Are members of a Texas state agency board personally liable for mistakes made doing their official duties?

Texas AG Opinion JM-1092: When Are State Agency Board Members Personally Liable?

Plain-English summary

The chairman of the Texas Agricultural Finance Authority, a public authority within the Department of Agriculture that makes and guarantees loans to farm and agricultural businesses, asked the Attorney General three questions about whether the Authority's board members could be sued personally, and how they might be protected. Because the board handles a substantial amount of public money, the exposure question mattered.

On personal liability, the opinion drew a line based on who is suing. Board members are largely protected from liability to members of the public. A statute (Agriculture Code section 58.016(e)) says board members are not personally liable on bonds issued or contracts executed by the Authority and are to be exculpated and indemnified, except for fraud or willful misconduct. On top of that, the common-law doctrine of official immunity shields public officers from liability for mistaken judgment in performing discretionary acts within the scope of their duties, done in good faith. That immunity does not cover willful or malicious acts, unauthorized acts, or purely ministerial functions. But the picture is different when the state itself is the plaintiff. Public officers are accountable to the state for public funds in their custody, and board members can be personally liable to the state for negligence in handling those funds. Section 58.016(e) does not shield them from that accountability to the state.

The second question, about buying more protection, produced the opinion's most significant ruling. On surety bonds, the answer was limited: each director must post a $25,000 bond paid for by the Authority, and that statute effectively caps how much the Authority may spend on bond premiums, so it cannot pay for a larger bond. On other insurance, the opinion used errors and omissions coverage (a form of malpractice insurance for negligent acts) as an example. Here the Attorney General overruled a line of older opinions. Those opinions had said that paying public funds for a public officer's errors and omissions coverage was an unconstitutional grant of public funds under article III, sections 51 and 52 of the Texas Constitution, unless the premium was part of compensation. The opinion explained that later court decisions and opinions had recognized that a governmental entity has its own interest in protecting public funds and in defending public servants sued for on-the-job negligence, and that spending public money for that purpose is constitutional. So the opinion concluded the Authority may spend public funds to buy insurance protecting the state's and the public's interest in the funds the board handles, if the board in good faith finds it necessary and advisable, and it expressly overruled the contrary opinions.

The third question was whether board members are "state employees" for purposes of chapter 104 of the Civil Practice and Remedies Code, which has the state indemnify certain people for damages, court costs, and attorney's fees. The opinion concluded that although a board member is probably not an "employee," he is a "member of the governing board, or any other officer of a state agency," so directors of the Authority are covered by chapter 104.

Currency note

This opinion was issued in 1989. 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.

The statutes here (the Texas Agricultural Finance Act in chapter 58 of the Agriculture Code, the State Employee Bonding Act, and chapters 101, 104, and related provisions of the Civil Practice and Remedies Code) have been amended since 1989, and the law of official immunity and indemnification of public servants has continued to develop in the Texas courts. Anyone dealing with a present-day question about a state board member's liability, bonding, or insurance should work from current statutes and case law rather than the 1989 provisions described here.

Who this opinion affected (as of 1989)

State board and authority members: The opinion meant that board members were largely immune from suits by the public for good-faith discretionary acts and for bonds and contracts, but remained accountable to the state for negligence in handling public funds.

State agencies and authorities: The opinion cleared the way for a governmental entity to spend public funds on insurance (such as errors and omissions coverage) to protect public funds against a board member's negligence, overruling older opinions that had treated such spending as an unconstitutional gift.

The state as fund custodian: The opinion reaffirmed that public officers are accountable to the state for funds in their custody and that the state may pursue negligent officials, while also gaining the option of insurance as a more reliable source of recovery than a suit against an individual.

Common questions

Can a state agency board member be sued personally for a mistake?
Generally not by the public for good-faith discretionary decisions, thanks to official immunity and (for this Authority) section 58.016(e). But a board member can be held personally liable to the state for negligence in handling public funds.

Can the agency pay for the board members' insurance?
Yes, within limits. The opinion concluded the Authority may spend public funds on insurance, such as errors and omissions coverage, to protect the state's and public's interest in the funds the board handles, if the board in good faith finds it necessary and advisable. This overruled several older opinions to the contrary.

Can the agency pay for a bigger surety bond?
No. The statute sets each director's bond at $25,000, paid by the Authority, and that effectively caps the premium the Authority may pay. It cannot pay for a larger bond.

