TO BE PUBLISHED
October 7, 1993
IN RE: Bob Hensley/Kentucky Department of Insurance
OPEN RECORDS DECISION
This matter comes to the Attorney General on appeal from the actions of the Kentucky Department of Insurance in responding to WTVQ-TV reporter Bob Hensley's July 29, 1993, request for "[t]he identities of the corporations and/or individuals who submitted bids prior to this date for the Kentucky Central Insurance [C]ompany of Lexington, and/or subsidiaries of [the] aforementioned company." Mr. Gordon Goad, an attorney attached to the Department of Insurance, denied Mr. Hensley's request in a letter dated August 2, 1993. In support of this decision, Mr. Goad argued:
1. The requested information does not fall into the definition of 'public record' as contained in KRS 61.870(2) in as much as the information is not related to 'functions, activities, programs, or operations funded by state or local authority'. Kentucky Central Insurance Company is not funded by state or local authority and therefore the records are not public.
2. The information, if available to the Commissioner, would be available only as a result of his being appointed Rehabilitator. A Rehabilitator is not defined as a 'public agency' under KRS 61.870(1) and therefore any information he might have is not subject to revelation by the Department of Insurance.
3. The information, if a public record, is excepted from disclosure pursuant to KRS 61.878(1)(h) because it is preliminary correspondence with private individuals. The bidding process is presently in a preliminary stage and is excepted from disclosure.
4. It is the duty of the Commissioner pursuant to KRS 304.33-160(2) to take such action as he deems necessary or appropriate to revitalize the insurer. The premature revelation of this information would jeopardize this statutory mandate.
Mr. Goad indicated that the information sought by Mr. Hensley would become public "at such time as the bidding process is complete and the sale is approved by the Franklin Circuit Court."
In his letter of appeal to this Office, Mr. Hensley challenges Mr. Goad's assertion that the "information does not fall into the definition of 'public record' as contained in KRS 61.870(2) inasmuch as the information is not related to 'functions, activities, programs, or operations funded by state or local authority.'" He notes that Kentucky Central is currently "being funded, at least, in part by the state." Commissioner Stephens, "by his own admission, has devoted numerous hours to the rehabilitation of the company." Mr. Hensley concludes that "when the final tabulation is calculated, the taxpayers of Kentucky will have made a significant contribution to the rehabilitation of Kentucky Central."
Further, Mr. Hensley questions how the disclosure of the identities of the bidders will "jeopardize the integrity of the [bidding] process." He does not request access to the contents of the bids, only to the identity of the bidders. Moreover, it is his understanding that although the Department of Insurance will allow a second round of bids, no new bidders will be allowed to submit bids. In view of "recent revelations concerning Kentucky Central's 'relationship' with those in the public and private sector," Mr. Hensley believes that it is "imperative that the people of the Commonwealth be aware of just who the next owner of Kentucky Central might be before the deal is finalized."
Pursuant to KRS 61.880(2), this Office requested additional information from the Department of Insurance to substantiate its position. Among other things, we asked that the Department describe under what statutes it was proceeding in requesting bids. For example, was the Department's solicitation for bids made under KRS 45A.005-45A.990 or some other statutory framework? We also asked that the Department describe the status of the bid process. Finally, we asked that the Department explain how release of the identities of the bidders would jeopardize the Commissioner's statutory mandate to revitalize the insurer.
On August 13, 1993, Mr. Goad responded to our request. He began by emphasizing that the Department is not conducting the bid process. Instead, he noted, the Franklin Circuit Court has exclusive jurisdiction over all matters pertaining to the rehabilitation of Kentucky Central pursuant to KRS 304.33-140(2). Mr. Goad explained that under the court's February 12, 1993, order directing the rehabilitation of the Company, "[t]he bidding process is being conducted by Kentucky Central Life Insurance Company under the direction of its rehabilitator and subject to the exclusive jurisdiction of Franklin Circuit Court." He acknowledged that the court appointed Mr. Don W. Stephens, the Commissioner of the Kentucky Department of Insurance, as Rehabilitator, but argued that his duties as Rehabilitator are entirely separate and distinct from his duties as Commissioner. Accordingly, he took the position that neither Kentucky Central nor its Rehabilitator are "public agencies," within the meaning of KRS 61.880(1).
