeneral.gov/opin ("Request Letter").

[2] Chapter 501 of the Labor Code is the chapter governing workers' compensation insurance coverage for state employees. TEX. LAB. CODE ANN. §§ 501.001-.050 (West 2006 & Supp. 2013). Chapter 501 defines the term "state agency" as "a department, board, commission, or institution of this state." Id. § 501.001(6) (West Supp. 2013); see also id. § 412.001(4) (West 2006) (defining "state agency" for chapter 412 as "a board, commission, department, office, or other agency in the executive, judicial, or legislative branch of state government that has five or more employees, was created by the constitution or a statute of this state, and has authority not limited to a specific geographical portion of the state").

[3] We received a brief disputing the facts presented in the request letter and alleging that SORM is acting beyond the scope of its statutory authority and its administrative rules. See Brief from Fernando C. Gomez, J.D., Ph.D., Vice Chancellor & Gen. Counsel, Tex. State Univ. Sys., to Honorable Greg Abbott, at 1-4 (Jan. 16, 2014). In its brief, the Texas State University System ("University") states that SORM is requiring the University to procure excessively costly insurance that does not meet its particular needs. See id. at 2-3. This dispute cannot be resolved in an attorney general opinion. See Tex. Att'y Gen. Op. No. GA-0750 (2009) at 2 (stating that "a determination as to whether the city complied with relevant law ... would require the application of the law to a set of disputed facts" and noting the inability of an attorney general opinion to investigate and resolve disputed questions of fact). We note that SORM's rules require it to select lines of insurance based on several factors, including whether the insurance is "necessary to protect the interests of the state" and whether the insurance is "economically advantageous to the state." 28 TEX. ADMIN. CODE § 252.301(b)(4)-(5) (2013). Thus, if the University is correct that it has been prohibited from obtaining insurance that better protects the state's interests at a lower cost, SORM may have a duty to allow the University to obtain such insurance.