Are board members indemnified by the state?
Yes. The opinion concluded board members of the Authority are covered by chapter 104 of the Civil Practice and Remedies Code as members of a governing board or officers of a state agency, so the state indemnifies them for certain claims.

Background and statutory framework

The Texas Agricultural Finance Authority is a public authority within the Department of Agriculture, established by the Texas Agricultural Finance Act. Agric. Code §§ 58.001-58.039; see Tex. Const. art. III, § 52-a (legislature may provide for programs to foster growth of agricultural enterprises). Its purposes, stated in section 58.021, include making or acquiring loans to eligible agricultural businesses and lenders, insuring and guaranteeing such loans, and administering financial-assistance programs. The board may issue revenue bonds to carry out those purposes. Agric. Code § 58.033.

On the first question (personal liability), the opinion assumed the concern was negligence in handling funds, not intentional wrongdoing or bad faith. See Brown v. Sneed, 77 Tex. 471 (Tex. 1890) (comptroller's chief clerk liable to the State for funds he embezzled); Borger Independent School Dist. v. Dickson, 52 S.W.2d 505 (Tex. Civ. App. - Amarillo 1932, writ ref'd) (school trustees personally liable for unauthorized action taken for corrupt motives); Grimm v. Arizona Bd. of Pardons and Paroles, 564 P.2d 1227 (Ariz. 1977) (parole board members may be personally liable for a reckless release decision). Section 58.016(e) provides that board members, the administrator, and staff may not be personally liable for bonds issued or contracts executed by the Authority and shall be exculpated and indemnified except for fraudulent or willful misconduct. On top of that statutory protection, board members enjoy official immunity. See Attorney General Opinion JM-404 (1985). A public officer is not ordinarily liable for mistaken judgment in performing discretionary acts within the scope of his duties. Campbell v. Jones, 264 S.W.2d 425 (Tex. 1954); Rains v. Simpson, 50 Tex. 495 (1878); Torres v. Owens, 380 S.W.2d 30 (Tex. Civ. App. - Corpus Christi 1964, writ ref'd n.r.e.). He is liable for mistaken judgment or unauthorized acts if he acts willfully or maliciously. Campbell v. Jones, supra; Stein v. Highland Park Indep. School Dist., 540 S.W.2d 551 (Tex. Civ. App. - Texarkana 1976), aff'd, 574 S.W.2d 807 (Tex. Civ. App. - Texarkana 1978, writ dism'd). Official immunity does not bar a suit to enjoin an unauthorized act and does not apply to ministerial functions. Texas Highway Comm'n v. Texas Ass'n of Steel Importers, 372 S.W.2d 525 (Tex. 1963); Rains v. Simpson, supra. Federal courts apply a different, qualified-immunity test for discretionary functions. Harlow v. Fitzgerald, 457 U.S. 800 (1982). But public officers remain accountable to the state for public funds in their custody. Brown v. Sneed, supra; Tex. Const. art. III, § 20; id. art. IV, §§ 24, 25; Gov't Code §§ 41.009, 402.026. A board member's liability to the state for state funds is not affected by section 58.016(e).

On the second question, the opinion first addressed surety bonds. The State Employee Bonding Act (V.T.C.S. art. 6003b, § 3(a)) defines a "bond" as an agreement under which a surety pays, within limits, loss caused by dishonest acts or failure to faithfully perform duties. Each director must execute a $25,000 surety bond paid by the Authority. Agric. Code § 58.012(d). That statute sets a limit on what the Authority may spend on bond premiums. Tex. Const. art. III, § 44; Attorney General Opinion H-533 (1975). So the board cannot pay more in premiums than for a $25,000 bond. On other insurance, the opinion used errors and omissions coverage as an illustration; that coverage protects against negligent acts, errors, and omissions but not dishonesty, fraud, or malicious acts. St. Paul Ins. v. Bonded Realty, 578 S.W.2d 191 (Tex. Civ. App. - El Paso), writ ref'd n.r.e. per curiam, 583 S.W.2d 619 (Tex. 1979). Section 58.022(7) authorizes the Authority to procure insurance and pay premiums as the board considers necessary and advisable to accomplish its purposes. The opinion concluded the Authority may take reasonable steps, including buying insurance, to protect the public's and state's interest in the funds it handles against loss through the board's negligence, since an insurance policy may protect those funds better than a suit against board members who may lack funds to satisfy a judgment.