In the alternative, Mr. Goad argued that if Kentucky Central and its Rehabilitator are deemed "public agencies," within the contemplation of the Open Records Act, "the information would still be protected because of the exemption contained in KRS 61.878(h)[sic]." He maintained that the identity of the bidders "can only be obtained from preliminary documents which have passed between the 'agency' and private individuals (the bidding companies)." Mr. Goad observed that bidding documents are, by definition, preliminary to final agency action.
In response to our final question, Mr. Goad explained that rehabilitation efforts would be jeopardized by premature release of the identities of the bidders. He has been advised that some or all of the bidders "required Kentucky Central Life Insurance Company and its [R]ehabilitator to enter into
agreement to preserve their anonymity." Release of the information would therefore represent "a breach of trust."
In closing, Mr. Goad noted that the information requested by Mr. Hensley is not in the custody of the Department of Insurance.
The issue presented in this appeal is whether documents revealing the identities of the corporations or individuals who submitted bids for Kentucky Central are public records for purposes of the Open Records Law, and if so, whether they are exempt from inspection pursuant to KRS 61.878(1)(h). For the reasons set forth below, we conclude that the Department erred in denying Mr. Hensley access to documents containing the identities of the bidders for Kentucky Central Life Insurance Company.
The rehabilitation of Kentucky Central is being conducted under Chapter 304 of the Kentucky Revised Statutes. KRS 304.33-010(4) contains a clear statement of purpose, and provides:
The purpose of this subtitle is the protection of the interests of insureds, creditors, and the public generally, with minimal interference with the normal prerogative of proprietors, through:
(a) Early detection of any potentially dangerous condition in an insurer, and prompt application of appropriate corrective measures, neither unduly harsh nor subject to the kind of publicity that would needlessly damage or destroy the insurer[.]
On February 12, 1993, Mr. Don W. Stephens, Commissioner of the Kentucky Department of Insurance, obtained an order directing rehabilitation of Kentucky Central from the Franklin Circuit Court based on the Department's assessment that "further transaction of business would be hazardous, financially or otherwise, to its policyholders, its creditors, or the public." Verified Petition for an Order Directing Rehabilitation of Respondent, No. 93-CI-00196, 2-12-93, citing KRS 304.33-140(1)(f). Although the circuit court retains exclusive jurisdiction over all matters relating to the rehabilitation, pursuant to KRS 304.33-140(2), it is the Commissioner who is appointed Rehabilitator, and who is charged
with the duty of taking possession of the insurer's assets and administering them under the orders of the court. KRS 304.33-150(1).
As Rehabilitator, the Commissioner:
[M]ay take such action as he deems necessary or appropriate to reform and revitalize the insurer. He shall have all the powers of the directors, officers, and managers, whose authority shall be suspended, except as they are redelegated by the rehabilitator. He shall have full power to direct and manage, to hire and discharge employees subject to any contract rights they may have, and to deal with the property and business of the insurer.
KRS 304.33-160(2). The Commissioner is empowered to appoint one or more special deputies, and to employ "such counsel, clerks, and assistants as deemed necessary." KRS 304.33-160(1). These individuals "serve at the pleasure of the Commissioner." KRS 304.33-160(1). Their compensation, as well as the expenses of taking possession of the insurer and conducting the proceedings, is fixed by the Commissioner, with the court's approval, and is paid out of the insurer's funds or assets. KRS 304.33-160(1). If the insurer does not have sufficient cash or liquid assets to defray these costs, the Commissioner is empowered to advance the costs out of Department of Insurance funds, but these funds must be repaid to the Department out of the "first available money of the insurer." KRS 304.33-160(1).
This litany of statutes demonstrates that the line between the Commissioner's dual roles is not a clear one. It is apparent that he is appointed Rehabilitator by virtue of the fact that he is Commissioner. KRS 304.33-150(1). Although he is ultimately accountable to the Franklin Circuit Court, he is vested with broad discretion in "reform[ing] and revitaliz[ing] the insurer." KRS 304.33-160(2). In the event that the insurer cannot defray the costs of rehabilitation, the Commissioner is empowered to advance the costs out of Department of Insurance funds. KRS 304.33-160(1). All persons who are employed to assist in the rehabilitation "serve at the pleasure of the Commissioner." Indeed, the terms "rehabilitator" and "commissioner" are used interchangeably throughout the statutes.
