TO BE PUBLISHED 

94-ORD-102

August 30, 1994

IN RE: The Courier-Journal and Louisville Times Co./Department

of Insurance

OPEN RECORDS DECISION

This appeal originated in requests to inspect public records submitted by Mr. David Heath and Mr. David McGinty, business writers for The Courier-Journal, to the Department of Insurance in October 1993. The requested records relate generally to the rehabilitation of Kentucky Central Life Insurance Company, and are identified as:

The Department denied these requests on various grounds.

With respect to the identities of corporations and individuals who submitted bids for Kentucky Central or its subsidiaries, the Department maintained that this information is not a public record as defined in KRS 61.870(2), and that

Kentucky Central is not a public agency as defined in KRS 61.870(1). The Department advanced the same argument relative to the contents of bids submitted by corporations and individuals, noting that even if Kentucky Central were considered a public agency, this information would be exempt pursuant to KRS 61.878(1)(h) "because it is a preliminary document which has passed between the agency and private individuals."

The Department released an excerpt from the examination report relating to the insurance company's current financial condition, asserting that the remainder of the report is made confidential by KRS 304.2-270. Similarly, the Department denied the reporters' request for appraisals, arguing that they "were performed pursuant to KRS 304.2-240 and are part of the examination which is confidential under KRS 304.2-270."

In a followup letter to this Office, Ms. Suetta Dickinson, General Counsel for the Department of Insurance, elaborated on the Department's position. She explained that the Department has appealed 93-ORD-113 to the Franklin Circuit Court. In that open records decision, this Office held that 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 are subject to disclosure. Although we did not resolve the issue, we questioned whether the disclosure of the contents of the bids would jeopardize the bid process, given the fact that each qualified bidder was given access to the bids of all other qualified bidders. Because the question was not raised, we did not address the propriety of the nondisclosure of portions of examinations reports and appraisals. Ms. Dickinson furnished us with a copy of the Department of Insurance's brief in which the Department refutes that decision.

Turning to the issue of examination reports and appraisals, Ms. Dickinson explained:

In support of the Department's decision to withhold certain portions of the examination reports and release other portions, Ms. Dickinson observed:

All other sections of the examination report, Ms. Dickinson explained, are withheld.

On behalf of his clients, The Courier-Journal, Mr. Heath, and Mr. McGinty, Mr. Jon L. Fleischaker appealed the Department's partial denial of these requests to the Attorney General. He noted that the Department asserted the same grounds for denying those portions of the requests relating to the identities of bidders that it had asserted in its earlier denial of a similar request, resulting in the decision in 93-ORD-113, without attempting to distinguish that decision or even acknowledging its existence. Mr. Fleischaker maintains that under the reasoning of 93-ORD-113, his clients are entitled to access to documents containing the identities of bidders for Kentucky Central. Citing the dicta in 93-ORD-113 relative to the contents of the bids, Mr. Fleischaker next argues that the Department improperly denied Mr. Heath and Mr. McGinty's request for the bids themselves. Based on this dicta, Mr. Fleischaker concludes that "any concerns that disclosure of the bids would jeopardize the bid process are obviated by the fact that the terms of the Kentucky Central bidding process gives all qualified bidders access to the bids of other qualified bidders."

In response to the Department's partial denial of the reporters' requests for "the 1986 to 1990 examination of Kentucky Central Life Insurance Co. as it existed before the

company was permitted to make any changes[,]" and "[t]he copy of that [1990 and 1991] exam, signed by [James] Butler and Ronald Bezold, an examiner for the Ohio Insurance Department, in which Kentucky Central's mortgage loan assets and/or real estate assets and/or joint venture assets had been written down by the examiners[,]" Mr. Fleischaker asserts that the Department has interpreted the prohibition on release of portions of an examination report, contained in KRS 304.2-270, too broadly. He observes:

He notes that since the requested records are past examinations, "the statute would clearly only exempt from inspection those portions unrelated to the insurer's current financial condition as it existed at the time the requested exam was filed." (Emphasis in original.) By extension, Mr. Fleischaker argues that records in the possession of or used by the Commissioner, in his capacity as Rehabilitator, which concern the Department's examination of Kentucky Central and show the insurer's current financial condition, must be released.