The opinion then confronted a line of prior opinions holding that errors and omissions coverage for public officers benefits only those officers, so paying public funds for it violates article III, sections 51 and 52, unless it is compensation. Attorney General Opinions MW-276 (1980); M-441 (1969); C-607 (1966); C-506 (1965); MW-156 (1980); H-1042 (1977). The opinion explained that later authorities had modified the rule underlying C-506. Letter Advisory No. 24 (1973) upheld a statute providing for the defense of county officials by district or county attorneys or county-paid counsel (see Local Gov't Code § 157.061, formerly V.T.C.S. art. 332c), reasoning there is no constitutional bar to using public funds to defend a county's interest even when the county is not named. See City of Corsicana v. Babb, 290 S.W. 736 (Tex. Comm'n App. 1927, judgm't adopted); Chandler v. Saenz, 315 S.W.2d 87 (Tex. Civ. App. - San Antonio 1958, writ ref'd n.r.e.); Attorney General Opinions JM-755 (1987); H-887 (1976); H-544 (1975). The legislature also adopted the Tort Claims Act, authorizing use of public funds to reimburse persons injured by governmental employees' negligence. Civ. Prac. & Rem. Code ch. 101; §§ 101.021, 101.025; see Harris County v. Dowlearn, 489 S.W.2d 140 (Tex. Civ. App. - Houston [14th Dist.] 1972, writ ref'd n.r.e.). Concluding that a governmental entity may have an interest in representing public servants in negligence suits arising from their duties, and that spending public funds for their defense and damages does not, in a proper case, violate the constitution, the opinion overruled the contrary statements in C-506 and its progeny. It held that article III, sections 51 and 52 do not bar the Authority from buying errors and omissions insurance to protect the state or the public from loss of funds through board members' negligence, and expressly overruled Attorney General Opinions MW-276, MW-156, H-1042, M-441, C-607, and C-506 in accordance with the opinion.

On the third question, chapter 104 of the Civil Practice and Remedies Code has the state indemnify, for actual damages, court costs, and attorney's fees, "an employee, a member of the governing board, or any other officer of a state agency, institution, or department" for conduct described in section 104.002 (negligence, deprivation of rights, or where indemnification is in the state's interest), subject to the limits in section 104.003. Civ. Prac. & Rem. Code § 104.001, § 104.002, § 104.003. The opinion concluded that although a board member is probably not an "employee" under section 104.001(1), he is a member of the governing board or an officer of a state agency. Agric. Code §§ 58.012(a), 58.021, 58.022. Directors of the Authority are therefore covered by chapter 104.

Citations

Statutory and constitutional authorities:

• Agriculture Code §§ 58.001-58.039 (Texas Agricultural Finance Act); § 58.021 (purposes); § 58.033 (revenue bonds); § 58.016(e) (exculpation and indemnification of board members); § 58.012(d) (director's $25,000 surety bond); § 58.022(7) (power to procure insurance)
• Texas Constitution art. III, § 52-a (programs to foster agricultural enterprises); § 44 (limits on paying claims); §§ 51 and 52 (no gift or grant of public funds); art. IV, §§ 24, 25 (custodians of funds)
• Government Code § 41.009; § 402.026 (actions to compel collection or recover public funds)
• V.T.C.S. art. 6003b, § 3(a) (State Employee Bonding Act; definition of "bond")
• Civil Practice and Remedies Code ch. 104; §§ 104.001, 104.002, 104.003 (state indemnification of public servants); ch. 101 (Tort Claims Act)
• Local Gov't Code § 157.061 (formerly V.T.C.S. art. 332c) (defense of county officials)

Cases:

• Brown v. Sneed, 77 Tex. 471 (Tex. 1890) (officer accountable to the state for funds)
• Borger Independent School Dist. v. Dickson, 52 S.W.2d 505 (Tex. Civ. App. - Amarillo 1932, writ ref'd) (liability for corrupt-motive acts)
• Grimm v. Arizona Bd. of Pardons and Paroles, 564 P.2d 1227 (Ariz. 1977) (board liability for reckless decision)
• Campbell v. Jones, 264 S.W.2d 425 (Tex. 1954) (official immunity for discretionary acts)
• Rains v. Simpson, 50 Tex. 495 (1878) (immunity does not reach ministerial acts)
• Torres v. Owens, 380 S.W.2d 30 (Tex. Civ. App. - Corpus Christi 1964, writ ref'd n.r.e.)
• Stein v. Highland Park Indep. School Dist., 540 S.W.2d 551 (Tex. Civ. App. - Texarkana 1976), aff'd, 574 S.W.2d 807 (Tex. Civ. App. - Texarkana 1978, writ dism'd)
• Texas Highway Comm'n v. Texas Ass'n of Steel Importers, 372 S.W.2d 525 (Tex. 1963)
• Harlow v. Fitzgerald, 457 U.S. 800 (1982) (federal qualified immunity)
• St. Paul Ins. v. Bonded Realty, 578 S.W.2d 191 (Tex. Civ. App. - El Paso), writ ref'd n.r.e. per curiam, 583 S.W.2d 619 (Tex. 1979) (scope of errors and omissions coverage)
• City of Corsicana v. Babb, 290 S.W. 736 (Tex. Comm'n App. 1927, judgm't adopted)
• Chandler v. Saenz, 315 S.W.2d 87 (Tex. Civ. App. - San Antonio 1958, writ ref'd n.r.e.)
• Harris County v. Dowlearn, 489 S.W.2d 140 (Tex. Civ. App. - Houston [14th Dist.] 1972, writ ref'd n.r.e.)

Attorney General materials referenced or overruled:

• Overruled: MW-276, MW-156, H-1042, M-441, C-607, C-506
• Referenced: JM-404 (1985); JM-153 (1984); JM-755 (1987); H-887 (1976); H-544 (1975); H-533 (1975); Letter Advisory No. 24 (1973)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1092
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1989/jm1092.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative. (The scan's first line mis-renders the opinion number as "JR-1092"; the running headers on later pages correctly show "JM-1092." One badly garbled citation, "Brown v. Sneed," was confirmed by citation lookup and restored.)

September 1, 1989

Mr. J. E. Birdwell, Jr.
Chairman
Texas Agricultural Finance Authority
P. O. Box 12847
Austin, Texas 78711

Opinion No. JM-1092

Re: Liability of members of the board of directors of the Texas Agricultural Finance Authority (RQ-1637)

Dear Mr. Birdwell:

You inquire about the personal liability of board members of the Texas Agricultural Finance Authority, a public authority within the Department of Agriculture established by the Texas Agricultural Finance Act. Agric. Code §§ 58.001-58.039; see Tex. Const. art. III, § 52-a (legislature may provide for creation of programs to foster growth of agricultural enterprises). The purposes of the authority are stated in section 58.021 of the Agriculture Code:

(a) In order to promote the expansion, development, and diversification of production, processing, marketing, and export of Texas agricultural products, the authority shall design and implement programs to provide financial assistance to eligible agricultural businesses, including programs:

(1) to make or acquire loans to eligible agricultural businesses;

(2) to make or acquire loans to lenders to enable those lenders to make loans to eligible agricultural businesses;

(3) to insure, coinsure, and reinsure, in whole or in part, loans to eligible agricultural businesses;

(4) to guarantee, in whole or in part, loans to eligible agricultural businesses; and

(5) to administer or participate in programs established by another person to provide financial assistance to eligible agricultural businesses.

The board may issue revenue bonds to provide funds to carry out any of these purposes. Agric. Code § 58.033.

Since the board of directors of the Agricultural Finance Authority will be responsible for handling a substantial amount of money, questions have arisen about board members' exposure to liability. Your first question is as follows:

May the Board be found personally liable for causes of actions arising out of the performance of board duties?

We assume that you are concerned about personal liability for negligence in handling funds, not liability for intentional violations of the civil or criminal law, or actions taken in bad faith. See Brown v. Sneed, 77 Tex. 471 (Tex. 1890) (comptroller's chief clerk liable to the State for funds he embezzled); Borger Independent School Dist. v. Dickson, 52 S.W.2d 505 (Tex. Civ. App. - Amarillo 1932, writ ref'd) (school trustees personally liable for unauthorized action taken for corrupt motives); Grimm v. Arizona Bd. of Pardons and Paroles, 564 P.2d 1227 (Ariz. 1977) (members of parole board may be personally liable for reckless decision in releasing prisoner).

