                           The. Attorney              General       of Texas
                                                  May 28, 1981
MARKWHITE
Attorney General


                        Honorable Oscar Ii. Mauzy, Chairman       Opinion No. Ku-342
                        Senate Education Committee
                        Texas Senate, State Capitol               Re: Whether insurance contracts
                        P. 0. Box 12068                           purchased by school districts must
                        Austin, Texas 787ll                       be let on competitive bids

                        Dear Senator Mauzy:
                               You have requested our opinion as to whether section 2LSOl of the
                        Texas Education Code requires that contracts for the purchase of school
                        insurance, excluding policies which are part of teacher employment
                        contracts, be awarded through the competitive bidding process       If we
                        answer this question in the afftimative, you wish to know the status of a
                        contract which is not bid. Finally, you have asked whether a motion to
                        approve and a vote to accept an insurance contract made by a school board
                        member with an interest in the group providing the contract creates a
                        conflict of interest sufficient to void the contract.
505 naedww.    suw312
Lubbxk.n.75401                Section 2L901 provides in pertinent part:
2m747-2222

                                        (a) Except as provided in Subsection (e) of this
                                    section, all contracts proposed to bs made by any
                                    Texas public school board for the purchase of any
                                    personal property shall be submitted to oompetitive
                                    bidding, if the average daily attendance during the
amM.i”Pla4.SuiN
              400                   previous school year Im that school district exceeded
SanAnmnio.
        TX.75205                    3,000 pupils, when said property is valued at $5,000 or
51-191                              more, and if the average daily attendance durfng the
                                    previous school year in that school district was 3,000
                                    pupils or leas, when aaid propertg is valued at $2,000
                                    or more+
                                        . . . .

                                        (c) Nothfng fn this section shall apply to fees.
                                    received for professional services rendered, including
                                    but not limited to architects fees, attorney’s~feea,
                                    and fees for fiscal agent%
                                           .. .
                                 1. 4,.   .-
. Honorable Oscar Ii. Maamy - Page Two . (1oF342)
                                                                                        l




       In McBroom+Bennett Plumbing, hlc.       V.   Villa PranCe. h%, 615 SW. 2d 32, 36
  (Tex. Civ. App. - Dallas 1974, writ reM           “lnswanCB”was dnfhed as:

             an mdertaking by one party, usually called the %wurer,’ to
             protect the other party, generally desipated as the ‘insrrred’or
             bsured,’ from loss arising from named risk, for the eorrpidera-
             tion and cn the terms and under the conditlom recited. An
             insurance policy is a contract entered into between the insurer
             and the insured, by which each party becomes bound to perform
             the obligations assumed in the policy of insurance.

        If Ynsurancen involve;nothing more than the insurance policy which is fhally
  negotiated, we would conclude that the purchase of insurance involved the purchase of
  property. See e. Brown v. Lee, 371 S.W. 2d 694 (Tex. 1963); B
  414 S.W. 2d--&703 ex. Civ. App. - Austin 1967, no writh       It is clear, however, that
  insurers do much more than write policies. A purchaser of property insurance+ for
  example, will be vitally interested in such things as the professionahsm exhibited by
  the insurer, the frequency and thoroughness with which he inspects the insured
  property, and the promptness, efficiency and honesty with which he services claims
  and provides assistance. An insurer’s ability to provide certain services in a competent
  manner, in other words, is a dominant, if not the primary, consideration in any
  purchase of hwurance-.
         Contracts for the purchase of professional services have long been held to be
   exempt from competitive bidding requirements. The policy considerations underlying
   this exemption were well stated in Hunter v. Whiteaker & WsshiMon, 230 S.W. 1096
   (Tex. Civ. App. -San Antonio 1921, writ reP@ wherein the court held that article
   22684 V.T.C.S., did not require a contract ’for the purchase of bchnical and
   professional services provided by an @new in connection with the construction of a
   highway to be awarded through the competitive bidding process The court reasoned as
   follows:
              To hold that the act would require that the services of a man
              belotlging to a profession such as that of the law, of medicine,
              of teaching, civil e@neering, or architecture should be
              obtained.. . only through competitive bidding would give a
              ridiculous meaning to the act. . . . Such a construction would
              require the selection of attorneys, physiclarrs, school teachers,
              and civil e&neers by competitive bids, the only test being the
              lowest bid for the services of such me& Such a test would
              prcbably be the best that could be conceived for obtaining the
              services of the least competent man.. . .

   230 SW. at 1098. This reasoning hss been applied in subsequent cases. See, e..&,
                        548 S.W. 2d 158 (KY. l677) (contract for insurance and bankmg
                       be bid); Vilbk Brce. v. City of Dallas, 91 SW. 2d 336 (‘I’ex. l636)
   (public construction contract); Stephens Ccunty v. J.N. McCammon, Inc., 52 S.W. 2d
   53 f’l’ex. 1932) (contract to hire architect to prepare platw for jail and supervise




                                       p. 1126
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c   .