It is Mr. Fleischaker's position that the Department failed to meet its statutory burden of proof relative to its denial of Mr. Heath's and Mr. McGinty's request for examination reports, with the exception of "a couple of excerpts . . . ." Notwithstanding the requirements of KRS 61.880(1) and KRS 61.882(3), "the Department would just have us 'trust' its assessment that the vast majority of these exams are totally unrelated to Kentucky Central's financial condition at the time of the exam." (Emphasis in original.)

Mr. Fleischaker challenges the Department's assertions that appraisals are performed pursuant to KRS 304.2-240, as part of the examination, and are therefore made confidential by operation of KRS 304.2-270. He comments:

Even if the appraisal is a part of the examination, Mr. Fleischaker argues, appraisals of an insurer's assets are "clearly related to that insurer's 'current financial condition'" and must be disclosed.

In a subsequent letter, Mr. Fleischaker's associate, Ms. Deborah H. Patterson, noted some additional irregularities in the Department's response. Contrary to Ms. Dickinson's assertion that the "Statement of Financial Condition" is the only section of the examination report which shows the current financial condition of an insurance company, and must be disclosed, Ms. Patterson observes:

Ms. Patterson maintains that the public is entitled to inspect all portions of the examination report that show the insurer's current financial condition, and not just the two-page "Statement of Financial Condition."

We are asked to determine if the Department of Insurance violated the Open Records Law in partially denying Mr. Heath's and Mr. Ginty's request for various records relating to the rehabilitation of Kentucky Central Life Insurance Company. For the reasons set forth below, we conclude that the Department's actions constitute a violation of the Law.

In 93-ORD-113, a copy of which is attached, this Office engaged in a lengthy analysis of the first issue raised in this open records appeal. As we have noted, in that decision we held that 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 are subject to disclosure. It is instructive to quote that decision at length:

93-ORD-113, p. 6, 7.

With respect to the bidding process, we opined:

93-ORD-113, p. 9. We therefore concluded that the narrow issue raised in that appeal, to wit, whether documents revealing the identities of corporations or individuals who submitted bids for Kentucky Central are subject to disclosure under the Open Records Law must be answered in the affirmative.

93-ORD-113 was appealed to the Franklin Circuit Court pursuant to KRS 61.880(5)(a). On August 15, 1994, the Court issued an order dismissing the appeal. In so doing, the Court held "that Commissioner Stephens, while functioning as rehabilitator of Kentucky Central, is subject to the Open Records Act." Order Dismissing Appeal, No. 93-CI-01751 (Franklin Circuit Court Division II - entered August 15, 1994) p. 7. It is unclear whether that order will be appealed to the Kentucky Court of Appeals. Accordingly, the issue has not been finally resolved. Nevertheless, we believe we are bound to issue a decision under the statutory mandate found at KRS 61.880(2). We cannot indefinitely postpone resolution of an appeal pending final action by the courts. We will continue to abide by our decision in 93-ORD-113 unless and until that decision is reversed in a final, unappealable judgment. Based on the Franklin Circuit Court's order of August 15 and the reasoning articulated in our decision, we conclude that the Department of Insurance improperly denied that portion of Mr. Heath and Mr. McGinty's request pertaining to documents revealing the identities of bidders for Kentucky Central.

In 93-ORD-113, we were not asked to determine, nor did we decide, if the contents of the bids themselves were subject to disclosure. Although the issue is hotly contested, as a threshold matter we believe that these records are public

records, within the meaning of KRS 61.870(2), for the same reasons that documents revealing the identities of bidders are public records. Specifically, the bids are "used, in the possession of or retained by a public agency," i.e., the Commissioner of the Department of Insurance, in his role as Rehabilitator, and in the discharge of his duties relative to the bidding process. Whether these public records are also nonexempt "open" records is a closer question.