Section 58.016(e) of the code provides as follows:

The board members, administrator, and staff of the authority may not be personally liable for bonds issued or contracts executed by the authority and shall be exculpated and fully indemnified in the documents relating to any bonds except in the case of fraudulent or wilful misconduct on the part of the individual seeking exculpation or indemnification.

This exculpatory provision protects board members from liability to members of the public for bonds issued or contracts executed, with the exceptions stated. They are also protected by the doctrine of official immunity recognized by the Texas courts. See Attorney General Opinion JM-404 (1985). A public officer is not ordinarily liable for mistaken judgment in performing discretionary acts within the course and scope of his public duties. See generally Campbell v. Jones, 264 S.W.2d 425 (Tex. 1954); Rains v. Simpson, 50 Tex. 495 (1878); Torres v. Owens, 380 S.W.2d 30 (Tex. Civ. App. - Corpus Christi 1964, writ ref'd n.r.e.). He will be liable for mistaken judgment or unauthorized acts if he acts willfully or maliciously. Campbell v. Jones, supra; Stein v. Highland Park Indep. School Dist., 540 S.W.2d 551 (Tex. Civ. App. - Texarkana 1976), aff'd, 574 S.W.2d 807 (Tex. Civ. App. - Texarkana 1978, writ dism'd). The doctrine of official immunity does not bar a suit to enjoin a public official's unauthorized act, nor does it apply to ministerial functions. See Texas Highway Comm'n v. Texas Ass'n of Steel Importers, 372 S.W.2d 525 (Tex. 1963); Rains v. Simpson, supra; Attorney General Opinion JM-404.

Federal courts, however, use a different test of official immunity. See Attorney General Opinion JM-404. Administrative officers who perform discretionary functions have only a qualified immunity from suit for personal liability. Harlow v. Fitzgerald, 457 U.S. 800 (1982); see generally Civ. Prac. & Rem. Code ch. 104 (state liability for conduct of public servants).

Public officers are moreover accountable to the state for public funds in their custody. See Brown v. Sneed, supra; Attorney General Opinions JM-153 (1984); O-637[?] (1945) [final digit not legible in scan]; 42 Tex. Jur. 3d Government Tort Liability § 60, at 117. Cf. Tex. Const. art. III, § 20 (discharge); id. art. IV, §§ 24, 25 (custodians of funds); Gov't Code §§ 41.009 (action by district or county attorney to compel local officer to perform duty to collect or safeguard public funds), 402.026 (action by attorney general to recover state funds). A board member's liability to the state for state funds is not affected by section 58.016(e) of the code.

Your second question is as follows:

May the Board increase its protection from liability and at the same time limit its exposure from liability, in either an official or individual capacity, by increasing the amount of its surety bond coverage from $25,000 to $100,000, or by obtaining additional insurance coverage?

In answer to your first question we found that both the statute and the common law accord board members considerable immunity from liability to members of the public. We assume that the board is interested in increasing its protection from liability only in the areas where it is not immune, that is, its liability to the public, if any, which is not covered by the immunity provisions, and its accountability to the state for public funds.

The State Employee Bonding Act, which prescribes uniform standards for the bonding of state officers and employees, includes the following definition:

'Bond' means any agreement under which an insurance company becomes obligated as surety to pay, within certain limits, loss caused by the dishonest acts of officers and employees, or to pay for loss caused by failure of officers or employees to faithfully perform the duties of the offices or positions held.

V.T.C.S. art. 6003b, § 3(a).

Each director of the Texas Agricultural Finance Authority is required to execute a surety bond in the amount of $25,000 conditioned on faithful performance of the duties of director. Agric. Code § 58.012(d). The cost of the $25,000 bond is paid by the authority. Id. This provision sets a limit on the expenditure the authority may make to purchase surety bonds for its members. See Tex. Const. art. III, § 44; Attorney General Opinion H-533 (1975). Accordingly, the board is not authorized to pay more in surety bond premiums for its members than the premium for a $25,000 bond.

You have not asked us to consider a specific kind of insurance coverage. In addressing your question we will use errors and omissions coverage as an illustration. Our answer does not apply to a particular insurance contract, and the board's power to enter into any such contract will depend in part on whether its statute permits it to accept the specific contract provisions.