        - Honorable08car 8. Mamy - Pv         Tire0   W-342)



         comtruction)i Cochran Camty v. Weat Audit Co., 10 S.W. 26 229 crcx. Civ. Ano. -
         Amarillo 1928, writ reMI (oontract to employ county auditork Tat &ett v. Middh&,
                                          1926 h Lynd v. Heffeman. 1416 N.Y.S. 2d ll3 (
                                          9 N.Y.S. Pd 236 /mrney        General Opiniokg
                                        e Austin v. Housing Authority of 7hutford~l22 A. 2d
         399 hnn. 19561
               As this discuwdon ilhwtratea, the pwchase Of insurance cannot be neatly
         characterized as the purchase of either “personal properT or nprofessional service,”
         within the meaning of section 2LSOk to some eXteM, both categories are involved.
         Section 2LSOl does not, however, indicate whether a purchase involving both property
         and services must be made on the basis of competitive bids. But in our opinion, the
         weight of authority compels us to conclude that, at least where insurance is involved,
         such a purchase need not be so made. As we have shown, the relationship between an
         insurer and his client is one of trust and confidence. Moreover, the kinds of services
         routinely performed by an insurer and expected by the insured - which services
         involve specklimed trainii,   expertise, and experience - are analcgous to the services
         involved in the contracts which were held to be exempt from the bidding process in the
         cases cited above.
               We therefore conclude that a contract for the purchase of insurance would most
         accurately be described as one for the pmchase of servicer, and therefore, that it need
         not be awarded through the competitive bidding process Compare V.T.C.S. art. SOlb,
         S3.Ol(a) (purchase by state of supplies, materiak, services, and ec&mentL In light of
         our conclusions, we need not address your secbnd question.
                Your final question is whether a public school trustee% action in moving and then
         voting for the school board to accept a contract with a group in which he has an
         interest creates a conflict of interest sufficient to void the contract.
               The general rule applicable to trsnsactions involving a conflict of interest on the
         part of public officiak was set forth in Meyers v. WalkeG 276 8.W. 305, 307 (Tex. Civ.
         App. - Eastland lS25, no writ):
                     If a public official directly or indirectly has a pecuniary interest
                     in a oontract, no matter how honest he may be, and although he
                     may not be influenced by the.intereat, such a contract so made
                     is violatJve of the spirit and letter of our Law, and is against
                     public policy.
          See also City of Bdinburg v. Ellis, 59 S.W. 2d 99 Rex. Comm’n App. lS33); Penal Code
          s39.oL
               Previous opinions of this office have applied this rule in an increasingly exacting
          manner. See Attorney General Opinions M-1236 (l972); M-625~,(l97OL in Attorney
          General Opmon H-916 (l976) this office cited various cases holding that any interest in
          the business or welfare of a company that would tend to affect an officer’s judgment,
          enhance his salary or position, or prevent him from exercising absolute loyalty and




                                                 p. 1127
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_ Honorable Gscu H. Maray 2~ Pw Four          (151-342)                                        ,.



  rndivided alkghnce to the beat interests Of the gOVemmentd entity he berves would
  be sufficient to prevent the entity from contracting with the company. Among the
  cases cited was People ex reL Pearssll v. Sperry, 145 N.R. 344,345-46 OH l924), which
  held that the employment of nine city council members bJ1 a company which
  contracted with the city rendered the contract void. Tbs court flatly stated that the
  council members
              would be more than human if they could make the same fair and
              impartial contract with the contractor, as they eould with
              anotlpr party with whom they had no relation by way of
              employment or otherwise.. (Emphasis added)
   The opinion concluded that a school board could not contract with a company which
   employs one Of its tNS&S      in a managerial CSpaCity, even though the trustee derives
   no direct financial benefit from the contract.
          In our view the rule to be deduced from these opinions, and the cases cited
   therein, is that if a trustee po55e55e5 a pecuniary interest in a contract or occupies a
   position with a company with which the board has contracted which would tend to
   prevent him from exeteishg absolute loyalty and undivided allegiance to the school
   district, such interest is sufficient to void the contract on grounds of conflict of
   interest    Because we have not been fvnished any details regardirq the nature and
   extent of the interest possessed.by the trustee in question, or for that matter, the
   characteristics of the “group” in which he possesses the interest, we oannot say that
   this contract is or is not prohibited on grounds of conflict of interest Hqv the
   principles discussed apply to the particular situation about which you have inquired will
   have to be determined on the basis of the facts involved.
                                       SUMMARY

                  A contract for the purchase of school insurance need not ba
               submitted to competitive bidding under section 21901 of the
               Texas R&cation Code. Whether a school trustee’s interest in a
               group with which the school board has contracted will render
               the contract void depends upon whether the trustee possesses a
               pecuniary interest in the contract or occupies a position with
               the group which would tend to prevent him from exercising
               absolute loyalty and undivided allegiance to the school district.
                                                 VW)’ tNly   YOWS,




                                                 MARK      WHITE
                                                 Attorney General of Texas
    JOHN W. PAINTRR, JR.~
    First Assistant Attorney General




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                  z   HWWable 08c8r IL Ida&&y - Pqe Piv~          (W-342)
     _.



                      RICHARD R. GRAY Ill
                      Executive Assistant Attorney General

                      Prepared by Jon Bible
                      Assistant Attorney General
                      APPROVED:
                      OPINION COMMllTEE

                      Susan L. Garrison, Chairman
                      Jon Bible
                      Walter Davis
                      Rick Gilpin




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