We are therefore not persuaded that "neither Kentucky Central Life Insurance Company nor its Rehabilitator fall within the definition of 'public agency' contained in KRS 61.870(1)." Clearly, the Commissioner is a state government officer, within the meaning of KRS 61.870(1)(a). Admittedly, he "wears two hats" in his dual roles as Rehabilitator and Commissioner. In our view, his appointment as Rehabilitator is a direct consequence of the fact that he occupies the position of Commissioner, and it is only through his actions as Commissioner, in seeking rehabilitation of a troubled insurer, that he is so appointed. Simply stated, Rehabilitator Stephens cannot completely disassociate himself from Commissioner Stephens.
Records which are "prepared, owned, used, in the possession of or retained by . . ." the Commissioner must be treated as "public record[s]" as defined in KRS 61.870(2). There can be little doubt that Commissioner Stephens is intimately involved in the bidding process for Kentucky Central Life Insurance Company, and has therefore "used" or at one time "possessed" the bidding documents which disclose the names of
the bidders. While those documents may not be housed at the Department of Insurance, as Mr. Goad claims, they are public records of a public agency, to wit, the Commissioner of the Kentucky Department of Insurance.
This Office has obtained a copy of the "Bidding Process and General Outline of the Proposed Structure for the Rehabilitation Plan" for Kentucky Central, submitted to the Franklin Circuit Court as Appendix K of Commissioner Stephens' August 13, 1993, Rehabilitator's First Report to the Court. That document amply demonstrates that the Commissioner, as Rehabilitator, "has retained the ability in his sole discretion to reject or accept any of [the] bids or to modify the bid process." Rehabilitator's First Report, p. 16. As envisioned by the Commissioner:
Selection of a bid by the Rehabilitator does not confer any rights on said bidder until such bid is approved by the Franklin Circuit Court. Should the Rehabilitator select a bid, such bid shall be included in a Plan of Rehabilitation which will be submitted to the Franklin Circuit Court for approval. After such notice and hearing as the Court prescribes, the Court may either approve or disapprove the plan proposed, or may modify it and approve it as modified.
Memorandum from Commissioner Stephens to Parties Interested in Financial Participation in Rehabilitation Plan, dated April 10, 1993, at p. 11-12. Although the Franklin Circuit Court retains the power to approve, disapprove, or modify the bid and plan, it is the Commissioner, as Rehabilitator, who reviews the proposals and ultimately selects the winning bidder.
Were this a typical solicitation for bids under the Kentucky Model Procurement Code, KRS 45A.005, et seq., resolution of the issues presented in this appeal would be a
simple matter. The Model Procurement Code expressly provides that bids must be publicly opened at a time and place designated in the invitation for bids, and that each bid must be recorded and be open to public inspection. KRS 45A.365. This Office has consistently recognized that once bids are open, they are subject to public inspection. OAG 80-327; OAG 84-284; OAG 89-31; 93-ORD-5.
While we acknowledge that the solicitation for bids for Kentucky Central cannot properly be characterized as "public bidding," we believe that the public has a demonstrable interest in the rehabilitation of the insurer and in knowing the identity of the bidders. As we noted in 93-ORD-67, at p. 6:
After its February 12 takeover, Kentucky Central forfeited certain attributes of a private individual which it formerly enjoyed. . . . Like a contractor to a governmental entity, an insurance company which has been taken over by the state 'must accept certain necessary consequences of involvement in public affairs.' OAG 90-7, at p. 4. Among these is 'the risk of closer public scrutiny than might otherwise be the case.' Id.
In view of the fact that the Commissioner interceded at the request of the financially troubled insurer by petitioning the court for an order directing rehabilitation, we do not believe the insurer can now expect to conduct its affairs without some public oversight. Nor do we believe that disclosure of the identities of the bidders is "the kind of publicity that would needlessly damage or destroy the insurer[.]" KRS 304.33-010(4)(a).
In support of this view, we note that the July 2 memorandum, previously referenced, contains the following admonition, "Bidders should be aware that the names of prospective bidders may be publicly announced." July 2 Memorandum, at p. 2. The Bid Specifications outlined in that same memorandum direct the bidders to attach a transmittal letter, which among other things states, "We [the bidders] agree that you [the Deputy Rehabilitator] may publicly disclose the fact that we have submitted this bid." Exhibit C, Proposed Transmittal Letter from July 2 Memorandum. This same statement is found in exhibit C of the Commissioner's July 20, 1993,
memorandum regarding Clarification and Amendments to Bid Specifications. Contrary to Mr. Goad's assertion that the bidders "required Kentucky Central Life Insurance Company and its Rehabilitator to enter into agreements to preserve their anonymity," it appears that the bidders were repeatedly put on notice that their identities might be disclosed.