Errors and omissions coverage is a form of malpractice insurance designed to protect an insured from the consequences of his negligent acts, errors, and omissions. It does not ordinarily cover dishonesty, intentional fraud, or criminal or malicious acts. See St. Paul Ins. v. Bonded Realty, 578 S.W.2d 191 (Tex. Civ. App. - El Paso), writ ref'd n.r.e. per curiam, 583 S.W.2d 619 (Tex. 1979); Attorney General Opinion H-1042 (1977); 13A G. Couch, Cyclopedia of Insurance Law, § 48:166, at 166 (2d rev. ed. 1982). We assume, for purposes of this opinion, that an errors and omissions policy could be written to cover the board's liability to the state as well as to members of the public.

You direct our attention to section 58.022(7) of the Agriculture Code as a possible source of authority to purchase insurance for board members.

The authority has all powers necessary to accomplish the purposes and programs of the authority, including the power:

. . . .

(7) to procure insurance and pay premiums on insurance of any type, in amounts, and from insurers as the board considers necessary and advisable to accomplish any of its purposes. (Emphasis added.)

To accomplish its purposes and implement its programs, the authority must handle state funds allocated to it for those purposes. We believe it may take reasonable steps to protect the interest of the public and the state in these funds, including the purchase of insurance to protect against loss of the funds through the board's own negligence. Board members are personally liable for their own negligence in handling funds and would remain liable whether or not they are covered by errors and omissions insurance. Nonetheless, the state's and the public's interest in the funds held by the board might be much better protected by an insurance policy than by a suit for negligence against board members who may not have sufficient funds to pay the judgment.

Several prior opinions of this office have stated categorically that errors and omissions coverage for public officers and employees would benefit only those persons and not the governmental entity that they serve. See, e.g., Attorney General Opinions MW-276 (1980); M-441 (1969); C-607 (1966); C-506 (1965). The opinions go on to conclude that an expenditure of public funds to provide errors and omissions coverage for a public officer would be a grant of public funds in violation of article III, sections 51 and 52, of the Texas Constitution unless the premiums are paid as a form of compensation. See Attorney General Opinions MW-276, MW-156 (1980); H-1042 (1977). These opinions do not consider whether the governmental entity as well as the individual officer might have an interest in insuring against a loss of public funds through the officer's negligence.[1] Nor are these opinions consistent with more recent statements of the law by the courts and this office, as an examination of their reasoning will show.

Attorney General Opinion C-506 (1965) found unconstitutional a statute requiring a county to pay premiums on an errors and omissions insurance policy for the county clerk. The opinion based its conclusion on the rule "that a county is not liable for the tortious or negligent acts of its officers, agents or employees." Attorney General Opinion C-506, at 2. It then reasoned that payment of a damages claim arising out of the county clerk's performance of his official duties would constitute a gift or grant in violation of article III, sections 51 and 52, of the Texas Constitution, concluding that "it would likewise be a violation of the same constitutional provisions for a county to pay the premiums on an insurance policy which had as its purpose the paying of a claim predicated on facts which generated no county liability." Id. at 3.

Subsequent authorities have modified the rule on which Attorney General Opinion C-506 based its conclusion. Letter Advisory No. 24 (1973) held constitutional a statute that would provide for the defense of county officials and employees by district or county attorneys, or by county-paid private counsel, in certain lawsuits. See Local Gov't Code § 157.061 (formerly codified as V.T.C.S. art. 332c). The opinion stated that "there is no constitutional prohibition against the use of public funds to defend a county's interest in a legal contest, even if the county is not named as a party to the suit." Letter Advisory No. 24, at 2. The county attorney could represent a county official or employee if the county's interests are at stake and he believes in good faith that the officer or employee has acted within the proper scope of his authority in the performance of public duties. Id. at 3; see also Attorney General Opinions JM-755 (1987); H-887 (1976); H-544 (1975); see generally City of Corsicana v. Babb, 290 S.W. 736 (Tex. Comm'n App. 1927, judgm't adopted) (city may employ attorney to defend policemen indicted for killing a person while attempting to arrest him); Chandler v. Saenz, 315 S.W.2d 87 (Tex. Civ. App. - San Antonio 1958, writ ref'd n.r.e.) (city council may use public funds to defend suit contesting two year terms for city officers).