At page 9 of 93-ORD-113, we cautioned:

(Emphasis added.) In our view, it is somewhat disingenuous to assert that the bid process might be jeopardized by premature disclosure of the contents of the bids when the bidders themselves are afforded access to all other bids. Access prior to the acceptance of a bid or the rejection of all bids is inconsistent with the underlying purpose of competitive bidding, i.e., to prevent favoritism and fraud and to promote actual, honest, and effective competition. 64 Am Jur2d Public Works and Contracts, 37.

As we have noted, on the issue of public bidding, this Office has taken the position that once bids are opened they are subject to inspection. See, e.g., OAG 80-327; OAG 84-284;

OAG 87-4; OAG 89-31; 93-ORD-5. This position insures that the bid contents are not disclosed to competing bidders, or others, until the process has been concluded by the acceptance of a bid or the rejection of all bids. Because these concerns are in large part obviated by the fact that bidders for Kentucky Central are given full access to the details of competing bids and an opportunity to amend their bids, we see no reason why those bids should not be disclosed.

We are, as noted, cognizant that the solicitation for bids for Kentucky Central is not "public bidding." Nevertheless, the public is entitled to monitor the rehabilitation of Kentucky Central, the financially troubled insurer having requested state intercession through the mechanisms provided for in Chapter 304.33 of the Kentucky Revised Statutes, so long as the records disclosed do not needlessly destroy or damage the insurer. Just as we do not believe that disclosure of the identities of the bidder is "the kind of publicity that would needlessly damage or destroy the insurer[,]" KRS 304.33-010(4)(a), so we do not believe that disclosure of the bid contents would imperil the company. This does not mean that the bids must be disclosed in their entirety. Portions of the bids may be withheld, pursuant to KRS 61.878(4), if the Department can justify exclusion of those particular portions in terms of the requirements of the statute, i.e., by reference to a specific statutory exception.

Mr. Fleischaker next argues that in withholding all but the two page "statement of Financial Condition" contained in the KRS 304.2-210 examination of Kentucky Central Life Insurance Company, the Department of Insurance has interpreted too broadly the confidentiality provision found at KRS 304.2-270, which is incorporated in the Open Records Law by operation of KRS 61.878(1)(k). KRS 304.2-210 provides:

That examination report:

KRS 304.2-270 (emphasis added). Clearly, the disputed records are public records, within the meaning of KRS 61.870(2), insofar as they are "prepared, owned, used, in the possession of or retained by a public agency." The issue of whether these records are open records turns on the proper construction of KRS 304.2-270.

We begin by noting that these provisions must be read in tandem. KRS 304.2-210 provides for the examination of the affairs, transactions, accounts, records and assets of authorized insurers as often as reasonably necessary, but in any event not less frequently than every four years. The stated purpose of the examination is to "determin[e] financial condition, ability to fulfill and manner of fulfillment of its obligations, the nature of its operations and compliance with law . . . ." KRS 304.2-210. Although the report is filed in the Department of Insurance, only "those portions of the

report showing the insurer's current financial condition[]" are available for public inspection. KRS 304.2-270. The examiners' comments and recommendations are expressly excluded from inspection.

The Department of Insurance asserts that the portion of the examination report entitled "Statement of Financial Condition," a balance sheet which it routinely discloses, "is the only section which shows the current financial condition of an insurance company." The Courier-Journal argues that these bare assertions fall short of the agency's obligation under KRS 61.880(2) and KRS 61.882(3) to sustain its action by proof. The Courier-Journal suggests that the various comparative portions of the report also reflect the insurer's current financial condition, and therefore must be disclosed.