Indeed, the only confidentiality provisions we could locate in the materials relating to the bid process require the bidders to execute a confidentiality agreement before entering the Data Room at the insurer's offices "to complete their due diligence efforts prior to the submission of bids," and to execute a separate agreement before gaining access to "the consulting actuaries." April 10 Memorandum, p. 9, 10. Clearly, the Commissioner is under no obligation to withhold the identities of the bidders under these agreements.
We reject Mr. Goad's alternative argument that the bidders' identities are excluded from public inspection by operation of KRS 61.878(1)(h). Mr. Goad asserts that "the identity of the bidders can only be obtained from preliminary documents which have passed between the 'agency' and private individuals (the bidding companies)." He maintains that by definition "bidding documents would be preliminary to final action of a public agency."
As we have noted, if the Commissioner had solicited bids under the Model Procurement Code this matter could be easily resolved. The solicitation for bids would have indicated a date and time certain when the bids would be opened and publicly read. In the instant appeal, there are no such bright lines. It is possible that premature disclosure of the contents of the bids could jeopardize the bid process. We question even this proposition, given the fact that "[e]ach qualified bidder will be given access to the bids of all other qualified bidders . . . ." July 2 Memorandum, p. 2. We need not, however, reach the issue of whether the contents of the bids are exempt from public inspection pursuant to KRS 61.878(1)(h). In our view, the identities of the bidders cannot properly be characterized as "[p]reliminary drafts, notes, correspondence with private individuals, other than correspondence which is intended to give notice of final action of a public agency." The fact that these corporations or individuals have submitted bids, as evidenced in any of the bid documents including the proposed transmittal letter which contains a waiver of the right of nondisclosure, cannot be said
to fall within the parameters of that exception. We therefore believe the documents must be released.
KRS 61.878(4) provides that if any public record contains material which is not excepted under KRS 61.878(1)(a) through (k), the public agency shall separate the excepted and make the nonexcepted material available for examination. Under this provision, the Commissioner has the option of releasing public records which disclose the identities of the bidders, such as the transmittal letters, and redacting any excepted material contained in the records, or preparing a list of the names of the bidders. OAG 89-97. Both of these options satisfy the inspection requirements for requested records which contain both public and nonpublic information, and the Commissioner may exercise his discretion in selecting the method of releasing the records.
We do not mean to establish a rule of general application for all documents generated by the parties involved in the rehabilitation of Kentucky Central. Clearly, an underlying premise of Chapter 304 is the avoidance of "the kind of publicity that would needlessly damage or destroy the insurer." Our decision in this appeal is limited to the narrow question raised by Mr. Hensley: Whether documents revealing the identity of the corporations or individuals who submitted bids for Kentucky Central are public records for purposes of the Open Records Law, and, if so, whether they are subject to disclosure? We believe that both questions must be answered in the affirmative. Bidding documents which are in the possession of, or used by, the Commissioner in his role as Rehabilitator are public agency records within the meaning of KRS 61.870. And although the documents may contain excepted material, the fact that the bidders have submitted bids, as evidenced by bidding documents, is not "preliminary" within the meaning of KRS 61.878(1)(h).
The Commissioner of the Department of Insurance is directed to provide Mr. Hensley with copies of documents containing the identities of the bidders for Kentucky Central Life Insurance Company, but may redact any nonpublic material contained therein. In the alternative, he may prepare a list of the bidders, thereby satisfying the inspection requirements for records containing both public and nonpublic material.
The Department of Insurance may challenge this decision by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882.
AMYE B. MAJORS
ASSISTANT ATTORNEY GENERAL
Commissioner Don W. Stephens
Kentucky Department of Insurance
P. O. Box 517
Frankfort, KY 40602-0517
Hon. Gordon Goad, Counsel
Kentucky Department of Insurance
P. O. Box 517
Frankfort, KY 40602-0517
Mr. Bob Hensley
P. O. Box 5590
2940 Bryant Road
Lexington, KY 40555