Moreover, the legislature has adopted the Tort Claims Act, authorizing the use of public funds to reimburse individuals injured by the negligence of governmental employees and waiving its immunity from suit and from liability to the extent set out in that statute. Civ. Prac. & Rem. Code ch. 101; see id. §§ 101.021, 101.025. In Harris County v. Dowlearn, 489 S.W.2d 140 (Tex. Civ. App. - Houston [14th Dist.] 1972, writ ref'd n.r.e.), the court concluded that the Tort Claims Act did not authorize a grant of public funds to individuals in violation of article III, sections 51 and 52, of the Texas Constitution. See also Civ. Prac. & Rem. Code ch. 104.

Since Attorney General Opinion C-506 was issued, the legislature, the courts, and the opinions of this office have recognized that a governmental entity may have an interest in representing public servants in suits arising from their negligence in performing public duties. In a proper case, the expenditure of public funds to pay for the individual's legal representation and damages does not violate the constitution. We overrule the statements in Attorney General Opinion C-506 and its progeny that the purchase of errors and omissions insurance coverage for a public officer or employee violates the constitution unless it is part of compensation.

Article III, sections 51 and 52, of the Texas Constitution do not prohibit the authority from buying errors and omissions insurance to protect the state, or members of the public in cases outside of the immunity provisions, from loss of its funds through the negligence of board members. If the board determines in good faith that purchase of such insurance is necessary and advisable to carry out its purposes, it may spend public funds for the premiums. Attorney General Opinions MW-276, MW-156, H-1042, M-441, C-607 and C-506 are overruled in accordance with this opinion.

Your third question is as follows:

Are Board members state employees for purposes of Chapter 104, State Liability for Conduct of Public Servants, of the Civil Practice and Remedies Code?

Section 104.001 of the Civil Practice and Remedies Code provides in part:

In a cause of action based on conduct described in Section 104.002, the state shall indemnify the following persons for actual damages, court costs, and attorney's fees adjudged against:

(1) an employee, a member of the governing board, or any other officer of a state agency, institution, or department.

Section 104.002 provides as follows:

The state is liable for indemnification under this chapter only if the damages are based on an act or omission by the person in the course and scope of the person's office, employment, or contractual performance for or service on behalf of the agency, institution, or department and if:

(1) the damages arise out of a cause of action for negligence, except a wilful or wrongful act or an act of gross negligence; or

(2) the damages arise out of a cause of action for deprivation of a right, privilege, or immunity secured by the constitution or laws of this state or the United States, except when the court in its judgment or the jury in its verdict finds that the person acted in bad faith, with conscious indifference or reckless disregard; or

(3) indemnification is in the interest of the state as determined by the attorney general or his designee.

See also Civ. Prac. & Rem. Code § 104.003 (limits on state liability for indemnification).

Members of the board of directors of the Texas Agricultural Finance Authority are covered by chapter 104 of the Civil Practice and Remedies Code. Although a board member is probably not an employee within section 104.001(1), he is "a member of the governing board, or any other officer of a state agency, institution, or department . . . ." See Agric. Code §§ 58.012(a) (membership of board), 58.021 (purposes of board), 58.022 (powers of the board). Directors of the authority are therefore covered by chapter 104 of the Civil Practice and Remedies Code.

SUMMARY

Members of the board of the Texas Agricultural Finance Authority may be found personally liable for causes of action in favor of the state arising out of the performance of board duties, but board members, acting within the scope of their office, will not be held personally liable to members of the public for errors or omissions in the issuance of bonds or the execution of contracts which do not constitute fraudulent or willful conduct.

The Authority may use public funds to purchase for its directors insurance to protect the state's or the public's interest in the funds it handles.

Members of the board of directors of the Texas Agricultural Finance Authority are covered by chapter 104 of the Civil Practice and Remedies Code which indemnifies employees, members of a governing board, and other officers of a state agency, institution, or department in certain causes of action.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General

Footnotes

[1] Attorney General Opinion MW-276 (1980), in concluding that a purchase of errors and omissions coverage for trustees of state retirement systems would benefit only the trustees, stated that the systems were already protected by performance bonds required of the trustees and paid for with public funds. This observation suggests that errors and omissions insurance could be provided at public expense if necessary to protect retirement funds.