We have inspected the 1989-1990 examination report, signed by William W. Barton, Jr., Ronald Bezold, and James J. Butler, which apparently conforms to the form recommended by the National Association of Insurance Commissioners. Although we cannot disclose the contents of the report, pursuant to KRS 61.880(2), we can describe it in general terms. The report is

a 52-page document prefaced by a two-page table of contents. The first page of the table of contents consists of a breakdown of those subjects which can properly be characterized as relating to the insurer's "ability to fulfill and manner of fulfillment of its obligations, the nature of its operations and compliance with law." The second page of the Table of Contents consists of a series of documents which are grouped under the general heading, "Financial Statements," and are identified as: Statement of Financial Condition; Comparative Statement of Financial Condition; Comparative Summaries of Operations; Comparative Reconciliation of the Capital and Surplus Accounts; Comparative Statements of Gross and Net Investment Income; Comparative Statements of General Expenses; Comparative Statements of Taxes, Licenses and Fees; and Comparative Statements of Assets and Liabilities. The Department of Insurance argues that the public is entitled to inspect the "Statement of Financial Condition" only. We do not agree.

As noted, KRS 304.2-270 mandates disclosure of those "portions" of the examination report showing the insurer's current financial condition. It is significant that the General Assembly employed the plural, rather than the singular, of that term. The various statements are grouped under the general heading, "Financial Statements," and are clearly interrelated. The succeeding comparative financial statements for the years 1986 to 1990 supplement and enlarge upon the information contained in the "Statement of Financial Condition." In our view, these portions of the report must be taken as a whole insofar as each financial statement has a direct bearing on the insurer's current financial condition. It is the opinion of this Office that the Department of Insurance erred in failing to make these records available to Mr. Heath and Mr. McGinty. The final portions of the report,

to wit, the Summary of Examination Charges, General Comments, Conclusion, and Subsequent Events, also have a direct bearing on the insurer's financial condition and should be disclosed.

With respect to any appraisals conducted on behalf of the Department relative to its examination of Kentucky Central, we reach the same conclusion. Again, we find that these appraisals are public records within the meaning of KRS 61.870(2) because they are "prepared, owned, used, in the possession of or retained by a public agency." Again, the closer question is whether they are also nonexempt "open" records.

KRS 304.2-240 relates to the appraisal of assets and provides in part:

Contrary to Mr. Fleischaker's assertion, we believe that the appraisal is clearly a part of the examination report, and subject to the confidentiality provision found at KRS 304.2-270. However, like the comparative financial statements which supplement the Statement of Financial Condition, we believe that the appraisals relate to the insurer's current financial condition, and must be disclosed. It cannot reasonably be argued that the value of the insurer's assets has no bearing on its financial condition. Accordingly, we find that these records were also improperly withheld, and must be disclosed.

We are not unmindful of the complexity of the issues raised in this appeal, the debate which surrounds them, and the far-ranging implications of our resolution of them. As we have recently observed, this Office's role in an open records appeal is, of necessity, a limited one. "Unlike a court, we must

resolve the issue[s] on the basis of a brief written record and without the opportunity to consider the testimony [of the parties]." 94-ORD-97, p. 9. Simply stated, the written record here is insufficient to support the Department's denial of the requests submitted by Mr. Heath and Mr. McGinty. We therefore conclude that the Department violated the Open Records Act in denying these requests.

The Department of Insurance may challenge this decision by initiating action in the appropriate circuit court. Pursuant to KRS 61.880(3), the Attorney General must be notified of any action in circuit court, but may not be named as a party in that action or in any subsequent proceedings.

CHRIS GORMAN

ATTORNEY GENERAL

AMYE B. MAJORS

ASSISTANT ATTORNEY GENERAL

jgh/1599

Distributed to:

Hon. Suetta Dickinson

General Counsel

Department of Insurance

P. O. Box 517

Frankfort, KY 40602-0517

Hon. Jon L. Fleischaker

Attorneys At Law

Wyatt, Tarrant & Combs

Citizens Plaza

Louisville, KY 40202

Mr. David Heath

Mr. David McGinty

Business Writers

The Courier-Journal

525 W. Broadway

P. O. Box 740031

Louisville, KY 40201-7431