Could a Washington school district buy multiyear insurance and pay premiums annually in 1965?

Plain-English summary

The Washington Attorney General concluded in 1965 that a school district could enter a fire, theft, and liability insurance contract lasting several years and pay premiums in annual installments, including installments after the current fiscal year. The AG characterized the insured district’s payment of each premium as a condition of the insurer’s promised coverage, rather than an obligation that automatically indebted future school budgets. (Official opinion)

The AG expressly overruled an inconsistent 1941 opinion that had required a district to budget and pay the entire insurance cost in one fiscal year. Its conclusion depended on its view of the particular insurance contract described in the request.

Currency note

This opinion was issued in 1965. 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.

Common questions

Could the insurance term extend beyond a school board member’s term?
Yes. The AG cited Washington decisions allowing contracts beyond board members’ terms and considered a reasonable duration in relation to the contract’s subject.

Did annual premiums create a debt against later budgets?
The AG said no for the insurance arrangement it analyzed, because nonpayment would forgo the insurer’s performance rather than breach an obligation to pay future premiums.

Did the AG follow its 1941 insurance opinion?
No. The 1965 opinion expressly overruled the earlier view to the extent it required the entire cost to be paid within one year.

Background and statutory framework

The superintendent of public instruction asked whether a school board could buy multiyear fire, theft, and liability coverage with premiums payable annually beyond its fiscal year. The AG considered RCW 28.58.130’s limit on indebtedness against the district’s final budget. It reasoned that the insurance contract did not obligate future budgets under its interpretation of the premium arrangement.

Citations and references

• The opinion says the insured “is not bound to pay the premiums, except in so far as he wishes to assure the payment of benefits.”
• It says the earlier 1941 insurance opinion, “in so far as it is inconsistent, is hereby overruled.”

Subject

DISTRICTS ‑- SCHOOLS ‑- CONTRACT ‑- INSURANCE ‑- FIRE, THEFT AND LIABILITY

Source

• Landing page: https://www.atg.wa.gov/ago-opinions/districts-schools-contract-insurance-fire-theft-and-liability

Original opinion text

Attorney General John J. O'Connell

DISTRICTS ‑- SCHOOLS ‑- CONTRACT ‑- INSURANCE ‑- FIRE, THEFT AND LIABILITY.

A school district, through its board of directors, may legally contract for fire, theft and liability insurance covering a period of years, the premiums of which are payable in annual installments over the life of the contract.

April 15, 1965

Honorable Louis Bruno
Superintendent of Public Instruction
Old Capitol Building
Olympia, Washington

Cite as: AGO 65-66 No. 17

Dear Sir:

By letter previously acknowledged you have requested the advice of this office upon a question which we paraphrase as follows:

May a school district legally contract for fire, theft and liability insurance covering a period of years, the premiums of which are payable in annual installments extending beyond the district's fiscal year?

We answer your question in the affirmative.

ANALYSIS

It is settled in this jurisdiction that a contract may extend beyond the term of office of any or all board members. Splaine v. School Dist. No. 122, 20 Wash. 74, 54 Pac. 766 (1898); and Taylor v. School District, 16 Wash. 365, 47 Pac. 758 (1897). Generally, as to the duration of a normal business contract, the test is whether the term of the contract is reasonable in view of the nature of the subject matter. "Upon this principle contracts covering periods of ten, twenty, thirty and even fifty years have been sustained as valid." Washington Fruit & Produce Co. v. Yakima, 3 Wn. (2d) 152, 163, 103 P. (2d) 1106 [[Orig. Op. Page 2]] (1940).1/

In AGO dated June 13, 1941, this office considered the exact question which you have posed. Therein it was said that although a district may enter an insurance contract for a period of years, it must budget and pay the cost of said insurance contract within a single fiscal year.

The reason given for this result was said to be the rule expressed in RCW 28.58.130, which provides in part:

"It shall be unlawful for any board of directors to contract indebtedness against its district in any one year in any sum in excess of the aggregate amount set forth and approved in its final budget. . . ." (Emphasis supplied.)

After quoting the above statute, the opinion concluded:

"From the foregoing the board is prevented from obligating future budgets. . . ."

It is our opinion that such a view fails to recognize the essential nature of an insurance contract. An insurance contract is in the nature of a unilateral contract, with the insurer making the promises, the performance of which is dependent solely upon the doing of certain acts, namely the payment of the premiums. Thus, the insured is not bound to pay the premiums, except in so far as he wishes to assure the payment of benefits. See, Appleman, Insurance Law and Practice, Vol. 14, § 7831, and cases cited therein.

Stating these principles in terms of breach of contract, the insured has no obligation to pay premiums, and if he fails to do so, he has not breached the contract, but merely failed to perform the act upon which the performance (as unilaterally [[Orig. Op. Page 3]] promised) of the insurer depends. See, Appleman,supra.

Thus, it is clear that by entering a contract like the one in question, the board has not obligated future budgets or, stated in terms of the statute, has not contracted anindebtedness beyond its budgetary year. Therefore, it is our conclusion that a school district, through its board of directors, may legally contract for fire, theft and liability insurance covering a period of years, the premiums of which are payable in annual installments over the life of the contract. AGO dated June 13, 1941, to the Division of Municipal Corporations, in so far as it is inconsistent, is hereby overruled.

We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

BRUCE W. COHOE
Assistant Attorney General

*** FOOTNOTES ***

1/See, also, AGO 63-64 No. 111 [[to Prosecuting Attorney, King County on June 30, 1964]], AGO 61-62 No. 160 [[to Prosecuting Attorney, Klickitat County on September 5, 1962]], AGO dated February 24, 1959, to the Honorable Lloyd J. Andrews, Superintendent of Public Instruction; AGO 47-48-88C; and AGO dated June 13, 1941, to the Division of Municipal Corporations, State Auditor's Office, all of which have sustained contracts covering a period of years.