June 12, 1996
Subject: Purchase of errors and omissions insurance by property valuation administrator
Written by: Ross T. Carter
Requested by: Debra H. Eucker
Syllabus: Property valuation administrators may not purchase errors and omissions insurance as an allowable office expense without specific legislative authority
OAGs cited: OAG 66-49(f); 73-626(f); 75-81(f); 77-63(w); 77-90(w); 78-188(f)
Statutes construed: None
Opinion of the Attorney General
The question presented is whether the purchase of errors and omissions insur ance is an allowable office expense for property valuation administrators.
Although we have never addressed this question as it pertains to property valuation administrators, we have issued opinions stating that other public officials may not purchase such insurance without express statutory authority.
In OAG 66-49 we said that a county clerk may not purchase errors and omissions insurance as an office expense because the beneficiary of the policy is the officeholder personally, and consequently such an expense should be borne by the policyholder personally.
In OAG 73-626 we said that the Department of Transportation could not purchase errors and omissions insurance for its engineers and attorneys because the discretionary acts of those employees are protected by governmental immunity, rendering errors and omissions insurance unnecessary.
In OAG 75-81 we said that a school district could not purchase errors and omissions insurance for its board members.
In OAG 77-63 we modified OAG 66-49 and said that errors and omissions insurance serves a public purpose by allowing public officials to perform their duties free from concern about their potential liability. We found that the county home rule statute, KRS 67.083, provided sufficient authority for the purchase of the insurance. We repeated this finding in OAG 77-90.
In OAG 78-188, we observed that the county home rule statute had been declared unconstitutional, removing the legal underpinning for OAG 77-63. We reverted to the view that errors and omissions insurance was not an allowable office expense and declared that OAG 77-63 was withdrawn. Perhaps through oversight we did not withdraw OAG 77-90, and we do so now.
In November 1995, in a letter from the director of the Division of County Audits, the Auditor of Public Accounts informed a property valuation administrator that errors and omissions insurance would be an allowable expense if the expenditure satisfied the five-part test of Funk v Milliken, Ky, 317 SW 2d 499 (1958). That case holds that county fee officials may recover expenses that are reasonable in amount, beneficial to the public, for official business, properly budgeted, and properly documented.
Although the letter from the Auditor of Public Accounts provides a correct statement of the law, we do not believe that the law as applied to property valuation administrators can justify the purchase of errors and omissions insurance. The purchase of errors and omissions insurance is not beneficial to the public; as we pointed out in OAG 66-49, the public interest is protected by the public official's bond. Furthermore, the Funk v Milliken test is not entirely applicable because one of its elements is whether the expense has been properly budgeted, and the question we face is whether the expense can be properly budgeted in the first place.
With the brief exception of a period in 1977-78, our opinions of the past thirty years have held consistently that purchase of errors and omissions insurance must be expressly authorized by the General Assembly. We believe that the General Assembly has acted in reliance on the accuracy of that legal proposition when it has specifically authorized the purchase of errors and omissions insurance. Because the purchase of errors and omissions insurance under legislative authority has been held to effect a waiver of sovereign immunity, Green River District Health Department v Wigginton, Ky, 764 SW 2d 475 (1989), we do not believe that the legislature would effect such a waiver through anything less than explicit, unambiguous legislative enactment.
We therefore affirm the findings of OAG 66-49, OAG 73-626, OAG 75-81, and OAG 78-188. Property valuation administrators may not purchase errors and omissions insurance with official funds until the General Assembly provides specific legislative authority for them to do so.
A. B. Chandler III
Ross T. Carter
Assistant Attorney General